<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 1996
REGISTRATION STATEMENT NO. 333-12465
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
MEDPARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 8099 63-1151076
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Code Number) Identification Number)
</TABLE>
3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, ALABAMA 35244
(205) 733-8996
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
------------------
LARRY R. HOUSE
CHAIRMAN OF THE
BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, ALABAMA 35244
TEL: (205) 733-8996
FAX: (205) 733-1568
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
PHYLLIS G. KORFF, ESQ. J. BROOKE JOHNSTON, JR. ESQ. ROBERT E. LEE GARNER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM SENIOR VICE PRESIDENT & GENERAL COUNSEL F. HAMPTON MCFADDEN, JR., ESQ.
919 THIRD AVENUE MEDPARTNERS, INC. HASKELL SLAUGHTER & YOUNG, L.L.C.
NEW YORK, NEW YORK 10022 3000 GALLERIA TOWER, SUITE 1000 1200 AMSOUTH/HARBERT PLAZA
TEL: (212) 735-3000 BIRMINGHAM, ALABAMA 35244-2331 1901 SIXTH AVENUE NORTH
FAX: (212) 735-2001 TEL: (205) 733-8996 BIRMINGHAM, ALABAMA 35203
FAX: (205) 982-7709 TEL: (205) 251-1000
FAX: (205) 324-1133
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER NOTE PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes due 2006............... $450,000,000 100% $450,000,000 $148,953.55(1)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) $103,499 of the registration fee was paid with the original filing of the
Registration Statement, which was calculated based on 1/29 of 1% of
$300,000,000, the size of the Offering at the time of the original filing of
the Registration Statement. An additional fee of $45,454.55 is being paid,
calculated based on 1/33 of 1% of $150,000,000, the amount by which the
Offering has increased since the original filing..
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1996
PROSPECTUS
$450,000,000
[LOGO] MEDPARTNERS(TM)
% SENIOR NOTES DUE 2006
INTEREST PAYABLE APRIL 1 AND OCTOBER 1
------------------
The % Senior Notes due 2006 (the "Notes") are being offered (the
"Offering") by MedPartners, Inc. (the "Company"). Interest on the Notes will be
payable semi-annually on April 1 and October 1 of each year, commencing April 1,
1997, at the rate of % per annum. The Notes will mature on October 1, 2006.
The Notes will not be redeemable by the Company prior to maturity and will not
be entitled to the benefit of any mandatory sinking fund.
The Notes will be general unsecured obligations of the Company ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu in right of payment with all existing and future
unsubordinated and unsecured obligations of the Company. The Notes will be
effectively subordinated to all existing and future secured indebtedness of the
Company and to all existing and future indebtedness and other liabilities of the
Company's subsidiaries. As of June 30, 1996, after giving effect to the Offering
and the use of proceeds therefrom and the Borrowings (as defined herein in "Use
of Proceeds") and assuming that all of the outstanding Caremark Notes are
purchased in the Debt Tender Offer, (as defined herein), the Company would have
had approximately $757.1 million of indebtedness outstanding, $161.9 million of
which would have effectively ranked senior in right of payment to the Notes and
$145.2 million of which would have ranked pari passu with the Notes. See
"Description of the Notes" and "Capitalization".
The Notes will be issued in fully registered form only in denominations of
$1,000 or integral multiples thereof. The Notes initially will be represented by
one or more Global Notes registered in the name of The Depository Trust Company
(the "Depositary") or its nominee. Beneficial interests in the Notes will be
shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Owners of beneficial
interests in the Notes will be entitled to physical delivery of Notes in
certificated form equal in principal amount to their respective beneficial
interests only under the limited circumstances described herein. Settlement for
the Notes will be made in immediately available funds. The Notes will trade in
the Depositary's Same-Day Funds Settlement System until maturity, and secondary
market trading activity for the Notes therefore will settle in immediately
available funds. All payments of principal and interest will be made by the
Company in immediately available funds. See "Description of the Notes -- Global
Notes: Form, Exchange and Transfer".
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DESCRIPTION
OF CERTAIN FACTORS TO BE CONSIDERED BY INVESTORS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................... % % %
- -----------------------------------------------------------------------------------------------------------
Total....................................... $ $ $
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of initial issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before estimated expenses of $1.0 million payable by the Company.
------------------
The Notes are being offered by the Underwriters named herein, subject to
prior sale, when, as and if accepted by them and subject to certain conditions.
It is expected that the Notes will be available for delivery on or about October
, 1996 through the facilities of the Depositary.
------------------
SMITH BARNEY INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
October , 1996
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed a Registration Statement (the "Registration
Statement") on Form S-1 under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the
"Commission") with respect to the Notes offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement which the
Company has filed with the Commission, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission, and to which
portions reference is hereby made for further information with respect to the
Company and the Notes offered hereby. Statements contained herein concerning
certain documents are not necessarily complete, and in each instance, reference
is made to the copies of such documents filed as exhibits to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (Commission File No.
0-27276), and in accordance therewith files periodic reports, proxy statements
and other information with the Commission relating to its business, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. and
should be available for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048
and at Citicorp Center, 500 West Madison Street, Chicago, Illinois. Copies of
such material can be obtained at prescribed rates by writing to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov. The Common Stock,
par value $.001 per share (the "Common Stock"), of the Company is listed on the
New York Stock Exchange (the "NYSE"). The reports, proxy statements and certain
other information of the Company can be inspected at the office of the NYSE, 20
Broad Street, New York, New York.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations and business of the Company. The
words "estimate", "project", "intend", "expect" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward looking-
statements. For a discussion of certain of such risks and uncertainties, see
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations". Investors are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
---------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless the context
otherwise requires, as used herein, the term "MedPartners" or the "Company"
refers collectively to MedPartners, Inc. and its predecessor, also named
MedPartners, Inc. (the "Original Predecessor"), and their respective
subsidiaries and affiliates. Unless otherwise indicated, the information
contained in this Prospectus gives effect to the consummation of the
acquisitions (collectively, the "Acquisitions") of Caremark International Inc.
("Caremark") and New Management. See "Business -- Acquisition Program". In
September 1996, the Company changed its name from MedPartners/Mullikin, Inc.
("MedPartners/Mullikin") to "MedPartners, Inc."
THE COMPANY
GENERAL
MedPartners, with annualized revenues of approximately $4.5 billion, is the
largest physician practice management ("PPM") company in the United States. The
Company develops, consolidates and manages integrated healthcare delivery
systems. Through its network of affiliated group and independent practice
association ("IPA") physicians, the Company provides primary and specialty
healthcare services to prepaid managed care enrollees and fee-for-service
patients. The Company also operates one of the largest independent prescription
benefit management ("PBM") programs in the United States and provides disease
management services and therapies for patients with certain chronic conditions.
As of June 30, 1996, the Company operated in 54 markets in 25 states through
affiliations with approximately 7,400 physicians, including approximately 2,470
in group practices, 4,180 through IPA relationships and 740 who were hospital-
based, providing healthcare to approximately 1.5 million prepaid enrollees.
The Company affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to managed care payor systems. The Company enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
The Company provides affiliated physicians with access to capital and advanced
management information systems. In addition, MedPartners contracts with health
maintenance organizations and other third-party payors that compensate the
Company and its affiliated physicians on a prepaid basis (collectively, "HMOs"),
hospitals and outside providers on behalf of its affiliated physicians. These
relationships provide physicians with the opportunity to operate under a variety
of payor arrangements and increase their patient flow.
The Company offers medical group practices and independent physicians a
range of affiliation models. These affiliations are carried out by the
acquisition of PPM entities or practice assets, either for cash or through an
equity exchange, or by affiliation on a contractual basis. In all instances, the
Company enters into long-term practice management agreements with the affiliated
physicians that provide for the management of their practices by the Company
while at the same time providing for the clinical independence of the
physicians.
The Company also manages outpatient prescription drug benefit programs for
more than 1,200 clients throughout the United States, including corporations,
insurance companies, unions, government employee groups and managed care
organizations. The Company dispenses 42,000 prescriptions daily through four
mail service pharmacies and manages patients' immediate prescription needs
through a network of approximately 53,000 retail pharmacies. The Company is in
the process of integrating its PBM program with the PPM business by providing
pharmaceutical services to affiliated physicians, clinics and HMOs. The
Company's disease management services are intended to meet the healthcare needs
of individuals with chronic diseases or conditions. These services include the
design, development and management of comprehensive programs that comprise drug
therapies, physician support and patient education. The Company currently
provides therapies and services for individuals with such conditions as
hemophilia, growth disorders, immune deficiencies, genetic emphysema, cystic
fibrosis and multiple sclerosis.
3
<PAGE> 5
ACQUISITION STRATEGY
The Company believes it is the leading consolidator in the PPM industry.
The Company's acquisition strategy is to develop locally prominent, integrated
healthcare delivery networks that provide high quality, cost-effective
healthcare in selected geographic markets. The Company implements this strategy
through growth in its existing markets, expansion into new markets through
acquisitions and affiliations and through the implementation of comprehensive
healthcare solutions for patients, physicians and payors. In pursuing its
acquisition strategy, the Company creates strategic alliances with hospital
partners and HMOs. As an integral element of these alliances, MedPartners
utilizes sophisticated information systems to improve the operational efficiency
of, and to reduce the costs associated with, operating the Company's network and
the practices of affiliated physicians. The Company's principal methods of
expansion are the acquisition of PPM businesses and affiliations with physician
and medical groups.
In September 1996, the Company acquired Caremark, a publicly traded PPM and
PBM company based in Northbrook, Illinois, in exchange for approximately 90.6
million shares of Common Stock having a total value of approximately $1.8
billion (the "Caremark Acquisition"), creating the largest PPM business in the
United States. Caremark provides PPM services to approximately 1,000 affiliated
physicians.
In November 1995, the Company acquired Mullikin Medical Enterprises, L.P.
("MME"), a privately held PPM entity based in Long Beach, California, in
exchange for approximately 13.5 million shares of Common Stock having a total
value of approximately $413.2 million. MME provided PPM services to
approximately 400 group and 2,600 IPA physicians. In February 1996, the Company
acquired Pacific Physician Services, Inc. ("PPSI"), a publicly traded PPM
company based in Redlands, California, in exchange for approximately 11.1
million shares of Common Stock having a total value of approximately $342.7
million. PPSI provided PPM services to approximately 710 group and 100 IPA
physicians. PPSI had acquired Team Health, Inc. ("Team Health"), based in
Knoxville, Tennessee in June 1995. Team Health primarily manages physicians and
other healthcare professionals engaged in the delivery of emergency medicine and
hospital-based primary care. In August 1996, the Company acquired New
Management, a California general partnership, in exchange for approximately
348,000 shares of Common Stock having a total value of $7.0 million. New
Management provided management and administrative services to West Hills
Hospital, based in Los Angeles, California.
The Company had affiliated with 190 physicians through December 31, 1994.
As of June 30, 1996, after giving effect to the Caremark Acquisition, the
Company had affiliated with approximately 7,400 physicians.
THE DEBT TENDER OFFER
On September 26, 1996, the Company commenced a cash tender offer (the
"Offer" and, together with the Solicitation (as defined below), the "Debt Tender
Offer") for all of the $100 million aggregate principal amount of the 6 7/8%
Notes due August 15, 2003 of Caremark (the "Caremark Notes"). The purchase price
to be paid for each Caremark Note tendered will be based upon a fixed spread of
37.5 basis points over the yield on the 5 3/4% U.S. Treasury Note due August 15,
2003. Using this formula, the purchase price for the Notes will be set at 2:00
p.m., New York City time, on October 24, 1996, the third business day prior to
the scheduled expiration date of the Offer. For illustration purposes only, if
calculated based upon a yield on October 2, 1996 on the referenced U.S. Treasury
Note, the tender offer yield and purchase price per $1,000 principal amount of
Caremark Note for settlement on October 7, 1996 would be 6.849% and $1,001.29,
respectively. Such purchase price includes a $5.00 consent payment per $1,000
principal amount of Note.
In conjunction with the Offer, the Company, on behalf of Caremark, is
soliciting (the "Solicitation") the consent ("Consents") of the holders of the
Caremark Notes to certain proposed amendments (the "Proposed Amendments") to the
indenture (the "Caremark Indenture") governing the Caremark Notes. The Proposed
Amendments will eliminate or modify certain covenants contained in the Caremark
Indenture, including, among other things, the deletion of the limitations on (i)
incurrence of indebtedness, (ii) sale and leaseback transactions and (iii)
transfers of properties and assets to unrestricted subsidiaries of Caremark.
Subject to the terms and conditions of the Solicitation, the Company is offering
to pay each holder who consents to the Proposed Amendments an amount in cash
equal to 0.5% of the principal amount of the Caremark Notes ($5.00 per $1,000
principal amount of Caremark Note).
4
<PAGE> 6
Holders who tender their Caremark Notes will be required to consent to the
Proposed Amendments, however, holders of Caremark Notes may consent to the
Proposed Amendments without tendering their Caremark Notes. Caremark Notes that
are not purchased in the Debt Tender Offer will remain outstanding obligations
of Caremark, and, upon receiving Consents from holders of a majority in
aggregate principal amount of the Caremark Notes outstanding, such non-tendered
Caremark Notes will be subject to the Proposed Amendments.
The principal purpose of the Debt Tender Offer is to improve the operating
and financial flexibility of the Company. The Debt Tender Offer will be funded
by borrowings under the Credit Facility (as defined herein).
THE OFFERING
Securities Offered......... $450,000,000 aggregate principal amount of %
Senior Notes due 2006 (the "Notes").
Maturity Date.............. October 1, 2006.
Interest Rate and Payment
Dates.................... The Notes will bear interest at a rate of %
per annum. Interest on the Notes will accrue from
the date of issuance and will be payable
semi-annually on April 1 and October 1 of each
year, commencing April 1, 1997.
Ranking.................... The Notes will be general unsecured obligations of
the Company ranking senior in right of payment to
all existing and future subordinated indebtedness
of the Company and pari passu in right of payment
with all existing and future unsubordinated and
unsecured obligations of the Company. The Notes
will be effectively subordinated to all existing
and future secured indebtedness of the Company
and to all existing and future indebtedness and
other liabilities of the Company's subsidiaries.
As of June 30, 1996, after giving effect to the
Offering and the use of proceeds therefrom and to
the Borrowings, and assuming that all of the
outstanding Caremark Notes are purchased in the
Debt Tender Offer, the Company would have had
approximately $757.1 million of indebtedness
outstanding, $161.9 million of which would have
effectively ranked senior in right of payment to
the Notes and $145.2 million of which would have
ranked pari passu with the Notes. See
"Capitalization" and "Description of the Notes".
Redemption................. The Notes will not be redeemable by the Company
prior to maturity.
Certain Covenants.......... The Indenture will contain certain covenants with
respect to, among others, the following matters:
(i) restrictions on additional indebtedness
secured by liens, (ii) restrictions on sale and
leaseback transactions, (iii) restrictions on
additional subsidiary indebtedness and (iv)
restrictions on consolidations, mergers and sales
of all or substantially all of the assets of the
Company. These covenants are subject to important
exceptions and qualifications. See "Description
of the Notes -- Certain Covenants" and
"-- Consolidation, Merger and Disposition of
Assets".
Use of Proceeds............ To repay indebtedness outstanding under the Credit
Facility. See "Use of Proceeds".
RISK FACTORS
See "Risk Factors" beginning on page 8 of this Prospectus for a discussion
of certain factors related to the Company and the Notes offered hereby.
5
<PAGE> 7
SUMMARY PRO FORMA CONDENSED COMBINED FINANCIAL AND OPERATING DATA
The following summary pro forma condensed combined financial and operating
data is derived from the Pro Forma Condensed Combined Financial Statements found
elsewhere in this Prospectus. Such pro forma condensed combined financial data
is based upon the historical Consolidated Financial Statements of the Company,
Caremark and New Management included elsewhere in this Prospectus, adjusted to
reflect the Acquisitions as poolings of interests. The summary pro forma
condensed combined financial data does not purport to represent the results of
operations of the Company that actually would have occurred had the Acquisitions
been consummated on the dates indicated or that may be obtained in the future.
The summary pro forma condensed combined financial data should be read in
conjunction with the Pro Forma Condensed Combined Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA
AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................ $1,756,762 $2,593,329 $3,530,768 $1,669,100 $2,273,270
Operating expenses:
Affiliated physician services............................ 272,128 412,075 631,407 292,505 422,943
Outside medical expenses................................. 70,427 102,496 149,185 64,556 156,506
Clinic expenses.......................................... 284,509 413,969 683,927 305,731 491,462
Non-clinic goods and services............................ 884,014 1,365,203 1,688,075 829,681 985,531
General and administrative expenses...................... 123,468 145,937 142,952 73,492 69,946
Depreciation and amortization............................ 25,464 40,816 57,643 26,875 41,182
Net interest expense..................................... 7,021 14,885 17,447 8,451 12,100
Merger expenses.......................................... -- -- 66,564 1,051 34,448
Loss on investments...................................... -- -- 86,600 -- --
Other, net............................................... (1,574) (143) (192) (401) (373)
-------- -------- ---------- ---------- ----------
Net operating expenses..................................... 1,665,457 2,495,238 3,523,608 1,601,941 2,213,745
Income before income taxes and discontinued operations..... 91,305 98,091 7,160 67,159 59,525
Income tax expense (benefit)............................... 43,126 44,022 (15,966) 24,713 23,348
Cumulative effect of change in method of accounting for
income taxes............................................. 298 -- -- -- --
-------- -------- ---------- ---------- ----------
Income from continuing operations.......................... 47,881 54,069 23,126 42,446 36,177
Loss (income) from discontinued operations................. (30,808) (25,902) 136,528 139,531 66,799
-------- -------- ---------- ---------- ----------
Net income (loss).......................................... $ 78,689 $ 79,971 $ (113,402) $ (97,085) $ (30,622)
======== ======== ========== ========== ==========
Net income (loss) per share(1)............................. $ 0.66 $ 0.63 $ (0.85) $ (0.73) $ (0.22)
======== ======== ========== ========== ==========
Number of shares used in net income (loss) per
share(1)(2).............................................. 119,380 127,409 133,939 132,723 140,967
======== ======== ========== ========== ==========
Income per share, excluding merger expenses, discontinued
operations and extraordinary item........................ $ 0.40 $ 0.42 $ 0.47 $ 0.32 $ .41
Ratio of earnings to fixed charges(3)...................... 5.59x 3.70x 2.38x 3.56x 3.85x
OTHER FINANCIAL DATA:
EBITDA(4).................................................. $ 123,736 $ 153,792 $ 82,250 $ 102,481 $ 112,807
Capital expenditures....................................... 65,927 102,282 122,794 48,571 70,233
CERTAIN OPERATING DATA (AT PERIOD END):
Group physicians......................................... 870 1,227 2,357 1,660 2,470
States................................................... 7 19 20 19 25
Prepaid enrollees........................................ 726,256 1,057,308 1,290,455 1,042,215 1,461,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(5)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 119,396 $ 119,396
Working capital............................................................ (85,480 ) 169,520
Total assets............................................................... 1,987,262 1,987,262
Short-term debt and current portion of long-term debt...................... 297,377 42,377
Long-term debt, less current portion(6).................................... 197,022 551,519
Total stockholders' equity................................................. 643,395 643,395
</TABLE>
(footnotes on following page)
6
<PAGE> 8
- ---------------
(1) Net income (loss) per share is computed by dividing net income (loss) by the
number of common equivalent shares outstanding during the periods in
accordance with the applicable rules of the Commission. All stock options
issued have been considered as outstanding common equivalent shares for all
periods presented, even if anti-dilutive, under the treasury stock method.
Shares of common stock of the Original Predecessor issued in February 1995
upon conversion of the then outstanding convertible preferred stock are
assumed to be common equivalent shares for all periods presented.
(2) Number of shares used in net income (loss) per share gives effect to the
Caremark Acquisition by using the exchange ratio of 1.21.
(3) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes and
extraordinary items plus fixed charges. Fixed charges include interest,
expensed or capitalized, amortization of debt issuance costs and the
interest component of rent expense (approximately 1/3 of rental expense).
(4) EBITDA is defined as earnings before net interest expense, taxes,
extraordinary items, depreciation and amortization and minority interest.
The Company has presented EBITDA because it is commonly used by investors to
analyze and compare companies on the basis of operating performance. The
Company believes EBITDA is helpful in understanding cash flow generated from
operations that is available for debt service, taxes and capital
expenditures. EBITDA should not be considered in isolation or as substitute
for net income or other consolidated statement of operations or cash flow
data prepared in accordance with generally accepted accounting principles
("GAAP") as a measure of the profitability or liquidity of the Company.
(5) Adjusted to reflect the Offering and the application of the net proceeds
therefrom as set forth in "Use of Proceeds" and to give effect to the
consummation of the Debt Tender Offer assuming that all of the outstanding
Caremark Notes are purchased in the Debt Tender Offer.
(6) As of June 30, 1996, after giving effect to the Offering and the use of
proceeds therefrom as set forth in "Use of Proceeds" and to the Borrowings,
and assuming that all of the outstanding Caremark Notes are purchased in the
Debt Tender Offer, the Company would have had long-term debt, less current
portion, of $656.1 million.
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THE COMPANY
The Company was incorporated under the laws of Delaware in August 1995 as
"MedPartners/Mullikin, Inc." to be the surviving corporation in the combination
of the businesses of the Original Predecessor, incorporated under the laws of
Delaware in 1993, and MME, a California limited partnership which, directly or
through its predecessor entities, had operated since 1957. In September 1996,
the Company changed its name to "MedPartners, Inc." The executive offices of
MedPartners are located at 3000 Galleria Tower, Suite 1000, Birmingham, Alabama
35244, and its telephone number is (205) 733-8996. See "Business".
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective purchasers of the Notes should consider carefully the factors listed
below.
RISKS RELATING TO THE COMPANY'S GROWTH STRATEGY
The Company intends to continue to pursue an aggressive growth strategy for
the foreseeable future. The Company's strategy involves growth through
acquisitions and internal development. The Company's ability to pursue new
growth opportunities successfully will depend on many factors, including, among
others, the Company's ability to identify suitable growth opportunities and
successfully integrate acquired businesses and practices. There can be no
assurance that the Company will anticipate all of the changing demands that
expanding operations will impose on its management, management information
systems and physician networks. Any failure by the Company to adapt its systems
and procedures to those changing demands could have a material adverse effect on
the operating results and financial condition of the Company.
Competition for Expansion Opportunities. The Company is subject to the
risk that it will be unable to identify and recruit suitable acquisition
candidates in the future. The Company competes for acquisition, affiliation and
other expansion opportunities with national, regional and local PPM companies
and other physician management entities. In addition, certain companies,
including hospitals and insurers, are expanding their presence in the PPM
market. The Company's failure to compete successfully for expansion
opportunities or to attract and recruit suitable acquisition candidates could
have a material adverse effect on the operating results and financial condition
of the Company. The Company is also subject to the risk that it will be unable
to recruit and retain qualified physicians and other healthcare professionals to
serve as employees or independent contractors of the Company and its affiliates.
See "Business -- Competition".
Integration Risks. Acquisitions of PPM companies and physician practices
entail the risk that such acquisitions will fail to perform in accordance with
expectations and that the Company will be unable to successfully integrate such
acquired businesses and physician practices into its operations. The
profitability of the Company is largely dependent on its ability to develop and
integrate networks of physicians, to manage and control costs and to realize
economies of scale from acquisitions of PPM companies and physician practices.
The histories, geographic location, business models, including emphasis on
managed care and fee-for-service, and cultures of acquired PPM businesses and
physician practices may differ from the Company's past experiences. Dedicating
management resources to the integration process may detract attention from the
day-to-day business of the Company. Moreover, the integration of the acquired
businesses and physician practices may require substantial capital and financial
investments. These, together with other risks described herein, could result in
the incurrence of substantial costs in connection with acquisitions that may
never achieve revenue and profitability levels comparable to the Company's
existing physician networks, which could have a material adverse effect on the
operating results and financial condition of the Company.
The major acquisitions carried out by the Company since January 1995, have
been structured as poolings of interests. As a result, the operating income of
the Company has been reduced by the merger expenses incurred in connection with
those acquisitions, resulting in a net loss for the six months ended June 30,
1996. The expenses of the Caremark Acquisition are expected to result in a net
loss for the year ended December 31, 1996. There can be no assurance that future
merger expenses will not result in further net losses. Nor can there be any
assurance that there will not be substantial future costs associated with
integrating acquired
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companies; that the Company will be successful in integrating such companies; or
that the anticipated benefits of such acquisitions will be realized fully. The
unsuccessful integration of such companies or the failure of the Company to
realize such anticipated benefits fully could have a material adverse effect on
the operating results and financial condition of the Company. See "-- Risks
Relating to Capital Requirements".
Dependence on HMO Enrollee Growth. The Company is also largely dependent
on the continued increase in the number of HMO enrollees who use its physician
networks. This growth may come from development or acquisition of other PPM
entities, affiliation with additional physicians, increased enrollment in HMOs
currently contracting with the Company through its affiliated physicians and
additional agreements with HMOs. There can be no assurance that the Company will
be successful in identifying, acquiring and integrating additional medical
groups or other PPM companies or in increasing the number of enrollees. A
decline in enrollees in HMOs could have a material adverse effect on the
operating results and financial condition of the Company. Moreover, because the
Company is statutorily and contractually prohibited from controlling any medical
decisions made by a healthcare provider, affiliated physicians may decline to
enter into HMO agreements that are negotiated for them by the Company or may
enter into contracts for the provision of medical services or make other
financial commitments that are not intended to benefit the Company and which,
accordingly, could have a material adverse effect on the operating results and
financial condition of the Company. See "Business -- Operations".
Risks Relating to Capital Requirements. The Company's growth strategy
requires substantial capital for the acquisition of PPM businesses and assets of
physician practices, and for their effective integration, operation and
expansion. Affiliated physician practices may also require capital for
renovation, expansion and additional medical equipment and technology. The
Company believes that its existing cash resources, including the net proceeds
from the sale of the Notes, the use of Common Stock for selected practice and
other acquisitions, and available borrowings under the $1.0 billion credit
facility (the "Credit Facility") with NationsBank, National Association (South),
as administrative bank to a group of lenders, or any successor credit facility,
will be sufficient to meet the Company's anticipated acquisition, expansion and
working capital needs for the next twelve months. The Company expects from time
to time to raise additional capital through the issuance of long-term or
short-term indebtedness or the issuance of additional equity securities in
private or public transactions, at such times as management deems appropriate
and the market allows in order to meet the capital needs of the Company. There
can be no assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing networks can be obtained, such financings
could result in increased interest and amortization expense, decreased income to
fund future expansion and dilution of existing equity positions, which could
have a material adverse effect on the operating results and financial condition
of the Company.
RISKS RELATING TO CAPITATED NATURE OF REVENUES; CONTROL OF HEALTHCARE COSTS
A substantial portion of the Company's revenue is derived from agreements
with HMOs that provide for the receipt of capitated fees. Under these
agreements, the Company, through its affiliated physicians, is generally
responsible for the provision of all covered outpatient benefits, regardless of
whether the affiliated physicians directly provide the medical services
associated with the covered benefits. The Company is statutorily and
contractually prohibited from controlling any medical decisions made by any
healthcare provider. To the extent that enrollees require more care than is
anticipated or require supplemental medical care that is not otherwise
reimbursed by the HMO, aggregate capitation rates may be insufficient to cover
the costs associated with the treatment of enrollees. If revenue is insufficient
to cover costs, the operating results and financial condition of the Company
could be materially adversely affected. As a result, the Company's success will
depend in large part on the effective management of healthcare costs through
various methods, including utilization management, competitive pricing for
purchased services and favorable agreements with payors. Recently, many
providers, including the Company, have experienced pricing pressures with
respect to negotiations with HMOs. In addition, employer groups are becoming
increasingly successful in negotiating reductions in the growth of premiums paid
for their employees' health insurance, which tends to depress the reimbursement
for healthcare services. At the same time, employer groups are demanding higher
accountability from payors and providers of healthcare services with respect to
measurable accessibility, quality and
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service. If these trends continue, the cost of providing physician services
could increase while the level of reimbursement could grow at a lower rate or
could decrease. There can be no assurance that these pricing pressures will not
have a material adverse effect on the operating results and financial condition
of the Company. In addition, changes in healthcare practices, inflation, new
technologies, major epidemics, natural disasters and numerous other factors
affecting the delivery and cost of healthcare could have a material adverse
effect on the operating results and financial condition of the Company.
The Company's financial statements include estimates of costs for covered
medical benefits incurred by HMO enrollees, but not yet reported. While these
estimates are based on information available at the time of calculation, there
can be no assurance that actual costs will approximate the estimates of such
amounts. If the actual costs significantly exceed the amounts estimated and
accrued, such additional costs could have a material adverse effect on the
operating results and financial condition of the Company.
The HMO agreements often contain shared-risk provisions under which
additional revenue can be earned or economic penalties can be incurred based
upon the utilization of hospital and non-professional services by HMO enrollees.
The Company's financial statements contain accruals for estimates of shared-risk
amounts receivable from or payable to the HMOs that contract with their
affiliated physicians. These estimates are based upon inpatient utilization and
associated costs incurred by HMO enrollees compared to budgeted costs.
Differences between actual contract settlements and amounts estimated as
receivable or payable relating to HMO risk-sharing arrangements are generally
reconciled annually. This may cause fluctuations from amounts previously
accrued. To the extent that HMO enrollees require more care than is anticipated
or require supplemental care that is not otherwise reimbursed by the HMOs,
aggregate capitation rates may be insufficient to cover the costs associated
with the treatment of enrollees. Any such insufficiency could have a material
adverse effect on the operating results and financial condition of the Company.
Physician groups that render services on a fee-for-service basis (as
opposed to a capitated plan) typically bill various third-party payors, such as
governmental programs (e.g., Medicare and Medicaid), private insurance plans and
managed care plans, for the healthcare services provided to their patients. A
significant portion of the revenue of the Company is derived from payments made
by these third-party payors. There can be no assurance that payments under
governmental programs or from other third-party payors will remain at present
levels. In addition, third-party payors can deny reimbursement if they determine
that treatment was not performed in accordance with the cost-effective treatment
methods established by such payors or was experimental or for other reasons. Any
material decrease in payments received from such third-party payors could have a
material adverse effect on the operating results and financial condition of the
Company.
RISKS RELATING TO CERTAIN CAREMARK LEGAL MATTERS
OIG Settlement and Related Claims. Caremark agreed in June 1995, to settle
with the Office of the Inspector General (the "OIG") of the United States
Department of Health and Human Services (the "DHHS"), Department of Justice
("DOJ"), the Veteran's Administration, the Federal Employee Health Benefits
Program ("FEHBP"), the Civilian Health and Medical Program of the Uniformed
Services ("CHAMPUS") and related state investigative agencies in all 50 states
and the District of Columbia a four-year-long investigation of Caremark (the
"OIG Settlement"). Under the terms of the OIG Settlement, which covered
allegations dating back to 1986, a subsidiary of Caremark pled guilty to two
counts of mail fraud -- one each in Minnesota and Ohio -- resulting in the
payment of civil penalties and criminal fines. The basis of these guilty pleas
was Caremark's failure to provide certain information to CHAMPUS, FEHBP and
federally funded healthcare benefit programs, concerning financial relationships
between Caremark and a physician in each of Minnesota and Ohio. See
"Business -- Legal Proceedings".
In its agreement with the OIG and DOJ, Caremark agreed to continue to
maintain certain compliance-related oversight procedures. Should these oversight
procedures reveal credible evidence of legal or regulatory violations, Caremark
is required to report such violations to the OIG and DOJ. Caremark is,
therefore, subject to increased regulatory scrutiny and, in the event it commits
legal or regulatory violations, Caremark may be subject to an increased risk of
sanctions or penalties, including disqualification as a provider of Medicare or
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<PAGE> 12
Medicaid services, which would have a material adverse effect on the operating
results and financial condition of the Company.
In connection with the matters described above relating to the OIG
Settlement, Caremark is a party to various non-governmental claims and may in
the future become subject to additional OIG-related claims. Caremark is a party
to, or the subject of, various private suits and claims (including stockholder
derivative actions and an alleged class action suit) being asserted in
connection with matters relating to the OIG Settlement by Caremark's
stockholders, patients who received healthcare services from Caremark and such
patients' insurers. See "Business -- Legal Proceedings", Note 14 to the
Consolidated Financial Statements of Caremark and Note 5 to the Unaudited
Consolidated Financial Statements of Caremark included elsewhere in this
Prospectus. In May 1996, three pharmacies, purporting to represent a class
consisting of all of Caremark's competitors in the alternate site infusion
therapy industry, filed a complaint against Caremark, a subsidiary of Caremark,
and two other corporations in the United States District Court for the District
of Hawaii alleging violations of the federal conspiracy laws, the antitrust laws
and of California's unfair business practices statute. The complaint seeks
unspecified treble damages, and attorneys' fees and expenses. The Company
intends to defend this case vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of the Company, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of the Company.
Private Payor Settlements. In March 1996, Caremark agreed to settle all
disputes with a number of private payors. These disputes relate to businesses
that were covered by the OIG Settlement. The settlements resulted in an
after-tax charge of approximately $42.3 million. In addition, the Company will
pay $23.3 million after-tax to cover the private payors' pre-settlement and
settlement-related expenses. An after-tax charge for the above amounts was
recorded in first quarter 1996 discontinued operations. The Company paid the
settlement amounts in September 1996.
As of June 30, 1996, the pre-tax reserve for the costs of settlement of the
OIG Settlement and the settlement with the private payors referred to above and
related matters was approximately $110.0 million. This reserve represented
management's estimate of the ultimate costs relating to the disposition of these
matters. The Company cannot determine at this time what costs may be incurred in
connection with future disposition of non-governmental claims or litigation.
Therefore there can be no assurance that the ultimate costs of these matters
will not exceed such reserve or that additional costs, claims and damages will
not occur. Such additional costs, if incurred, could have a material adverse
effect on the operating results and financial condition of the Company. See
"Business -- Legal Proceedings", Note 14 to the Consolidated Financial
Statements of Caremark and Note 5 to the Unaudited Consolidated Financial
Statements of Caremark included elsewhere in this Prospectus.
Coram Litigation. On September 11, 1995, Coram Healthcare Corporation
("Coram") filed a complaint in the San Francisco Superior Court against Caremark
and its subsidiary, Caremark Inc., and 50 unnamed individual defendants. The
complaint, which arises from Caremark's sale to Coram of Caremark's home
infusion therapy business in April 1995, for approximately $209.0 million in
cash and $100.0 million in securities, alleges breach of the Asset Sale and Note
Purchase Agreement, dated January 29, 1995, as amended April 1, 1995, between
Coram and Caremark, breach of related contracts, fraud, negligent
misrepresentation and a right to contractual indemnity. Requested relief in
Coram's amended complaint includes specific performance, declaratory relief,
injunctive relief and damages of $5.2 billion. Caremark filed counterclaims
against Coram in this lawsuit and also filed a lawsuit in the United States
District Court in Chicago claiming that Coram committed securities fraud in its
sale to Caremark of its securities in connection with the sale of Caremark's
home infusion business to Coram. The lawsuit filed in federal court in Chicago
has been dismissed, and Caremark's appeal of the dismissal was argued on May 10,
1996 and is now under submission. Coram's lawsuit is currently in the discovery
phase. Although management believes, based on information currently available,
that the ultimate resolution of this matter is not likely to have a material
adverse effect on the operating results and financial condition of the Company,
there can be no assurance, that
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<PAGE> 13
the ultimate resolution of this matter, if adversely determined, would not
materially adversely affect the operating results and financial condition of the
Company.
Caremark Acquisition Litigation. In May 1996, two stockholders, each
purporting to represent a class, filed complaints against Caremark and each of
its directors in the Court of Chancery of the State of Delaware alleging
breaches of the directors' fiduciary duty in connection with Caremark's then
proposed merger with the Company. The complaints seek unspecified damages,
injunctive relief, and attorneys' fees and expenses. The Company believes these
complaints will not have a material adverse effect on the operating results and
financial condition of the Company.
RISKS RELATING TO EXPOSURE TO PROFESSIONAL LIABILITY; LIABILITY INSURANCE
In recent years, physicians, hospitals and other participants in the
healthcare industry have become subject to an increasing number of lawsuits
alleging medical malpractice and related legal theories. Many of these lawsuits
involve large claims and substantial defense costs. Although the Company does
not engage in the practice of medicine or provide medical services, or control
the practice of medicine by its affiliated physicians or the compliance with
regulatory requirements directly applicable to the affiliated physicians and
physician groups, there can be no assurance that the Company will not become
involved in such litigation in the future. Through the Company's ownership and
operation of Pioneer Hospital ("Pioneer Hospital"), U.S. Family Care Medical
Center ("USFMC") and Friendly Hills Hospital ("Friendly Hills"), the Company
could be subject to allegations of negligence and wrongful acts arising out of
providing nursing care, emergency room services, credentialing of medical staff
members and other activities incident to the operation of acute care hospitals.
In addition, through its management of clinic locations and provision of
non-physician healthcare personnel, the Company could be named in actions
involving care rendered to patients by physicians employed by or contracting
with affiliated medical organizations and physician groups.
The Company maintains professional and general liability insurance.
Nevertheless, certain types of risks and liabilities are not covered by
insurance and there can be no assurance that the limits of coverage will be
adequate to cover losses in all instances. In addition, the Company's practice
management agreements require the affiliated physicians to maintain professional
liability insurance coverage on their practice and on each employee and agent of
the practice, and the Company generally is indemnified under each of the
practice management agreements by the affiliated physicians for liabilities
resulting from the performance of medical services. There can be no assurance
that a future claim or claims will not exceed the limits of available insurance
coverages or that indemnification will be available for all such claims. See
"Business -- Corporate Liability and Insurance".
GOVERNMENT REGULATION
Federal and state laws regulate the relationships among providers of
healthcare services, physicians and other clinicians. These laws include the
fraud and abuse provisions of the Medicare and Medicaid statutes, which prohibit
the solicitation, payment, receipt or offering of any direct or indirect
remuneration for the referral of Medicare or Medicaid patients or for
recommendation, leasing, arranging, ordering or purchasing of Medicare or
Medicaid covered services, as well as laws that impose significant penalties for
false or improper billings for physician services. These laws also impose
restrictions on physicians' referrals for designated health services to entities
with which they have financial relationships. Violations of these laws may
result in substantial civil or criminal penalties for individuals or entities,
including large civil monetary penalties and exclusion from participation in the
Medicare and Medicaid programs. Such exclusion and penalties, if applied to the
Company's affiliated physicians, could result in significant loss of
reimbursement.
Moreover, the laws of many states, including California (from which a
significant portion of the Company's revenues are derived), prohibit physicians
from splitting fees with non-physicians and prohibit non-physician entities from
practicing medicine. These laws and their interpretations vary from state to
state and are enforced by the courts and by regulatory authorities with broad
discretion. As stated in Note 1 to the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus, the Company believes that it has
perpetual and unilateral control over the assets and operations of the various
affiliated
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professional corporations. There can be no assurance that regulatory authorities
will not take the position that such control conflicts with state laws regarding
the practice of medicine or other federal restrictions. Although the Company
believes its operations as currently conducted are in material compliance with
existing applicable laws, there can be no assurance that the existing
organization of the Company and its contractual arrangements with affiliated
physicians will not be successfully challenged as constituting the unlicensed
practice of medicine or that the enforceability of the provisions of such
arrangements, including non-competition agreements, will not be limited. There
can be no assurance that review of the business of the Company and its
affiliates by courts or regulatory authorities will not result in a
determination that could adversely affect their operations or that the
healthcare regulatory environment will not change so as to restrict existing
operations or expansion thereof. In the event of action by any regulatory
authority limiting or prohibiting the Company or any affiliate from carrying on
its business or from expanding the operations of the Company and its affiliates
to certain jurisdictions, structural and organizational modifications of the
Company may be required, which could have a material adverse effect on the
operating results and financial condition of the Company.
In addition to the regulations referred to above, significant aspects of
the Company's operations are subject to state and federal statutes and
regulations governing workplace health and safety, the operation of pharmacies,
repackaging of drug products, dispensing of controlled substances and the
disposal of medical waste. The Company's operations may also be affected by
changes in ethical guidelines and operating standards of professional and trade
associations and private accreditation commissions such as the American Medical
Association and the Joint Commission on Accreditation of Healthcare
Organizations. Accordingly, changes in existing laws and regulations, adverse
judicial or administrative interpretations of such laws and regulations or
enactment of new legislation could have a material adverse effect on the results
of operations and financial condition of the Company. See "-- Risks Relating to
Pharmacy Licensing and Operation".
As of June 30, 1996, after giving effect to the Acquisitions, approximately
5% of the revenues of the Company's affiliated physician groups is derived from
payments made by government-sponsored healthcare programs (principally, Medicare
and state reimbursed programs). As a result, any change in reimbursement
regulations, policies, practices, interpretations or statutes could adversely
affect the operations of the Company. There are also state and federal civil and
criminal statutes imposing substantial penalties (including civil penalties and
criminal fines and imprisonment) on healthcare providers that fraudulently or
wrongfully bill governmental or other third-party payors for healthcare
services. The Company believes it is in material compliance with such laws, but
there can be no assurance that the Company's activities will not be challenged
or scrutinized by governmental authorities or that any such challenge or
scrutiny would not have a material adverse effect on the operating results and
financial condition of the Company.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute", prohibit the offer, payment, solicitation, or receipt
of any form of remuneration in return for the referral of Medicare or state
health program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs. Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid
and other third-party payor patients. The Anti-Kickback Statute contains
provisions prescribing civil and criminal penalties to which individuals or
providers who violate such statute may be subjected. The criminal penalties
include fines up to $25,000 per violation and imprisonment for five years or
more. Additionally, the DHHS has the authority to exclude anyone, including
individuals or entities, who has committed any of the prohibited acts from
participation in the Medicare and Medicaid programs. If applied to the Company
or any of its subsidiaries or affiliated physicians, such exclusion could result
in a significant loss of reimbursement for the Company, up to a maximum of the
approximately 5% of revenues derived from such programs, which could have a
material adverse effect on the operating results and financial condition of the
Company. Although the Company believes that it is not in violation of the
Anti-kickback Statute or similar state statutes, its operations do not fit
within any of the existing or proposed federal safe harbors.
Significant prohibitions against physician referrals were enacted by the
federal Omnibus Budget Reconciliation Act of 1993. Subject to certain
exemptions, a physician or a member of his immediate family is prohibited from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in
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which the physician has an ownership or investment interest or with which the
physician has entered into a compensation arrangement. While the Company
believes it is in compliance with such legislation, future regulations could
require the Company to modify the form of its relationships with physician
groups. Some states have also enacted similar self-referral laws, and the
Company believes it is likely that more states will follow. The Company believes
that its practices fit within exemptions contained in such statutes.
Nevertheless, expansion of the operations of the Company to certain
jurisdictions may require structural and organizational modifications of the
Company's relationships with physician groups to comply with new or revised
state statutes. Such structural and organizational modifications could
materially adversely affect the operating results and financial condition of the
Company.
The Knox-Keene Health Care Service Plan Act of 1975 (the "Knox-Keene Act")
and the regulations promulgated thereunder subject entities which are licensed
as healthcare service plans in California to substantial regulation by the
California Department of Corporations (the "DOC"). In addition, licensees under
the Knox-Keene Act are required to file periodic financial data and other
information (which generally become available to the public), maintain
substantial tangible net equity on their balance sheets and maintain adequate
levels of medical, financial and operational personnel dedicated to fulfilling
the licensee's statutory and regulatory requirements. The DOC is empowered by
law to take enforcement actions against licensees that fail to comply with such
requirements. On March 5, 1996, the DOC issued to Pioneer Provider Network, Inc.
("PPN"), a wholly-owned subsidiary of the Company, a healthcare service plan
license (the "Restricted License"). PPN is a recently created organization
without an operating history, and there is no assurance that the DOC will view
PPN's operations to be fully in compliance with applicable laws, including the
Knox-Keene Act, and regulations. Any material non-compliance could have a
material adverse effect on the operating results and financial condition of the
Company.
RISKS RELATING TO PHARMACY LICENSING AND OPERATION
The Company is subject to federal and state laws and regulations governing
pharmacies. Federal controlled substance laws require the Company to register
its pharmacies with the United States Drug Enforcement Administration and comply
with security, record-keeping, inventory control and labeling standards in order
to dispense controlled substances. State controlled substance laws require
registration and compliance with the licensing, registration or permit standards
of the state pharmacy licensing authority. State pharmacy licensing,
registration and permit laws impose standards on the qualifications of the
applicant's personnel, the adequacy of its prescription fulfillment and
inventory control practices and the adequacy of its facilities. In general,
pharmacy licenses are renewed annually. Pharmacists must also satisfy state
licensing requirements. Any failure to satisfy such pharmacy licensing statutes
and regulations could have a material adverse effect on the operating results
and financial condition of the Company.
RISKS RELATING TO HEALTHCARE REFORM
As a result of the continued escalation of healthcare costs and the
inability of many individuals to obtain health insurance, numerous proposals
have been, and other proposals may be, introduced in the United States Congress
and state legislatures relating to healthcare reform. There can be no assurance
as to the ultimate content, timing or effect of any healthcare reform
legislation, nor is it possible at this time to estimate the impact of potential
legislation, which may be material, on the Company.
RANKING
The Notes will be general unsecured obligations of the Company ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu in right of payment with all existing and future
unsubordinated and unsecured obligations of the Company. The Notes will be
effectively subordinated to all existing and future secured indebtedness of the
Company and to all existing and future indebtedness and other liabilities of the
Company's subsidiaries. As of June 30, 1996, after giving effect to the Offering
and the use of proceeds therefrom and the Borrowings, and assuming that all of
the outstanding Caremark Notes are purchased in the Debt Tender Offer, the
Company would have had approximately $757.1 million of indebtedness outstanding,
$161.9 million of which would have effectively ranked senior in right of
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payment to the Notes and $145.2 million of which would have ranked pari passu
with the Notes. See "Capitalization" and "Description of the Notes".
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
public market, and there can be no assurance as to the liquidity of any market
for the Notes that may develop, the ability of the holders to sell their Notes
or the prices at which holders of the Notes would be able to sell their Notes.
The Company does not intend to list the Notes on any securities exchange or to
seek the admission thereof to trading on the NASDAQ. The Notes will be tradable
in the over-the-counter market, but any such trading may be limited and
sporadic. Each of the Underwriters has advised the Company that it currently
intends to make a market for the Notes, but the Underwriters are not obligated
to do so. Any such market-making may be discontinued by the Underwriters at any
time without notice in their sole discretion. If a market for the Notes does
develop, the Notes may trade at a discount from their initial public offering
price, depending on prevailing interest rates, the market for similar
securities, performance of the Company, performance of the PPM industry and
other factors. No assurance can be given that there will be a liquid trading
market for the Notes or that any trading market that does develop will continue.
See "Underwriting".
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USE OF PROCEEDS
The net proceeds from the Offering are expected to be approximately $446.1
million. The Company intends to apply the net proceeds of the Offering to
repayment of indebtedness then outstanding under the Credit Facility which is
expected to be approximately $455.0 million immediately prior to the
consummation of the Offering (the approximately $200.0 million that was borrowed
under the Credit Facility from June 30, 1996 through October 3, 1996 is referred
to herein as the "Borrowings"). Borrowings under the Credit Facility have been,
and will be, used to finance the acquisition of certain PPM companies and
physician and medical practices and for working capital and other general
corporate purposes, including the funding of the Debt Tender Offer.
The Credit Facility bears interest at the rate of LIBOR plus 7/8%, which
rate was 5.43% as of September 30, 1996. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
Affiliates of J.P. Morgan & Co. Incorporated and NationsBanc Capital
Markets, Inc. are lenders under the Credit Facility. As of September 30, 1996,
$53.4 million was owed under the Credit Facility to Morgan Guaranty Trust
Company of New York, a wholly-owned subsidiary of J.P. Morgan & Co.
Incorporated, and $68.7 million was owed to NationsBank, National Association
(South), an affiliate of NationsBanc Capital Markets, Inc.
The Company will utilize future borrowings under the Credit Facility to
finance acquisitions of PPM businesses and physician and medical practices, to
fund deferred purchase price obligations and for working capital and other
general corporate purposes. The Company is continuously in discussions with
several potential acquisition candidates; however, there can be no assurance
that any pending acquisitions will be successfully concluded.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth as of June 30, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization that gives
effect to the Acquisitions (see "Pro Forma Condensed Combined Financial
Information" included elsewhere in this Prospectus), and (iii) the pro forma as
adjusted capitalization that gives effect to the Offering and the application of
the net proceeds therefrom as set forth in "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and current portion of long-term debt..... $ 7,648 $ 297,377 $ 42,377
Long-term debt(1)......................................... 35,080 197,022 101,519(2)
% Senior Notes due 2006............................ -- -- 450,000
Stockholders' equity:
Preferred stock, $.001 par value, 9,500,000 shares
authorized; no shares issued and outstanding......... -- -- --
Series C Junior Participating Preferred Stock, $.001 par
value; 500,000 shares authorized; no shares issued
and outstanding...................................... -- -- --
Common Stock, $.001 par value; 200,000,000 shares
authorized; 52,311,000, 146,313,000 and 146,313,000
shares issued and outstanding, respectively(3)....... 52 143 143
Additional paid-in capital(3)........................... 435,618 567,127 567,127
Notes receivable from stockholders...................... (1,818) (1,818) (1,818)
Accumulated deficit..................................... (19,241) 77,943 77,943
-------- ---------- ----------
Total stockholders' equity...................... 414,611 643,395 643,395
-------- ---------- ----------
Total capitalization............................ $457,339 $1,137,794 $ 1,237,291
======== ========== ==========
</TABLE>
- ---------------
(1) Excludes approximately $200.0 million borrowed since June 30, 1996 under the
Credit Facility. See "Use of Proceeds".
(2) Assumes that all of the outstanding Caremark Notes are purchased in the Debt
Tender Offer.
(3) Excludes 5,819,610 shares of Common Stock reserved for issuance pursuant to
outstanding stock options as of June 30, 1996. See "Management -- Stock
Option Plans".
17
<PAGE> 19
THE DEBT TENDER OFFER
On September 26, 1996, the Company commenced the Offer for all of the $100
million aggregate principal amount of the Caremark Notes. The purchase price to
be paid for each Caremark Note tendered will be based upon a fixed spread of
37.5 basis points over the yield on the 5 3/4% U.S. Treasury Note due August 15,
2003. Using this formula, the purchase price for the Notes will be set at 2:00
p.m., New York City time, on October 24, 1996, the third business day prior to
the scheduled expiration date of the Offer. For illustration purposes only, if
calculated based upon a yield on October 2, 1996 on the referenced U.S. Treasury
Note, the tender offer yield and purchase price per $1,000 principal amount of
Caremark Note for settlement on October 7, 1996 would be 6.849% and $1,001.29,
respectively. Such purchase price includes a $5.00 consent payment per $1,000
principal amount of Note.
In conjunction with the Offer, the Company, on behalf of Caremark, is
soliciting the Consents of the holders of the Caremark Notes to the Proposed
Amendments to the Caremark Indenture. The Proposed Amendments will eliminate or
modify certain covenants contained in the Caremark Indenture, including, among
other things, the deletion of the limitations on (i) incurrence of indebtedness,
(ii) sale and leaseback transactions and (iii) transfers of properties and
assets to unrestricted subsidiaries of Caremark. Subject to the terms and
conditions of the Solicitation, the Company is offering to pay each holder who
consents to the Proposed Amendments an amount in cash equal to 0.5% of the
principal amount of the Caremark Notes ($5.00 per $1,000 principal amount of
Caremark Note).
Holders who tender their Caremark Notes will be required to consent to the
Proposed Amendments, however, holders of Caremark Notes may consent to the
Proposed Amendments without tendering their Caremark Notes. Caremark Notes that
are not purchased in the Debt Tender Offer will remain outstanding obligations
of Caremark, and, upon receiving Consents from holders of a majority in
aggregate principal amount of the Caremark Notes outstanding, such non-tendered
Caremark Notes will be subject to the Proposed Amendments.
The principal purpose of the Debt Tender Offer is to improve the operating
and financial flexibility of the Company. The Debt Tender Offer will be funded
by borrowings under the Credit Facility.
18
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected historical financial data of the Company for, and as of the
end of, each of the periods indicated in the five-year period ended December 31,
1995, have been derived from the audited consolidated financial statements of
the Company. The selected historical financial data for each of the six months
ended June 30, 1995 and 1996, and as of June 30, 1996, have been derived from
the unaudited consolidated financial statements of the Company, which reflect,
in the opinion of management of the Company, all adjustments (which include only
normal recurring adjustments) necessary for the fair presentation of the
financial data for such periods. The results for such interim periods are not
necessarily indicative of the results for the full year. The selected financial
data should be read in conjunction with the Consolidated Financial Statements of
the Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................................ $266,447 $394,878 $549,695 $815,041 $1,153,557 $547,450 $703,683
Operating expenses:
Cost of affiliated physician services............ 97,364 167,488 224,770 349,036 506,811 240,225 301,280
Clinic salaries, wages and benefits.............. 66,596 89,439 112,489 159,010 216,119 105,133 116,600
Outside hospitalization expense.................. 17,411 27,842 59,861 86,974 109,934 50,364 83,516
Clinic rent and lease expense.................... 9,467 11,970 18,832 27,515 41,825 19,744 23,814
Clinic supplies.................................. 15,552 17,996 24,529 34,453 47,744 22,519 30,953
Other clinic costs............................... 19,227 22,648 41,248 67,645 88,991 43,776 59,154
General corporate expenses....................... 18,060 38,099 42,196 56,653 64,713 32,167 39,540
Depreciation and amortization.................... 6,404 9,575 14,057 21,892 29,088 13,962 16,482
Net interest expense............................. 2,098 2,396 3,338 5,958 8,443 3,367 2,811
Merger expenses.................................. -- -- -- -- 66,564 1,051 34,448
Loss (gain) from disposal of assets.............. (3) -- 122 1,627 -- -- --
------- -------- -------- -------- ---------- ---------- ----------
Income (loss) from continuing operations before
pro forma income taxes and cumulative effect of
change in method of accounting................. 14,271 7,425 8,253 4,278 (26,675) 15,142 (4,915)
Pro forma income tax expense (benefit)(1)........ 2,190 7,703 9,723 7,350 (27,233) 4,411 360
------- -------- -------- -------- ---------- ---------- ----------
Pro forma income (loss) from continuing
operations before cumulative effect of change
in method of accounting........................ 12,081 (278) (1,470) (3,072) 558 10,731 (5,275)
Cumulative effect of change in method of
accounting for income taxes.................... (120) -- 298 -- -- -- --
------- -------- -------- -------- ---------- ---------- ----------
Pro forma income (loss) from continuing
operations..................................... 12,201 (278) (1,768) (3,072) 558 10,731 (5,275)
Loss from discontinued operations of clinics..... 279 702 -- -- -- -- --
------- -------- -------- -------- ---------- ---------- ----------
Pro forma net income (loss)...................... $ 11,922 $ (980) $ (1,768) $ (3,072) $ 558 $ 10,731 $ (5,275)
======= ======== ======== ======== ========== ========== ==========
Pro forma net income (loss) per share (1)(2)....... $ 0.97 $ (0.06) $ (0.06) $ (0.08) $ 0.01 $ 0.26 $ (0.11)
Number of shares used in pro forma net income
(loss) per
share (2)........................................ 12,249 15,308 28,403 36,553 42,720 41,867 50,034
Ratio of earnings to fixed charges(3).............. 3.72x 2.16x 1.70x 1.23x 2.44x 2.20x 3.33x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------------- ---------
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 23,677 $ 22,312 $ 43,367 $ 66,623 $ 55,328 $ 56,221
Working capital (deficit)...................................... 11,425 (3,358) 13,023 75,605 91,892 101,038
Total assets................................................... 111,478 181,032 243,758 417,974 576,733 618,184
Short-term debt and current portion of long-term debt.......... 3,741 9,209 11,641 12,656 9,149 7,648
Long-term debt, less current portion........................... 29,369 46,678 48,340 146,498 200,814 35,080
Total stockholders' equity..................................... 30,708 49,281 71,577 109,232 202,717 414,611
</TABLE>
(footnotes on following page)
19
<PAGE> 21
- ---------------
(1) Includes pro forma income tax provision giving effect to pooling with
non-taxable entities. See Note 1 to the Consolidated Financial Statements of
the Company.
(2) Pro forma net income (loss) per share is computed, after giving effect to
the pro forma tax provision described above, by dividing net income (loss)
by the number of common equivalent shares outstanding during the periods
presented in accordance with the applicable rules of the Commission. All
stock options issued have been considered as outstanding common equivalent
shares for all periods presented, even if anti-dilutive, under the treasury
stock method. Shares of the common stock of the Original Predecessor issued
in February 1995, upon conversion of the then outstanding convertible
preferred stock are assumed to be common equivalent shares for all periods
presented.
(3) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes and
extraordinary items, excluding non-recurring charges, plus fixed charges.
Fixed charges include interest, expensed or capitalized, amortization of
debt issuance costs and the interest component of rent expense
(approximately 1/3 of rental expense).
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.
GENERAL
The Original Predecessor was incorporated in January 1993, and affiliated
with its initial physician practice in November 1993. MME was formed by the
merger of several physician partnerships in 1994, and the original business was
organized in 1957. The Company is the result of the business combination between
the Original Predecessor and MME, which was consummated in November 1995. As
described in Note 1 to the Audited Consolidated Financial Statements of the
Company included elsewhere in this Prospectus, the financial information
referred to in this discussion reflects the combined operations of several
entities. The Company combined with MEDCTR, Inc., Vanguard Healthcare Group,
Inc., Texas Back Institute, Inc., MME, Cerritos Investment Group, Cerritos
Investment Group II, and 5000 Airport Plaza, L.P. in 1995 and with PPSI in
February 1996 in business combinations that were accounted for as poolings of
interests (collectively, the "Mergers"). Prior to its acquisition by the
Company, PPSI combined with Team Health in a business combination accounted for
as a pooling of interests. In August and September 1996, the Company consummated
the Acquisitions, which were also accounted for as poolings of interests.
Accordingly, the financial statements of the Company for the year ended December
31, 1995 will be restated to reflect the results of operations and financial
condition of Caremark and New Management.
As a result of MedPartners' limited operating history, the business
combinations described above and certain other factors, the Company does not
believe that the period-to-period comparisons, percentage relationships within
periods and apparent trends set forth below are meaningful. See "-- Factors that
May Affect Future Results".
The Company acquires existing medical practices and enters into long-term
contractual relationships pursuant to practice management agreements, for
periods ranging from 20 to 44 years, to provide management and administrative
services. The Company believes that the practice management agreements convey to
the Company perpetual, unilateral control over the assets and operations of the
various affiliated professional corporations. Notwithstanding the lack of
technical majority ownership of the stock of such entities, consolidation of the
professional corporations is necessary to present fairly the financial position
and results of operations of the Company because there exists a
parent-subsidiary relationship by means other than record ownership of a
majority of voting stock. Control by the Company is perpetual rather than
temporary because of (i) the length of the original term of the agreements, (ii)
the continuing investment of capital by the Company, (iii) the employment of the
majority of the non-physician personnel, and (iv) the nature of the services
provided to the professional corporations by the Company. The Company's
financial relationship with each practice offers the physicians access to
capital, management expertise, sophisticated information systems, and managed
care contracts. The Company's revenue is derived from medical services provided
by physicians under the practice management agreements, which revenue has been
assigned to the Company. Approximately 50% of this revenue is derived through
contracts for prepaid healthcare with HMOs. The Company contracts directly with
the HMOs to provide medical services to HMO enrollees who have chosen the
Company's affiliated physicians, or, in some cases, physicians who are members
of the Company's IPAs. The Company also contracts with hospitals to provide
medical staff for various hospital departments. The Company's profitability
depends on enhancing operating efficiency, expanding healthcare services
provided, increasing market share and assisting affiliated physicians in
managing the delivery of medical care.
The nature of the affiliated practices affects the cost of affiliated
physician services, clinic salaries, wages and benefits, clinic supplies and
depreciation and amortization. These expenses as a percentage of net revenue
will vary based on the mix of primary care and office-based (i.e., non-surgery)
practices to specialty care practices and the mix of capitated business. Primary
care includes family practice, internal medicine, pediatrics and
obstetrics/gynecology. Generally, primary care and office-based practices are
less capital
21
<PAGE> 23
intensive but require a higher number of employees per physician to operate and
maintain than specialty care practices. Typically, the Company endeavors to
achieve an equal number of primary care physicians and specialists in each
network. Institutional capitation increases revenues without a material impact
on many of the clinic expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net revenue represented by the following items:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue(1)............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of affiliated physician
services(2)........................... 40.9 42.8 43.9 43.9 42.8
Clinic salaries, wages and benefits...... 20.5 19.5 18.7 19.2 16.6
Outside hospitalization expense.......... 10.9 10.7 9.5 9.2 11.9
Clinic rent and lease expense............ 3.4 3.4 3.6 3.6 3.4
Clinic supplies.......................... 4.5 4.2 4.1 4.1 4.4
Other clinic costs....................... 7.5 8.3 7.7 8.0 8.4
General corporate expenses............... 7.7 7.0 5.6 5.9 5.6
Depreciation and amortization............ 2.5 2.7 2.6 2.5 2.3
Net interest expense..................... 0.6 0.7 0.7 0.6 0.4
Merger expenses.......................... 0.0 0.0 5.9 0.2 4.9
Loss on disposal of assets............... 0.0 0.2 0.0 0.0 0.0
Pro forma income tax expense (benefit)... 1.8 0.9 (2.3) 0.8 0.0
----- ----- ----- ----- -----
Pro forma net (loss) income...... (0.3)% (0.4)% 0.0% 2.0% (0.7)%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) "Net revenue" means gross clinic charges less allowances for contractual
adjustments.
(2) "Cost of affiliated physician services" consists solely of the total
payments made to each of the affiliated practices for medical services
rendered under its respective practice management agreement.
The following table sets forth the breakdown of net revenue for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Prepaid healthcare......................... 66.7% 62.5% 53.8% 53.4% 48.5%
Fee-for-service............................ 31.4 36.1 44.7 45.3 50.5
Other...................................... 1.9 1.4 1.5 1.3 1.0
----- ----- ----- ----- -----
Net revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Enrollment
The Company's prepaid healthcare revenue is reflective of the number of HMO
enrollees for whom it receives monthly capitation payments. Enrollment is
categorized as either "commercial enrollment" (enrollees generally under the age
of 65 whose health coverage is sponsored by employers) or "senior enrollment"
(enrollees over the age of 65 who are retired and whose coverage is sponsored by
Medicare). The Company receives professional capitation to provide physician
services and institutional capitation to provide hospital care and other
non-professional services. The table below sets forth the changes in enrollment
for professional and institutional capitation. Most of the enrollment growth is
related to acquisitions and increased enrollment in the northern California
operations.
<TABLE>
<CAPTION>
COMMERCIAL SENIOR TOTAL
ENROLLEES ENROLLEES OTHER ENROLLEES
---------- --------- ------ ---------
<S> <C> <C> <C> <C>
PROFESSIONAL CAPITATION:
December 31, 1995.................................. 607,772 60,345 14,427 682,544
December 31, 1994.................................. 550,672 50,330 3,374 604,376
December 31, 1993.................................. 500,229 44,563 1,239 546,031
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
COMMERCIAL SENIOR TOTAL
ENROLLEES ENROLLEES OTHER ENROLLEES
---------- --------- ------ ---------
<S> <C> <C> <C> <C>
INSTITUTIONAL CAPITATION:
December 31, 1995.................................. 313,630 34,744 7,747 356,121
December 31, 1994.................................. 235,174 20,014 -- 255,188
December 31, 1993.................................. 227,561 11,431 -- 238,992
PROFESSIONAL CAPITATION:
June 30, 1996...................................... 694,093 66,457 37,715 798,265
June 30, 1995...................................... 551,176 56,133 55,194 662,503
INSTITUTIONAL CAPITATION:
June 30, 1996...................................... 318,331 36,345 11,636 366,312
June 30, 1995...................................... 258,305 32,681 7,223 298,209
</TABLE>
Six Months Ended June 30, 1996 and 1995
For the six months ended June 30, 1996, net revenue was $703.7 million,
compared to $547.5 million for the same period in 1995. The increase in net
revenue partially resulted from the affiliation with new physician practices and
the increase in prepaid enrollees, which accounted for $73.1 million and $48.7
million of the increase in net revenue, respectively. The remaining increase
primarily related to existing clinic growth.
Excluding non-recurring items related to the merger with PPSI, operating
expenses, at the clinic level were $615.3 million, or 87.4% of net revenue for
the six months ended June 30, 1996 compared to $481.8 million or 88.0% of net
revenue for the six months ended June 30, 1995. Clinic salaries, wages and
benefits decreased as a percentage of net revenue from the six months ended June
30, 1995 to the six months ended June 30, 1996 as certain operational
efficiencies were implemented and the IPA business, which requires a low support
staff ratio, continued to grow. Outside hospitalization expense increased from
$50.4 million for the six months ended June 30, 1995 to $83.5 million for the
six months ended June 30, 1996, and also increased as a percentage of net
revenue from 9.2% for the six months ended June 30, 1995 to 11.9% for the six
months ended June 30, 1996. This increase is directly related to the increase of
the Company's global capitation and increase in IPA business. General corporate
expenses increased from $32.2 million during the six months ended June 30, 1995
to $39.5 million during the six months ended June 30, 1996. As a percent of net
revenue, general corporate expenses decreased from 5.9% in the six months ended
June 30, 1995 to 5.6% in the six months ended June 30, 1996.
Included in pre-tax loss for the six months ended June 30, 1996 were merger
expenses totaling $34.4 million relating to the merger with PPSI. The major
components of the $34.4 million included: $13.7 million for restructuring of
operations, $6.6 million in brokerage fees, $5.9 million in severance costs,
$2.6 million in professional fees, $1.4 million for the impairment of assets and
$1.9 million in unamortized bond issue costs.
Years Ended December 31, 1995 and 1994
Net revenue for the year ended December 31, 1995 was $1,153.6 million, an
increase of $338.5 million, or 41.5%, over the year ended December 31, 1994. The
increase in net revenue primarily resulted from affiliation with physician
groups in nine new markets and the increase in prepaid enrollees, which
accounted for $75.6 million and $110.8 million of the increase in net revenue,
respectively. The remaining increase primarily related to existing clinic growth
and a full year of operations in 1995 for affiliations only in effect for a
portion of 1994.
Excluding nonrecurring items related to the Mergers, operating expenses at
the clinic level were $1,011.4 million, or 87.7% of net revenue for the year
ended December 31, 1995, compared to $724.6 million, or 88.9% of net revenue for
1994. Clinic salaries, wages and benefits decreased as a percentage of net
revenue during 1995 as certain operational efficiencies were implemented and the
IPA business, which requires a low support staff ratio, continued to grow.
Outside hospitalization expense increased from $87.0 million for the year ended
December 31, 1994 to $109.9 million for the year ended December 31, 1995, but
decreased as a percentage of net revenue from 10.7% for the year ended December
31, 1994 to 9.5% for the year ended December 31, 1995. This percentage decrease
related to the decline in the relationship of prepaid healthcare to total net
revenue. General corporate expenses increased from $56.7 million during the year
ended December 31, 1994 to $64.7 million during the year ended December 31,
1995. As a percentage of net revenue, however, general corporate expenses
decreased from 7.0% in 1994 to 5.6% in 1995. Net income (excluding merger
expenses) for the year ended December 31, 1995 was $25.3 million compared to a
loss of $3.1 million for 1994.
23
<PAGE> 25
Including merger expenses, net income for the year ended December 31, 1995
was $.6 million compared to a net loss of $3.1 million for 1994. Included in
operating expenses for 1995 are merger expenses totaling $66.6 million related
to business combinations accounted for as poolings of interests. Approximately
$55.6 million related to the business combination with MME and its real estate
partnerships. The components of the total $66.6 million charge included: $8.8
million in investment banking fees, $7.3 million in professional fees, $5.0
million in other transaction costs and $45.5 million in restructuring charges.
The major components of the restructuring charge included: $19.6 million in
severance for identified employees, $8.1 million for impairment of assets, $6.4
million for abandonment of facilities, $2.6 million in noncompatible technology,
$2.3 million in unamortized loan costs, $2.2 million related to conforming of
accounting policies and $1.9 million in restructuring of benefit packages.
As of December 31, 1995, the Company had a cumulative net operating loss
carryforward for federal income tax purposes of approximately $57.0 million
available to reduce future amounts of taxable income. If not utilized to offset
future taxable income, the net operating loss carryforwards will expire on
various dates through 2010. Approximately $1.0 million of the $57.0 million net
operating loss carryforward (which was generated in 1993) is available at a
reduced rate due to certain tax limitations.
In 1994, the Company established a valuation allowance of $14.6 million
because it was more likely than not that the deferred tax asset would not be
utilized in future periods. The valuation allowance was decreased by $14.2
million in 1995 because the realization of the deferred tax asset is now more
likely than not. The primary factor in the determination of the realization of
the deferred tax asset is the profitability of the ongoing business of the
Company ($25.3 million net income for 1995 excluding merger expenses).
Years Ended December 31, 1994 and 1993
For the year ended December 31, 1994, net revenue was $815.0 million
compared to $549.7 million for the year ended December 31, 1993. The increase in
net revenue resulted from the affiliation with 46 physician groups (representing
283 physicians) since December 31, 1993 and the enrollment growth of 58,000
lives under professional capitation and 16,000 lives under institutional
capitation.
The percentage increase in cost of affiliated physician services from 40.9%
of net revenues in 1993 to 42.8% in 1994 was a result of the commencement of
operations of the Company's clinics. The Company (exclusive of the Mergers) had
a comparable percentage of 62.2%. The decrease in clinic salaries, wages and
benefits from 20.5% of net revenues in 1993 to 19.5% in 1994 was also a result
of the commencement of operations of the Company's clinics. The Company
(exclusive of the Mergers) had a comparable percentage of 16.5%.
Clinic rent and lease expense was 3.4% of net revenue for the years ended
December 31, 1994 and December 31, 1993. Other clinic costs were 7.5% of net
revenue for 1993 and 8.3% for 1994.
Net interest expense (income) as a percentage of net revenue will vary
based on the purchase price for the assets of additional practices, the interest
rates for additional borrowings and the amount of excess cash available for
investment. The increase in net interest expense in 1994 was the result of
increased borrowings to fund acquisitions.
Due to the Company's limited operating history and cumulative operating
losses, a valuation allowance was established to eliminate deferred tax benefits
generated through December 31, 1994.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The future operating results and financial condition of the Company are
dependent on the Company's ability to market its services profitably,
successfully increase market share and manage expense growth relative to revenue
growth. Additionally, the future operating results and financial condition of
the Company may be affected by a number of other factors including: the
Company's growth strategy which involves the ability to raise the capital
required to support growth, competition for expansion opportunities, integration
risks and dependence on HMO enrollee growth; the capitated nature of revenues
and control of healthcare costs; exposure to professional liability; and
pharmacy licensing, healthcare reform and government regulation. Changes in one
or more of these factors could have a material adverse effect on the operating
results and financial condition of the Company. See "Risk Factors".
The Company completed the Caremark Acquisition in early September 1996.
There are various Caremark legal matters which, if materially adversely
determined, could have a material adverse effect on the Company's operating
results and financial condition. See "Risk Factors -- Risks Relating to Certain
Caremark Legal Matters" and "Business -- Legal Proceedings".
24
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had working capital of $101.0 million,
including cash and cash equivalents of $56.2 million. For the first six months
of 1996, cash flow from operations, excluding $25.9 million cash paid during the
six months for merger expenses, was $6.0 million. For the year ended December
31, 1995, cash flow used in operations was $13.5 million. This included $28.0
million in cash paid for merger expenses. Net of these expenses, the Company
experienced cash flow from operations of $14.5 million. For the years ending
December 31, 1993 and 1994, cash flow provided by operations was $30.6 million
and $13.7 million, respectively. The Company has reduced the medical claims
outstanding to levels below that required in its agreements with HMOs, and it
does not expect this to have a negative impact on future cash flows from
operations. On a monthly basis, the Company's most significant expenditure is
for affiliated physician services. Payment is made on the fifteenth day of the
month following the month in which the services were provided.
For the six months ended June 30, 1996, the Company invested $29.7 million
in acquisitions of the assets of physician practices, $21.8 million in equipment
for the physician practices and the corporate office and $4.5 million in
intangible assets related to corporate name/trademarks and other intangible
assets. For the year ended December 31, 1995, the Company invested $61.5 million
in acquisitions of the assets of physician practices, $39.4 million in equipment
for the physician practices and the corporate office and $7.2 million in
intangible assets related to debt issue costs, corporate name/trademarks and
other intangible assets. For the year ended December 31, 1994, the Company's
investing activities totaled $108.5 million, which primarily was composed of
$57.6 million related to practice acquisitions and $32.1 million related to the
purchase of property and equipment. These expenditures were funded from
approximately $116.3 million from equity proceeds and $7.8 million in net
incremental borrowings. For the year ended December 31, 1993, the Company's
investing activities totaled $37.6 million of which $14.3 million related to
practice acquisitions and $15.6 million related to the purchase of property and
equipment. These expenditures were funded by $42.7 million derived from equity
proceeds.
In February 1995, the Original Predecessor completed a public offering of
5.1 million shares of its common stock. Net proceeds of the offering were
approximately $60.4 million, $30.4 million of which was applied to reduce the
indebtedness then outstanding under the Original Predecessor's credit facility.
In March 1996, the Company completed a public offering of 6.6 million shares of
Common Stock. Net proceeds of the offering were approximately $194.0 million,
$70.0 million of which was applied to reduce the indebtedness then outstanding
under the Company's then-existing credit facility and $69.0 million of which was
used to repay the outstanding convertible subordinated debentures of the
Company.
In September 1996, the Company replaced its $150.0 million credit facility
with the Credit Facility. Interest on outstanding borrowings under the Credit
Facility is initially paid quarterly based on LIBOR plus 7/8%. After December
31, 1996, interest on outstanding borrowings under the Credit Facility will be
based on the Company's debt to EBITDA (as defined in the Credit Facility) ratio
or the Company's public debt ratings, at the Company's option. Outstanding
principal under the Credit Facility is payable at maturity in September 2001. As
of September 10, 1996, after giving effect to the Acquisitions, approximately
$350.0 million in borrowings were outstanding under the Credit Facility.
The Credit Facility contains affirmative and negative covenants which,
among other things, require the Company to maintain certain financial ratios
(including minimum net worth, minimum fixed charge coverage ratio, maximum
indebtedness to cash flow), limit the amount of additional subsidiary
indebtedness, and set certain restrictions on investments, mergers and sales of
assets. The Company also provided a negative pledge on substantially all of its
assets under the Credit Facility.
The Company intends to acquire the assets of additional physician practices
and to fund this growth with existing cash and cash equivalents and borrowings
under the Credit Facility. The Company believes that its existing cash resources
(including the net proceeds from the Notes), the use of Common Stock for
selected practice and other acquisitions, and available borrowings under the
Credit Facility or any successor credit facility, will be sufficient to meet the
Company's anticipated acquisition, expansion and working capital needs for the
next twelve months. The Company expects from time to time to raise additional
capital through the issuance of long-term or short-term indebtedness or the
issuance of additional equity securities in private or public transactions, at
such times and terms as management deems appropriate and the market allows, in
order to meet the capital needs of the Company.
25
<PAGE> 27
QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data
for 1994, 1995 and 1996. In the opinion of the Company's management, this
unaudited information has been prepared on the same basis as the audited
information and includes all adjustments (consisting of normal recurring items)
necessary to present fairly the information set forth therein. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
------------- ------------ --------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue........... $ 210,189 $234,422 $259,750 $287,700 $ 299,272 $306,835 $343,285 $360,398
Operating expenses:
Cost of affiliated
physician
services.......... 91,791 97,001 114,272 125,953 132,631 133,955 148,662 152,618
Clinic salaries,
wages and
benefits.......... 38,862 43,889 50,570 54,563 53,760 57,226 56,762 59,838
Outside
hospitalization
expense........... 20,436 26,435 22,193 28,171 30,796 28,774 35,668 47,849
Clinic rent and
lease
expense........... 7,094 8,370 9,717 10,027 10,518 11,563 11,693 12,121
Clinic supplies..... 8,002 10,568 10,983 11,536 11,704 13,521 15,014 15,938
Other clinic
costs............. 15,953 21,005 20,711 23,065 23,661 21,554 31,285 27,868
General corporate
expenses.......... 15,808 13,809 15,703 16,464 15,697 16,849 19,414 20,126
Depreciation and
amortization...... 5,631 6,448 6,605 7,357 7,384 7,742 8,174 8,308
Net interest
expense........... 1,654 1,903 1,885 1,482 2,042 3,034 3,232 (421)
Merger expenses..... -- -- -- 1,051 3,473 62,040 34,448 --
Loss on disposal of
assets............ 412 413 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes............... 4,546 4,581 7,111 8,031 7,606 (49,423) (21,067 ) 16,153
Pro forma income tax
expense (benefit)... 2,363 2,764 2,176 2,235 2,427 (34,071) (5,769 ) 6,129
-------- -------- -------- -------- -------- -------- -------- --------
Pro forma net income
(loss).............. $ 2,183 $ 1,817 $ 4,935 $ 5,796 $ 5,179 $(15,352) $(15,298 ) $ 10,024
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The Company's historical unaudited quarterly financial data have been
restated to include the results of all businesses acquired prior to June 30,
1996, that were accounted for as poolings of interests. The Company's Quarterly
Reports on Form 10-Q were filed prior to the Mergers and thus, differ from the
amounts for the quarters included herein. The differences caused solely by the
operation of the merged companies are summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995 MARCH 31, 1996
-------------------- -------------------- -------------------- --------------------
AS AS AS AS
FORM 10-Q RESTATED FORM 10-Q RESTATED FORM 10-Q RESTATED FORM 10-Q RESTATED
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue................ $45,667 $259,750 $57,272 $287,700 $76,019 $299,272 $332,549 $343,285
Income (loss) before income
taxes.................... 765 7,111 820 8,031 2,265 7,606 (21,435 ) (21,067)
Income tax expense
(benefit)................ 291 2,176 260 2,235 770 2,427 (5,935 ) (5,769)
Net income (loss).......... 474 4,935 560 5,796 1,495 5,179 (15,500 ) (15,298)
</TABLE>
26
<PAGE> 28
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Pro Forma Condensed Combined Financial Information reflects
the Acquisitions and are based upon the historical Consolidated Financial
Statements of the Company, Caremark and New Management included elsewhere in
this Prospectus. The Pro Forma Condensed Combined Statements of Operations
assume that the Acquisitions were consummated at the beginning of the earliest
period presented. The Pro Forma Condensed Combined Balance Sheet assumes that
the transactions were consummated on June 30, 1996.
The Pro Forma Condensed Combined Financial Information contains no
adjustments to conform the accounting policies of these companies because any
such adjustments have been determined to be immaterial. The Pro Forma Condensed
Combined Financial Information is presented for information purposes only and
does not purport to represent the results of operations of the Company that
actually would have occurred had the Acquisitions been consummated on the dates
indicated or that may be obtained in the future.
SELECTED PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................ $1,756,762 $2,593,329 $3,530,768 $1,669,100 $2,273,270
Operating expenses:
Affiliated physician services............................ 272,128 412,075 631,407 292,505 422,943
Outside medical expenses................................. 70,427 102,496 149,185 64,556 156,506
Clinic expenses.......................................... 284,509 413,969 683,927 305,731 491,462
Non-clinic goods and services............................ 884,014 1,365,203 1,688,075 829,681 985,531
General and administrative expenses...................... 123,468 145,937 142,952 73,492 69,946
Depreciation and amortization............................ 25,464 40,816 57,643 26,875 41,182
Net interest expense..................................... 7,021 14,885 17,447 8,451 12,100
Merger expenses.......................................... -- -- 66,564 1,051 34,448
Loss on investments...................................... -- -- 86,600 -- --
Other, net............................................... (1,574) (143) (192) (401) (373)
---------- ---------- ---------- ---------- ----------
Net operating expenses..................................... 1,665,457 2,495,238 3,523,608 1,601,941 2,213,745
Income before income taxes and discontinued operations..... 91,305 98,091 7,160 67,159 59,525
Income tax expense (benefit)............................... 43,126 44,022 (15,966) 24,713 23,348
Cumulative effect of change in method of accounting for
income taxes............................................. 298 -- -- -- --
---------- ---------- ---------- ---------- ----------
Income from continuing operations.......................... 47,881 54,069 23,126 42,446 36,177
Loss (income) from discontinued operations................. (30,808) (25,902) 136,528 139,531 66,799
---------- ---------- ---------- ---------- ----------
Net income (loss).......................................... $ 78,689 $ 79,971 $ (113,402) $ (97,085) $ (30,622)
========== ========== ========== ========== ==========
Net income (loss) per share(1)............................. $ 0.66 $ 0.63 $ (0.85) $ (0.73) $ (0.22)
========== ========== ========== ========== ==========
Number of shares used in net income (loss) per share
calculations(1)(2)....................................... 119,380 127,409 133,939 132,723 140,967
========== ========== ========== ========== ==========
Income per share, excluding merger expenses, discontinued
operations and extraordinary item........................ $ 0.40 $ 0.42 $ 0.47 $ 0.32 $ 0.41
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................... $ 119,396
Working capital (deficit)....................................................................... (85,480)
Total assets.................................................................................... 1,987,262
Short-term debt and current portion of long-term debt........................................... 297,377
Long-term debt, less current portion............................................................ 197,022
Total stockholders' equity...................................................................... 643,395
</TABLE>
- ---------------
(1) Net income (loss) per share is computed by dividing net income (loss) by the
number of common equivalent shares outstanding during the periods in
accordance with the applicable rules of the Commission. All stock options
issued have been considered as outstanding common equivalent shares for all
periods presented, even if anti-dilutive, under the treasury stock method.
Shares of common stock of the Original Predecessor issued in February 1995
upon conversion of the then outstanding convertible preferred stock are
assumed to be common equivalent shares for all periods presented.
(2) Number of shares used in net income (loss) per share gives effect to the
Caremark Acquisition by using the exchange ratio of 1.21.
27
<PAGE> 29
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
NEW PRO FORMA PRO FORMA
MEDPARTNERS CAREMARK MANAGEMENT ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ----------
(A) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 56,221 $ 63,000 $ 175 $ -- $ 119,396
Accounts receivable less allowance for bad
debts........................................... 165,105 376,300 -- -- 541,405
Inventories....................................... 11,087 99,600 -- -- 110,687
Prepaid expenses and other current assets......... 23,839 23,800 59 -- 47,698
Deferred tax assets............................... 4,139 64,200 -- 92,800(C) 161,139
-------- ---------- ------- --------- ----------
Total current assets........................ 260,391 626,900 234 92,800 980,325
Property and equipment, net......................... 167,502 366,700 -- (128,100)(C) 406,102
Intangible assets, net.............................. 139,169 320,500 -- -- 459,669
Deferred tax assets................................. 34,285 -- -- -- 34,285
Other assets........................................ 16,837 89,500 544 -- 106,881
-------- ---------- ------- --------- ----------
Total assets................................ $ 618,184 $1,403,600 $ 778 $ (35,300) $1,987,262
======== ========== ======= ========= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 29,084 $ 357,000 $ 5 $ 92,800(C) $ 478,889
Payable to physician groups....................... 28,616 -- -- -- 28,616
Accrued medical claims payable.................... 44,235 29,700 -- -- 73,935
Other accrued expenses and liabilities............ 49,770 137,200 18 -- 186,988
Short-term debt and current portion of long-term
debt............................................ 7,648 289,600 129 -- 297,377
-------- ---------- ------- --------- ----------
Total current liabilities................... 159,353 813,500 152 92,800 1,065,805
Long-term debt, net of current portion.............. 35,080 130,200 2,642 29,100(C) 197,022
Other long-term liabilities......................... 9,140 71,900 -- -- 81,040
Stockholders' equity (deficit):
Common stock...................................... 52 82,200 -- (82,109)(D) 143
Additional paid-in capital........................ 435,618 199,600 -- 82,109(D) 717,327
Shares held in trust.............................. -- (150,200) -- -- (150,200)
Notes receivable from shareholders................ (1,818) -- -- -- (1,818)
Unrealized loss on marketable equity securities... -- -- -- -- --
Accumulated earnings (deficit).................... (19,241) 256,400 (2,016) (157,200)(C) 77,943
-------- ---------- ------- --------- ----------
Total stockholders' equity (deficit)........ 414,611 388,000 (2,016) (157,200) 643,395
-------- ---------- ------- --------- ----------
Total liabilities and stockholders' equity
(deficit)................................. $ 618,184 $1,403,600 $ 778 $ (35,300) $1,987,262
======== ========== ======= ========= ==========
</TABLE>
28
<PAGE> 30
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------- PRO PRO
NEW FORMA FORMA
MEDPARTNERS CAREMARK MANAGEMENT ADJUSTMENTS COMBINED
------------ ---------- ---------- ----------- ----------
(A) (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue.............................. $703,683 $1,569,587 $1,314 $(1,314)(B) $2,273,270
Operating expenses:
Affiliated physician services.......... 301,280 121,663 -- -- 422,943
Outside medical expenses............... 83,516 72,990 -- -- 156,506
Clinic expenses........................ 252,765 238,697 -- -- 491,462
Non-clinic goods and services.......... -- 985,531 -- -- 985,531
General and administrative expenses.... 17,296 52,650 207 (207)(B) 69,946
Depreciation and amortization.......... 16,482 24,700 -- -- 41,182
Net interest expense................... 2,811 9,289 108 (108)(B) 12,100
Merger expenses........................ 34,448 -- -- -- 34,448
Other, net............................. -- (373) -- -- (373)
-------- -------- ------- ----- -------
Net operating expenses.......... 708,598 1,505,147 315 (315) 2,213,745
-------- -------- ------- ----- -------
Income (loss) before income taxes and
discontinued operations................ (4,915) 64,440 999 (999) 59,525
Income tax expense....................... 360 22,988 -- -- 23,348
-------- -------- ------- ----- -------
Income (loss) from continuing
operations............................. (5,275) 41,452 999 (999) 36,177
Loss from discontinued operations........ -- 66,799 -- -- 66,799
-------- -------- ------- ----- -------
Net income (loss)........................ $ (5,275) $ (25,347) $ 999 $ (999) $ (30,622)
======== ======== ======= ===== =======
Net income (loss) per share.............. $ (0.11) $ (0.33) $ 2.87 $ (0.22)
======== ======== ======= =======
Number of shares used in net income
(loss) per share calculations.......... 50,034 77,400 348(E) 13,185(F) 140,967
======== ======== ======= ===== =======
</TABLE>
29
<PAGE> 31
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PRO PRO
NEW FORMA FORMA
MEDPARTNERS CAREMARK MANAGEMENT ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ----------
(A) (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue............................... $ 547,450 $1,120,126 $1,524 $ -- $1,669,100
Operating expenses:
Affiliated physician services........... 240,225 52,280 -- -- 292,505
Outside medical expenses................ 50,364 14,192 -- -- 64,556
Clinic expenses......................... 209,885 95,846 -- -- 305,731
Non-clinic goods and services........... -- 829,681 -- -- 829,681
General and administrative expenses..... 13,454 59,890 148 -- 73,492
Depreciation and amortization........... 13,962 12,913 -- -- 26,875
Net interest expense.................... 3,367 4,971 113 -- 8,451
Merger expenses......................... 1,051 -- -- -- 1,051
Other, net.............................. -- (401) -- -- (401)
----------- ---------- ---------- ----------- ----------
Net operating expenses........... 532,308 1,069,372 261 -- 1,601,941
----------- ---------- ---------- ----------- ----------
Income before income taxes and
discontinued
operations.............................. 15,142 50,754 1,263 -- 67,159
Income tax expense........................ 4,411 20,302 -- -- 24,713
----------- ---------- ---------- ----------- ----------
Income from continuing operations......... 10,731 30,452 1,263 -- 42,446
Loss from discontinued operations......... -- 139,531 -- -- 139,531
----------- ---------- ---------- ----------- ----------
Net income (loss)......................... $ 10,731 $ (109,079) $1,263 $ -- $ (97,085)
=========== ========== =========== =========== ==========
Net income (loss) per share............... $ 0.26 $ (1.47) $ 3.63 $ (0.73)
=========== ========== =========== ==========
Number of shares used in net income (loss)
per share calculations.................. 41,867 74,800 348(E) 15,708(F) 132,723
=========== ========== =========== =========== ==========
</TABLE>
30
<PAGE> 32
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PRO PRO
NEW FORMA FORMA
MEDPARTNERS CAREMARK MANAGEMENT ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ----------
(A) (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue.............................. $1,153,557 $2,374,263 $2,948 $ -- $3,530,768
Operating expenses:
Affiliated physician services.......... 506,811 124,596 -- -- 631,407
Outside medical expenses............... 109,934 39,251 -- -- 149,185
Clinic expenses........................ 433,092 250,835 -- -- 683,927
Non-clinic goods and services.......... -- 1,688,075 -- -- 1,688,075
General and administrative expenses.... 26,300 116,338 314 -- 142,952
Depreciation and amortization.......... 29,088 28,555 -- -- 57,643
Net interest expense................... 8,443 8,780 224 -- 17,447
Merger expenses........................ 66,564 -- -- -- 66,564
Loss on investments.................... -- 86,600 -- -- 86,600
Other, net............................. -- (192) -- -- (192)
----------- ---------- ---------- ----------- ----------
Net operating expenses.......... 1,180,232 2,342,838 538 -- 3,523,608
----------- ---------- ---------- ----------- ----------
Income (loss) before income taxes and
discontinued operations................ (26,675 ) 31,425 2,410 -- 7,160
Income tax expense (benefit)............. (27,233 ) 11,267 -- -- (15,966)
----------- ---------- ---------- ----------- ----------
Income from continuing operations........ 558 20,158 2,410 -- 23,126
Loss from discontinued operations........ -- 136,528 -- -- 136,528
----------- ---------- ---------- ----------- ----------
Net income (loss)........................ $ 558 $ (116,370) $2,410 $ -- $ (113,402)
=========== ========== =========== =========== ==========
Net income (loss) per share.............. $ 0.01 $ (1.55) $ 6.93 $ (0.85)
=========== ========== =========== =========== ==========
Number of shares used in net income
(loss) per share calculations.......... 42,720 75,100 348(E) 15,771(F) 133,939
=========== ========== =========== =========== ==========
</TABLE>
31
<PAGE> 33
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------- PRO PRO
NEW FORMA FORMA
MEDPARTNERS CAREMARK MANAGEMENT ADJUSTMENTS COMBINED
------------ ---------- ---------- ----------- ----------
(A) (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue................................. $815,041 $1,775,203 $3,085 $ -- $2,593,329
Operating expenses:
Affiliated physician services............. 349,036 63,039 -- -- 412,075
Outside medical expenses.................. 86,974 15,522 -- -- 102,496
Clinic expenses........................... 321,360 92,609 -- -- 413,969
Non-clinic goods and services............. -- 1,365,203 -- -- 1,365,203
General and administrative expenses....... 25,543 120,174 220 -- 145,937
Depreciation and amortization............. 21,892 18,924 -- -- 40,816
Net interest expense...................... 5,958 8,695 232 -- 14,885
Merger expenses........................... -- -- -- -- --
Other, net................................ -- (143) -- -- (143)
-------- ---------- ------ ------- -------
Net operating expenses............. 810,763 1,684,023 452 -- 2,495,238
-------- ---------- ------ ------- -------
Income before income taxes and discontinued
operations................................ 4,278 91,180 2,633 -- 98,091
Income tax expense.......................... 7,350 36,672 -- -- 44,022
-------- ---------- ------ ------- -------
Income (loss) from continuing operations.... (3,072) 54,508 2,633 -- 54,069
Income from discontinued operations......... -- (25,902) -- -- (25,902)
-------- ---------- ------ ------- -------
Net income (loss)........................... $ (3,072) $ 80,410 $2,633 $ -- $ 79,971
======== ========== ====== ======= =======
Net income (loss) per share................. $ (0.08) $ 1.08 $ 7.57 $ 0.63
======== ========== ====== =======
Number of shares used in net income (loss)
per share calculations.................... 36,553 74,800 348(E) 15,708(F) 127,409
======== ========== ====== ======= =======
</TABLE>
32
<PAGE> 34
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------- PRO PRO
NEW FORMA FORMA
MEDPARTNERS CAREMARK MANAGEMENT ADJUSTMENTS COMBINED
----------- ---------- ---------- ----------- ----------
(A) (IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenue................................ $ 549,695 $1,203,957 $3,110 $ -- $1,756,762
Operating expenses:
Affiliated physician services............ 224,770 47,358 -- -- 272,128
Outside medical expenses................. 59,861 10,566 -- -- 70,427
Clinic expenses.......................... 217,306 67,203 -- -- 284,509
Non-clinic goods and services............ -- 884,014 -- -- 884,014
General and administrative expenses...... 21,988 101,395 85 -- 123,468
Depreciation and amortization............ 14,057 11,407 -- -- 25,464
Net interest expense..................... 3,338 3,444 239 -- 7,021
Merger expenses.......................... -- -- -- -- --
Other, net............................... 122 (1,696) -- -- (1,574)
-------- ---------- ------ --------- ----------
Net operating expenses............ 541,442 1,123,691 324 -- 1,665,457
-------- ---------- ------ --------- ----------
Income before income taxes and discontinued
operations............................... 8,253 80,266 2,786 -- 91,305
Income tax expense......................... 9,723 33,403 -- -- 43,126
Cumulative effect of change in method of
accounting for income taxes.............. 298 -- -- -- 298
-------- ---------- ------ --------- ----------
Income (loss) from continuing operations... (1,768) 46,863 2,786 -- 47,881
Income from discontinued operations........ -- (30,808) -- -- (30,808)
-------- ---------- ------ --------- ----------
Net income (loss).......................... $ (1,768) $ 77,671 $2,786 $ -- $ 78,689
======== ========== ====== ========= ==========
Net income (loss) per share................ $ (0.06) $ 1.04 $ 8.01 $ 0.66
======== ========== ====== ==========
Number of shares used in net income (loss)
per share calculations................... 28,403 74,900 348(E) 15,729(F) 119,380
======== ========== ====== ========= ==========
</TABLE>
33
<PAGE> 35
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following adjustments are necessary to reflect the Acquisitions:
A. These historical amounts for MedPartners for the years ended December
31, 1993, 1994 and 1995 do not agree with the full legal Form 10-K for the year
ended December 31, 1995 filed with the Commission because the amounts have been
restated to reflect the merger with PPSI, which was accounted for as a pooling
of interests.
B. To eliminate certain management fee revenue and expense.
C. The pro forma combined statements of operations do not reflect
nonrecurring costs and charges resulting directly from the Acquisitions. These
costs and charges are estimated as follows:
<TABLE>
<CAPTION>
PROPERTY LONG-TERM TOTAL
DEFERRED AND ACCOUNTS DEBT, ACCUMULATED MERGER
TAX ASSET EQUIPMENT PAYABLE NET EARNINGS CHARGE
--------- --------- -------- --------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Caremark.................. $92,800 $(128,100) $ 92,800 $29,100 $(157,200) $250,000
</TABLE>
The following is a detail of the estimated merger expenses related to the
Caremark Acquisition:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Severance and related benefits.............................. $ 62,700
Operational restructuring................................... 47,000
Lease abandonment........................................... 30,500
Non-compatible technology................................... 27,000
Brokerage fees.............................................. 25,300
Professional fees........................................... 24,900
Other transaction related costs............................. 20,600
Transition costs............................................ 6,000
Debt restructuring costs.................................... 5,000
Filing fees................................................. 1,000
--------
$ 250,000
========
</TABLE>
The excess capacity, restructuring and market rationalization expenses
primarily relate to computer hardware and software and leases that will be
abandoned after the Caremark Acquisition. These assets are currently being
utilized in the operations of Caremark but are not compatible with the planned
operations for MedPartners. Severance and related benefits represent anticipated
payments to identified employees, as required by their respective employment
agreements, who will be terminated after the merger.
D. To reflect the approximate number of shares of Common Stock exchanged
for the stock or assets of the proposed acquirees as follows:
<TABLE>
<S> <C>
Caremark.................................................... 90,585,000
New Management.............................................. 348,000
-----------
90,933,000
===========
</TABLE>
E. Represents the approximate number of shares of Common Stock distributed
in exchange for the partnership interests of New Management based on a trading
price of $20.11 per share, $(7,000,000/$20.11) 348,000.
F. To adjust pro forma amounts based on historical share amounts,
converting each outstanding share of Caremark's common stock into shares of
Common Stock based on a fixed exchange ratio of 1.21.
34
<PAGE> 36
BUSINESS
GENERAL
The Company, with annualized revenues of approximately $4.5 billion, is the
largest PPM company in the United States. The Company develops, consolidates and
manages integrated healthcare delivery systems. Through its network of
affiliated group and IPA physicians, the Company provides primary and specialty
healthcare services to prepaid managed care enrollees and fee-for-service
patients. The Company also operates one of the largest independent PBM programs
in the United States and provides disease management services and therapies for
patients with certain chronic conditions. As of June 30, 1996, MedPartners
operated in 54 markets in 25 states and was affiliated with approximately 7,400
physicians, including approximately 2,470 in group practices, 4,180 through IPA
relationships and 740 who were hospital-based, providing healthcare to
approximately 1.5 million prepaid enrollees.
The Company affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to managed care payor systems. The Company enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
The Company provides affiliated physicians with access to capital and to
advanced management information systems. In addition, MedPartners contracts with
HMOs, hospitals and outside providers on behalf of its affiliated physicians.
These relationships provide physicians with the opportunity to operate under a
variety of payor arrangements and to increase their patient flow.
The Company's PPM revenue is derived from the provision of fee-for-service
medical services and from contracts with HMOs that compensate the Company and
its affiliated physicians on a prepaid basis. In the prepaid arrangements, the
Company, through its affiliated physicians, typically is paid by the HMO a fixed
amount per member ("enrollee") per month ("professional capitation") or a
percentage of the premium per member per month ("percent of premium") paid by
employer groups and other purchasers of healthcare coverage to the HMOs. In
return, the Company, through its affiliated physicians, is responsible for
substantially all of the medical services required by enrollees. In many
instances, the Company and its affiliated physicians accept financial
responsibility for hospital and ancillary healthcare services in return for
payment from HMOs on a capitated or percent of premium basis ("institutional
capitation"). In exchange for these payments (collectively, "global
capitation"), the Company, through its affiliated physicians, provides the
majority of covered healthcare services to enrollees and contracts with
hospitals and other healthcare providers for the balance of the covered
services.
The Company offers medical group practices and independent physicians a
range of affiliation models. These affiliations are carried out by the
acquisition of PPM entities or practice assets, either for cash or through an
equity exchange, or by affiliation on a contractual basis. In all instances, the
Company enters into long-term practice management agreements with the affiliated
physicians that provide for the management of the practices by the Company while
at the same time providing for the clinical independence of the physicians.
The Company also manages outpatient prescription drug benefit programs for
more than 1,300 clients throughout the United States, including corporations,
insurance companies, unions, government employee groups and managed care
organizations. The Company dispenses 42,000 prescriptions daily through four
mail service pharmacies and manages patients' immediate prescription needs
through a network of approximately 53,000 retail pharmacies. The Company is in
the process of integrating the PBM program with the PPM business by providing
pharmaceutical services to affiliated physicians, clinics and HMOs. The
Company's disease management services are intended to meet the healthcare needs
of individuals with chronic diseases or conditions. These services include the
design, development and management of comprehensive programs that comprise drug
therapies, physician support and patient education. The Company currently
provides therapies and services for individuals with such conditions as
hemophilia, growth disorders, immune deficiencies, genetic emphysema, cystic
fibrosis and multiple sclerosis.
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<PAGE> 37
ACQUISITION PROGRAM
The Company believes it is the leading consolidator in the PPM industry.
The Company's strategy is to develop locally prominent, integrated healthcare
delivery networks that provide high quality, cost-effective healthcare in
selected geographic markets. The Company implements this strategy through growth
in its existing markets, expansion into new markets through acquisitions and
affiliations and through the implementation of comprehensive healthcare
solutions for patients, physicians and payors. In pursuing its acquisition
strategy, the Company creates strategic alliances with hospital partners and
HMOs. As an integral element of these alliances, MedPartners utilizes
sophisticated information systems to improve the operational efficiency of, and
reduce the costs associated with, operating the Company's network and the
practices of the affiliated physicians. The Company's principal methods of
expansion are the acquisition of PPM businesses and affiliations with physician
and medical groups.
In September 1996, the Company acquired Caremark, a publicly traded PPM and
PBM company based in Northbrook, Illinois, in exchange for approximately 90.6
million shares of Common Stock having a total value of approximately $1.8
billion, creating the largest PPM company in the United States. Caremark
provides PPM services to approximately 1,000 affiliated physicians.
In November 1995, the Company acquired MME, a privately held PPM entity
based in Long Beach, California, in exchange for approximately 13.5 million
shares of Common Stock having a total value of approximately $413.2 million. MME
provides PPM services to approximately 400 group and 3,100 IPA physicians. In
February 1996, the Company acquired PPSI, a publicly traded PPM company based in
Redlands, California, in exchange for approximately 11.1 million shares of
Common Stock having a total value of approximately $342.7 million. PPSI provided
PPM services to approximately 710 group and 100 IPA physicians. PPSI acquired
Team Health, based in Knoxville, Tennessee, in June 1995. Team Health primarily
manages physicians and other healthcare professionals engaged in the delivery of
emergency medicine and hospital based primary care. In August 1996, the Company
acquired New Management, a California general partnership, in exchange for
approximately 348,000 shares of Common Stock having a total value of $7.0
million. New Management provided management and administrative services to West
Hills Hospital, based in Los Angeles, California.
The Company had affiliated with 190 physicians through December 31, 1994.
As of June 30, 1996, after giving effect to the Caremark Acquisition, the
Company had affiliated with approximately 7,400 physicians.
INDUSTRY
The Health Care Financing Administration ("HCFA") estimates that national
healthcare spending in 1995 was in excess of $1 trillion, with physicians
controlling more than 80% of the overall expenditures. The American Medical
Association reports that approximately 565,000 physicians are actively involved
in patient care in the United States, with a growing number participating in
multi-specialty or single-specialty groups. Expenditures directly attributable
to physicians is estimated at $200.0 billion.
Concerns over the cost of healthcare have resulted in the increasing
prominence of managed care. As markets evolve from traditional fee-for-service
medicine to managed care, HMOs and healthcare providers confront market
pressures to provide high quality healthcare in a cost-effective manner.
Employer groups have begun to bargain collectively in an effort to reduce
premiums and to bring about greater accountability of HMOs and providers with
respect to accessibility, choice of provider, quality of care and other
indicators of consumer satisfaction. The focus on cost-containment has placed
small to mid-sized physician groups and solo practices at a disadvantage because
they typically have higher operating costs and little purchasing power with
suppliers, they often lack the capital to purchase new technologies that can
improve quality and reduce costs and they do not have the cost accounting and
quality management systems necessary for entry into sophisticated risk-sharing
contracts with payors.
Industry experts expect that the medical delivery system may evolve into a
system where the primary care physician manages and directs healthcare
expenditures. As a result of these developments, primary care physicians have
increasingly become the conduit for the delivery of medical care by acting as
"case managers" and directing referrals to certain specialists, hospitals,
alternate-site facilities and diagnostic facilities. By
36
<PAGE> 38
contracting directly with payors, organizations that control primary care
physicians are able to reduce the administrative overhead expenses incurred by
HMOs and insurers and thereby reduce the cost of delivering medical services.
As a result of the trends toward increased HMO enrollment and physician
membership in group medical practices, healthcare providers have sought to
reorganize themselves into healthcare delivery systems that are better suited to
the managed care environment. Physician groups and IPAs are joining with
hospitals, pharmacies and other institutional providers in various ways to
create vertically integrated delivery systems that provide medical and hospital
services ranging from community-based primary medical care to specialized
inpatient services. These healthcare delivery systems agree with HMOs to provide
hospital and medical services to enrollees pursuant to full risk contracts.
Under these contracts, providers assume the obligation to provide both the
professional and institutional components of covered healthcare services to the
HMO enrollees.
In order to compete effectively in such an emerging environment, the
Company believes many physicians are concluding that they must obtain control
over the delivery and financial impact of a broader range of healthcare services
through global capitation. To this end, groups of independent physicians and
medium to large medical groups are taking steps to assume responsibility and
risk for healthcare services that they do not provide, such as hospitalization
and pharmacy services. Physicians are increasingly abandoning traditional
private practice in favor of affiliations with larger organizations, such as the
Company, that offer skilled and innovative management, sophisticated information
systems and capital resources. Many payors and their intermediaries, including
governmental entities and HMOs, are increasingly looking to outside providers of
physician and pharmacy services to develop and maintain quality outcomes,
management programs and patient care data. In addition, such payors and
intermediaries look to share the risk of providing healthcare services through
capitation arrangements that provide for fixed payments for patient care over a
specified period of time. While the acceptance of greater responsibility and
risk provides the opportunity to retain and enhance market share and operate at
a higher level of profitability, medical groups and independent physicians are
concluding that the acceptance of global capitation carries with it significant
requirements for infrastructure, information systems, capital, network resources
and financial and medical management. Physicians are increasingly turning to
organizations such as the Company to provide the resources necessary to function
effectively in a managed care environment.
STRATEGY
The Company's strategy is to develop locally prominent, integrated
healthcare delivery networks that provide high quality, cost-effective
healthcare in selected geographic markets. The key elements of this strategy are
as follows:
Expansion of Existing Markets. The Company's principal strategy for
expanding its existing markets is through the acquisition of, or
affiliation with, physicians and medical groups within those markets. The
Company seeks to acquire or otherwise affiliate with physician groups, IPAs
and other providers with significant market shares in their local markets
and established reputations for providing quality medical care. The Company
also develops multi-specialty physician networks that are designed to meet
the specific medical needs of a targeted geographic market. The Company
seeks to further enhance its existing market share by increasing enrollment
and fee-for-service business in its existing affiliated practices and IPAs.
The Company anticipates further internal growth by expanding more of its
payor contracts to global capitation through PPN. Additionally, the Company
believes that increasing marketing activities, enhancing patient service
and improving the accessibility of care will also increase the Company's
market share.
Expansion into New Markets. The Company expands into new markets
through the acquisition of or affiliation with other PPM entities and
medical groups. The Company believes it is a leading consolidator in the
PPM industry and that the MME acquisition was the first major consolidation
in the industry, followed by the merger with PPSI and the Caremark
Acquisition. As a result of the consolidation of physician practices and
the entry of other PPM companies into the market, the Company's management
has determined that it is important for the Company to continue its rate of
37
<PAGE> 39
expansion through acquisitions and mergers. The Company believes that by
concentrating on larger acquisitions and continuing to expand its core of
physician groups and IPAs, as well as its network of hospital affiliations,
it will create vertically integrated healthcare delivery systems and
enhance its competitive position. The Company continually reviews potential
acquisitions and physician affiliations and is currently in preliminary
negotiations with various candidates.
Integration of PPM and PBM Services. The Company believes that there
is significant opportunity for growth through the integration of the PBM
program and the PPM business. The Company expects PBM activity to increase
as payors seek to shift the responsibility of pharmacy services to PPM
entities and physician groups, and such entities turn to prescription
benefit managers to control pharmaceutical costs. The Company expects its
PBM program to grow as enrollees and fee-for-service patients use the
Company's mail-order and retail pharmacy networks. In addition, the Company
expects to expand its PBM contracts with managed care organizations for
capitated pharmaceutical services for its prepaid enrollees.
Strategic Alliances. The Company believes that strategic alliances
with hospitals and health plans improve the delivery of managed healthcare.
The Company has entered into arrangements with various hospitals under
which a portion of the capitation revenue received from HMOs for
institutional care of enrollees assigned to designated Company clinics and
IPA physicians is deposited into "subcapitated risk pools" managed by the
Company. The Company believes that such arrangements can be enhanced
through the implementation of the Restricted License held by PPN. Under
these arrangements, the hospital is at risk in the event that the costs of
institutional care exceed the available funds and the Company shares in
cost savings and revenue enhancements. The Company believes that through
these and other similar alliances, the providers will devote greater
resources to ensuring the wellness of HMO enrollees, provide high-quality
and cost-effective care and seek to retain and expand their respective
market shares. As a result, it is anticipated that the overall cost of
providing care will be contained, rendering both the Company and the
participating providers more appealing to both HMOs and medical care
consumers. The Company and its affiliated physicians have also established
relationships with HMOs pursuant to which the Company and the HMOs share
proportionately in the risks and rewards of market trends.
Sophisticated Information Systems. The Company believes that
information technology is critical to the growth of integrated healthcare
delivery systems and that the availability of detailed clinical data is
fundamental to quality control and cost containment. The Company develops
and maintains sophisticated management information systems that collect and
analyze clinical and administrative data. These systems allow the Company
to effectively control overhead expenses, maximize reimbursement and
provide effective utilization management. The Company evaluates the
administrative and clinical functions of affiliated practices and
re-engineers these functions as appropriate in conjunction with the
implementation of the Company's management information systems to maximize
the benefits of those systems.
The Company also utilizes a sophisticated database to provide
pharmaceutical-related information to participating physicians, payors,
affiliated physician practices and other specialty service entities. The
database is designed to provide a safe and effective method for
distributing and administering drugs and drug therapies.
Increased Operational Efficiencies and Cost Reductions. The Company
is seeking to increase its operating efficiency through expansion of its
market area and number of HMO enrollees, refinement of its utilization
management programs that deliver information used by participating
physicians to monitor and improve their practice patterns, increased
specialization, development of additional in-house services and increased
emphasis on outpatient care. The Company's physician networks attempt to
achieve economies of scale through centralizing billing, scheduling,
information management and other functions.
OPERATIONS
Prior to affiliation with MME in November 1995, MedPartners concentrated
its PPM development efforts in the southeastern United States, affiliating
primarily with physician groups that practice on a fee-for-
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<PAGE> 40
service basis. With the MME, PPSI and Caremark organizations, the Company
acquired additional business models, specifically designed to operate
efficiently in the capitated managed care environment. These business models,
which are replicable and flexible, allow the Company to capitalize on the full
range of market opportunities in the PPM industry and enable the Company to
build integrated physician networks attractive to payors of all types. The
Company has networks currently under development in 25 states.
To meet payor demand for price competitive, quality services, the Company
utilizes a market-based approach that incorporates primary care and specialty
physicians into a network of providers serving a targeted geographic area. The
Company engages in research activities and market analysis to determine the
network configuration for a particular market. Primary care includes family
practice, internal medicine, pediatrics and obstetrics/gynecology. Key
specialties include orthopedics, cardiology, oncology, radiology, neurosciences,
urology, surgery, ear, nose and throat and ophthalmology. At certain locations,
affiliated physicians and support personnel operate centers for diagnostic
imaging, urgent care, cancer management, mental health treatment and health
education. Network physicians also treat fee-for-service patients on a
per-occurrence basis. After-hours care is available in several of the Company's
clinics. Each network is configured to contain, when complete, the physician
services necessary to capture at least 20% of market share and to provide at
least 90% of the physician services required by payors. The Company markets its
networks to managed care and third-party payors, referring physicians and
hospitals.
Affiliated Physicians. The relationship between the Company and its
affiliated physicians is set forth in asset purchase and practice management
agreements. Through the asset purchase agreement, the Company acquires the
assets utilized in the practice and may also assume certain leases and other
contracts of the physician group. Under a practice management agreement, a
physician group delegates to the Company administrative, management and support
functions required in connection with its medical practice. The Company provides
the physician group with the equipment and facilities used in its medical
practice, manages practice operations and employs substantially all of the
practice's non-physician personnel, except certain allied health professionals,
such as nurses and physical therapists. See also Notes 1 and 10 to Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.
Pursuant to the practice management agreement, the affiliated professional
corporation assigns to the Company, or otherwise grants control over, all or
substantially all its rights and interest in the revenue it receives. In return
for providing services pursuant to such agreement, the physicians receive
compensation, as negotiated, either as a fixed percentage of net revenues, a
pre-determined salary and incentive arrangement, or an arrangement based
directly on the profitability of the practice. The Company works closely with
affiliated physicians in targeting and recruiting physicians and in merging sole
practice or single specialty groups into the affiliated physician groups. The
Company seeks to recognize and develop opportunities to provide services
throughout a market by positioning its practices so that the entire market is
covered geographically. This approach provides patients with convenient medical
facilities and services and responds to coverage criteria essential to payors.
See Note 1 to Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
IPAs. The Company's networks include approximately 4,180 primary care and
specialist IPA physicians serving approximately 185,000 HMO enrollees. An IPA
allows individual practitioners to access patients in their area through
contracts with HMOs without having to join a group practice or sign exclusive
contracts and also coordinates utilization review and quality assurance programs
for its affiliated physicians. In addition to providing access to HMO contracts,
an IPA offers other benefits to physicians seeking to remain independent,
including economies of scale in the marketplace, enhanced risk-sharing
arrangements and access to other strategic alliances. The Company identifies
IPAs that need access to capitated HMO contracts, and such IPA organizations
typically agree to assign their existing HMO contracts to the Company. The
Company believes that the expansion of its IPAs will enable it to increase its
market share with relatively low risk because of the low incremental investment
required to recruit additional physicians.
HMOs. The Company, through its affiliated physicians, began contracting
with HMOs to provide healthcare on a capitated reimbursement basis in 1975
(through predecessors). Under these contracts, which typically are automatically
renewed on an annual basis, the Company provides virtually all covered medical
39
<PAGE> 41
services and receives a fixed monthly capitation payment from HMOs for each
member who chooses an affiliated physician as his or her primary care physician.
The capitation amount may be fixed, based upon a percentage of premium, or
adjusted based on the age and sex of the HMO enrollee. Contracts for prepaid
healthcare with HMOs accounted for approximately 30.6% of the Company's pro
forma combined net revenue for the six months ended June 30, 1996.
To the extent that enrollees require more care than is anticipated or
require supplemental medical care that is not otherwise reimbursed by HMOs or
other payors, aggregate capitation payments may be insufficient to cover the
costs associated with the treatment of enrollees. Stop-loss coverage is
maintained, which mitigates the effect of occasional high utilization of
healthcare services. As of June 30, 1996, after giving effect to the
Acquisitions, over 1.5 million prepaid HMO enrollees were covered beneficiaries
for professional services in the Company's network. These patients are covered
under either commercial (typically employer-sponsored) or senior
(Medicare-funded) HMOs. Higher capitation rates are typically received for
senior patients because their medical needs are generally greater. Consequently,
the cost of their covered care is higher. As of June 30, 1996, the Company's HMO
enrollees comprised approximately 1.2 million commercial enrollees and
approximately 107,000 senior (over age 65) enrollees. As of June 30, 1996, the
Company was receiving institutional capitation payments for approximately
773,000 enrollees.
Hospitals. The Company operates Pioneer Hospital, a 99-bed acute care
hospital located in Artesia, California, USFMC, a 102-bed acute care hospital in
Montclair, California, and Friendly Hills, a 274-bed acute care hospital in La
Habra, California. Many of the physicians on professional staff rosters of these
hospitals are either employed by an affiliated professional corporation or under
contract with MedPartners' IPAs. The traditional hospital-based physicians, such
as emergency room physicians, anesthesiologists, pathologists, radiologists and
cardiologists provide services through contractual arrangements. Several of the
Company's medical clinics are located sufficiently close to these hospitals to
allow enrollees who utilize these clinics to also use these hospitals. Under the
HMO contracts, MedPartners, through its affiliated medical groups or Knox-Keene
licensee, is obligated to pay for inpatient hospitalization and related
services. Over 50% of Pioneer Hospital's and approximately 85% of USFMC's daily
census is made up of MedPartners' affiliated medical group enrollees.
Approximately 87% of Friendly Hills' daily census is comprised of MedPartners'
affiliated medical group enrollees. MedPartners, through its Knox-Keene licensee
or affiliated medical groups, has entered into agreements with other hospitals
in California for the delivery of hospital services to the remainder of its
enrollees. In each instance, the institutional capitation payments received from
HMOs are placed at risk for the benefit of the applicable hospital, MedPartners
and its affiliated physicians, to the extent such services have not reached a
stop-loss threshold. MedPartners and these providers split any savings realized
if hospital utilization declines due to the success of MedPartners' programs for
early intervention, wellness and outpatient treatment.
Pharmaceutical Services. The Company manages outpatient PBM programs
throughout the United States for corporations, insurance companies, unions,
government employee groups and managed care organizations. Prescription drug
benefit management involves the design and administration of programs for
reducing the costs and improving the safety, effectiveness and convenience of
prescription drugs. The Company has one of the largest independent PBM programs,
dispensing 42,000 prescriptions daily from four mail service pharmacies. The
Company also manages patients' immediate prescription needs through a network of
approximately 53,000 retail pharmacies. Under the Company's PBM quality
assurance program, the Company maintains rigorous quality assurance and
regulatory policies and procedures. A computerized order processing system
reviews each prescription order for a variety of potential concerns, including
reactions with other drugs known to be prescribed to that patient, reactions
with a patient's known allergies, duplication of therapies, appropriateness of
dosage and early refill requests that may indicate overutilization or fraud.
Each prescription is verified by a licensed pharmacist before shipment. The
Company has retained the services of an independent national advisory panel of
physician specialists that advises it on the clinical analysis of its
intervention strategies and on cost-effective clinical procedures. The Company
offers a full range of drug cost and clinical management services, including
clinical case management, drug utilization review, formulary management and
customized prescription programs for senior citizens.
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<PAGE> 42
Disease Management. The Company delivers comprehensive long-term support
for high-cost, chronic illnesses in an effort to improve outcomes for patients
and to lower costs. The Company believes that these programs efficiently provide
for a patient's entire healthcare needs. The programs utilize advanced protocols
and eliminate unnecessary procedural steps. The Company provides therapies and
services to individuals with such conditions as hemophilia, growth disorders,
immune deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.
The Company estimates that there are over 200,000 patients in the United States
suffering from these diseases. The Company's disease management services utilize
the Company's integrated health data to develop therapies to manage the high
cost of treating these patients.
Hospital-Based Physician Operations. The Company's Hospital-Based
Physician ("HBP") operations organize and manage physicians and other healthcare
professionals engaged in the delivery of emergency, radiology and teleradiology
services, hospital-based primary care and temporary staffing and support
services to hospitals, clinics, managed care organizations and physician groups.
NorthWest Emergency Physicians ("NEP") is the largest provider of emergency
physician contract management services to hospital-based emergency departments
in the Pacific Northwest (Washington, Oregon and Alaska). NEP's emergency
department contracts provide physician coverage for 15 hospital emergency
departments, 24 hours-a-day throughout the year. Team Health operates primarily
in the southeastern United States and currently serves 57 hospital emergency
departments in Tennessee, Kentucky, Alabama, Arkansas, Virginia, Florida, New
Jersey, Pennsylvania and Ohio, and 15 hospital radiology departments. Under
contracts with hospitals and other clients, the Company's HBP operations
identify and recruit physicians and other healthcare professionals for admission
to a client's medical staff, monitor the quality of care and proper utilization
of services and coordinate the ongoing scheduling of staff physicians who
provide clinical coverage in designated areas of care. Hospitals have found it
increasingly difficult to recruit, schedule, retain and appropriately compensate
hospital-based physician specialists required to operate hospital emergency,
radiology and other departments. As a consequence, a large number of hospitals
have turned to contract management firms as a more cost-effective and reliable
alternative to the development of in-house physician staffing.
INFORMATION SYSTEMS
The Company develops and maintains integrated information systems to
support its growth and acquisition plans. The Company's overall information
systems design is open, modular and flexible. The Company has implemented a
flexible individual patient electronic medical record ("EMR") that is
continually updated to complement primary practice management and billing
functions. The Company has configured its systems to give affiliated physicians
and their staff efficient and rapid access to complex clinical data. The
Company's use of the EMR enhances operational efficiencies through automation of
many routine clinical functions, as well as the capacity to link
"physician-specific" treatment protocols by diagnosis. This allows physicians to
have treatments checked against pre-defined protocols at the time of service.
The Company also utilizes a sophisticated database to provide
pharmaceutical-related information to participating physicians, payors,
affiliated physician practices and other specialty service entities. The
database is designed to provide a safe and effective method for distributing and
administering drugs and drug therapies.
Effective and efficient access to key clinical patient and pharmaceutical
data is critical in obtaining quality outcomes and improving costs as the
Company enters into more capitation contracts. The Company utilizes its existing
information systems to measure patient care satisfaction and outcomes of care,
improve productivity, manage complex reimbursement procedures and integrate
information from multiple facilities throughout the care spectrum. These systems
allow the Company to analyze clinical and cost data to determine thresholds of
profitability under various capitation arrangements.
INTERNATIONAL
The Company has minimal operations in several European countries and Japan.
The Company believes increasing healthcare costs, an expanding population base
over age 65, advances in medical technology and the ability to provide improved
quality of life while managing the cost of care will foster growth of healthcare
services internationally as well as domestically. Accordingly, the Company is
considering whether to expand its efforts in offering new approaches to
healthcare delivery and management around the world.
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COMPETITION
The PPM industry is highly competitive and is subject to continuing changes
in the provision of services and the selection and compensation of providers.
The Company competes for acquisition, affiliation and other expansion
opportunities with national, regional and local PPM companies and other PPM
entities. In addition, certain companies, including hospitals and insurers, are
expanding their presence in the PPM market. The Company also competes with
prescription drug benefit programs, prescription drug claims processors,
regional claims processors, providers of disease management services and
insurance companies.
GOVERNMENT REGULATION
As a participant in the healthcare industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state and local levels. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, because the structure of the relationship with the physician
groups is unique, many aspects of the Company's business operations have not
been the subject of state or federal regulatory interpretation. Thus, there can
be no assurance that a review of the Company's or the affiliated physicians'
businesses by courts or regulatory authorities will not result in a
determination that could adversely affect the operations of the Company or of
the affiliated physicians. Nor can there be any assurance that the healthcare
regulatory environment will not change so as to restrict the Company's or the
affiliated physicians' existing operations or their expansion. Any significant
restriction could materially adversely affect the operating results and
financial condition of the Company.
Approximately 5% of the revenues of the Company's affiliated physician
groups is derived from payments made by government-sponsored healthcare programs
(principally, Medicare and state reimbursed programs). As a result, any change
in reimbursement regulations, policies, practices, interpretations or statutes
could adversely affect the operations of the Company. There are also state and
federal civil and criminal statutes imposing substantial penalties, including
civil and criminal fines and imprisonment, on healthcare providers that
fraudulently or wrongfully bill governmental or other third-party payors for
healthcare services. While the Company believes it is in material compliance
with such laws, there can be no assurance that the Company's activities will not
be challenged or scrutinized by governmental authorities.
The laws of many states prohibit business corporations such as the Company
from practicing medicine and employing physicians to practice medicine. The
Company performs only non-medical administrative services. It does not represent
to the public or its clients that it offers medical services, and the Company
does not exercise influence or control over the practice of medicine by the
physicians with whom it contracts. Accordingly, the Company believes that it is
not in violation of applicable state laws relating to the practice of medicine.
Numerous states also prohibit entities such as the Company from engaging in
certain healthcare-related activities, such as fee-splitting with physicians.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-kickback Statute", prohibit the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare or state health
program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs. Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid
and other third-party payor patients. Although the Company believes that it is
in material compliance with the Anti-kickback Statute and similar state
statutes, the Company's operations do not fit specifically within any of the
existing or proposed federal safe harbors.
Federal Referral Laws. Significant prohibitions against physician
referrals were enacted by the United States Congress in the Omnibus Budget
Reconciliation Act of 1993. Subject to certain exemptions, a physician or a
member of his immediate family is prohibited from referring Medicare or Medicaid
patients to an entity providing "designated health services" in which the
physician has an ownership or investment interest or with which the physician
has entered into a compensation arrangement. While the Company believes it is in
compliance with such legislation, future regulations could require the Company
to modify the form of its relationships with physician groups. Some states have
also enacted similar self-referral laws, and
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the Company believes it is likely that more states will follow. The Company
believes that its practices fit within exemptions contained in such statutes.
Nevertheless, expansion of the Company's operations to new jurisdictions could
require structural and organizational modifications of the Company's
relationships with physician groups in order to comply with new or revised state
statutes.
The Company is subject to the laws and regulations that govern
reimbursement under Medicare and Medicaid. Federal law prohibits, with some
exceptions, an entity from filing a claim for reimbursement under the Medicare
or Medicaid programs for certain designated services if the entity has a
financial relationship with the referring physician. Federal law (the "Medicare
Referral Payments Law") also prohibits the solicitation or receipt of
remuneration in exchange for, or the offer or payment of remuneration to induce,
the referral of Medicare or Medicaid beneficiaries. The OIG has promulgated
regulatory "safe harbors" under the Medicare Referral Payments Law that describe
payment practices between healthcare providers and referral sources that will
not be subject to criminal prosecution and that will not provide the basis for
exclusion from the Medicare and Medicaid programs. The Company retains
healthcare professionals to provide advice and non-medical services to the
Company in return for compensation pursuant to employment, consulting or service
contracts. In addition, the Company manages physician practices in return for a
management fee. The Company also enters into contracts with hospitals under
which the Company provides products and administrative services for a fee. Many
of the parties with whom the Company contracts refer or are in a position to
refer patients to the Company. The breadth of these federal laws, the paucity of
court decisions interpreting these laws, the limited nature of regulatory
interpretations and the absence of court decisions interpreting the safe harbor
regulations have resulted in ambiguous and varying interpretations of these
federal laws and regulations. The OIG or the DOJ could seek a determination that
the Company's past or current policies and practices regarding contracts and
relationships with healthcare providers violate federal law. In such event, no
assurance can be given that the Company's interpretation of these laws will
prevail, except with respect to those matters that were the subject of the OIG
investigation. See "Legal Proceedings". The failure of the Company's
interpretation of these laws to prevail could materially adversely affect the
operating results and financial condition of the Company.
Caremark agreed, in its settlement agreement with the OIG and DOJ prior to
the Caremark Acquisition, to continue to enforce certain compliance-related
oversight procedures. Should the oversight procedures reveal violations of
federal law, Caremark would be required to report such violations to the OIG and
DOJ. Caremark is therefore subject to increased regulatory scrutiny and, in the
event that Caremark commits legal or regulatory violations, it may be subject to
an increased risk of sanctions or penalties, including disqualification as a
provider of Medicare or Medicaid services which could materially adversely
affect the operating results and financial condition of the Company.
State Referral Payment Laws. The Company is also subject to state statutes
and regulations that prohibit payments for referral of patients, splitting of
professional fees by physicians and referrals by physicians to healthcare
providers with whom the physicians have a financial relationship. State statutes
and regulations generally apply to services reimbursed by both governmental and
private payors. Violations of these laws may result in prohibition of payment
for services rendered, loss of pharmacy or health provider licenses as well as
fines and criminal penalties. State statutes and regulations that may affect the
referral of patients to healthcare providers range from statutes and regulations
that are substantially the same as the federal laws and the safe harbor
regulations to a simple requirement that physicians or other healthcare
professionals disclose to patients any financial relationship the physicians or
healthcare professionals have with a healthcare provider that is being
recommended to the patients. These laws and regulations vary significantly from
state to state, are often vague, and, in many cases, have not been interpreted
by courts or regulatory agencies. The Company is not materially dependent upon
revenues derived from any single state. Adverse judicial or administrative
interpretations of such laws in several states, taken together, could, however,
materially adversely affect the operating results and financial condition of the
Company.
On March 5, 1996, the DOC issued the Restricted License to PPN in
accordance with the requirements of the Knox-Keene Act. The Restricted License
authorizes PPN to operate as a healthcare service plan in the State of
California. The Company, through PPN, intends to utilize the Restricted License
for purposes of contracting with HMOs for a broad range of healthcare services,
including both institutional and professional
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<PAGE> 45
medical services, through a consolidated contract with the HMO. The Knox-Keene
Act and the regulations promulgated thereunder subject entities that are
licensed as healthcare service plans in California to substantial regulation by
the DOC. In addition, licensees under the Knox-Keene Act must file periodic
financial data and other information (that generally become available to the
public), maintain substantial tangible net equity on their balance sheets and
maintain adequate levels of medical, financial and operational personnel
dedicated to fulfilling the licensee's statutory and regulatory requirements.
The DOC is empowered to take enforcement actions against licensees that fail to
comply with such requirements. PPN is a recently created organization without an
operating history, and there is no assurance that the DOC will view PPN's
operations as being fully in compliance with applicable laws and regulations.
The operation of Pioneer Hospital, USFMC and Friendly Hills is highly
regulated, and each is accredited by the Joint Commission on Accreditation of
Healthcare Organizations. Accreditation from the Joint Commission on
Accreditation of Healthcare Organizations allows Pioneer Hospital to serve
Medicare patients and provides authorization from the California Department of
Health Services and the Los Angeles County Department of Health to operate as a
licensed hospital facility. Each of Pioneer Hospital, USFMC and Friendly Hills
is licensed and regulated as a general acute care hospital by the State of
California Department of Health Services. Additionally, each of Pioneer
Hospital, USFMC and Friendly Hills has a clinical laboratory license from the
State of California Department of Health Services, a clinical laboratory license
for its cardio-pulmonary laboratory and a pharmacy license for its inpatient
pharmacy.
Corporate Practice of Medicine Laws. The laws of many states prohibit
corporations other than professional corporations or associations from
practicing medicine and prohibit physicians from practicing medicine in
partnership with, or as employees of, any person not licensed to practice
medicine. These laws and their interpretations vary from state to state, and
they are enforced by regulatory authorities that have broad discretionary
authority. The Company does not employ physicians to practice medicine, does not
represent to the public that it offers medical services and does not control the
practice of medicine by its affiliated physician groups. There can, however, be
no assurance that the Company's arrangements will not be successfully challenged
as constituting the unauthorized practice of medicine.
Antitrust Laws. In connection with the corporate practice of medicine laws
referred to above, the physician practices with whom the Company is affiliated
necessarily are organized as separate legal entities. As such, the physician
practice entities may be deemed to be persons separate both from the Company and
from each other under the antitrust laws and, accordingly, subject to a wide
range of laws that prohibit anticompetitive conduct among separate legal
entities. The Company believes it is in compliance with these laws and intends
to comply with any state and federal laws that may affect its development of
integrated healthcare delivery networks. There can be no assurance, however,
that a review of the Company's business by courts or regulatory authorities
would not adversely affect the operation of the Company and its affiliated
physician groups.
Insurance Laws. The assumption of risk on a prepaid basis by health
provider networks is occurring with increasing frequency, and the practice is
being reviewed by various state insurance commissioners as well as the National
Association of Insurance Commissioners to determine whether the practice
constitutes the business of insurance. The Company believes that it is currently
in material compliance with the insurance laws in the states where it is
operating and it intends to comply with interpretative and legislative changes
as they may develop. There can be no assurance, however, that the Company's
activities will not be challenged or scrutinized by governmental authorities.
Pharmacy Licensing and Operation. The Company is subject to federal and
state laws and regulations governing pharmacies. Federal controlled substance
laws require the Company to register its pharmacies with the United States Drug
Enforcement Administration and comply with security, record-keeping, inventory
control and labeling standards in order to dispense controlled substances. State
controlled substance laws require registration and compliance with the
licensing, registration or permit standards of the state pharmacy licensing
authority. State pharmacy licensing, registration and permit laws impose
standards on the qualifications of the applicant's personnel, the adequacy of
its prescription fulfillment and inventory control practices
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<PAGE> 46
and the adequacy of its facilities. In general, pharmacy licenses are renewed
annually. Pharmacists employed by each branch must also satisfy state licensing
requirements.
Several states have enacted legislation that requires mail service
pharmacies located elsewhere to register with the state board of pharmacy prior
to mailing drugs into the state and to meet certain operating and disclosure
requirements. These statutes generally permit a mail service pharmacy to operate
in accordance with the laws of the state in which it is located. In addition,
various pharmacy associations and state boards of pharmacy have promoted
enactment of laws and regulations directed at restricting or prohibiting the
operation of out-of-state mail service pharmacies by, among other things,
requiring compliance with all laws of certain states into which the mail service
pharmacy dispenses medications whether or not those laws conflict with the laws
of the state in which the pharmacy is located. To the extent that such laws or
regulations are found to be applicable to the Company's operations, the Company
would be required to comply with them. Some states have enacted laws and
regulations which, if successfully enforced, would effectively limit some of the
financial incentives available to plan sponsors that offer mail service
prescription programs. With respect to self-insured plans, the United States
Department of Labor has commented that such laws and regulations are pre-empted
by the Employee Retirement Income Security Act of 1974, as amended. The Attorney
General in one state has reached a similar conclusion and has raised additional
constitutional issues. Finally, the Federal Trade Commission's ("FTC") Bureau of
Competition has concluded that such laws and regulations may be anticompetitive
and not in the best interests of consumers. To date, there have been no formal
administrative or judicial efforts to enforce any of such laws against the
Company. To the extent that any of the foregoing laws or regulations prohibit or
restrict the operation of mail service pharmacies and are found to be applicable
to the Company, they could have an adverse effect on the Company's prescription
mail service operations. United States Postal Service regulations expressly
permit the transmission of prescription drugs through the postal system. The
United States Postal Service has authority to restrict such transmission.
The PBM and disease management services of the Company are subject to state
and federal statutes and regulations governing the operation of pharmacies,
repackaging of drug products, dispensing of controlled substances, reimbursement
under federal and state medical assistance programs, financial relationships
between healthcare providers and potential referral sources, medical waste
disposal, risk sharing by non-insurance companies and workplace health and
safety. The Company's operations may also be affected by changes in ethical
guidelines and operating standards of professional and trade associations and
private accreditation commissions such as the American Medical Association, the
National Committee for Quality Assurance and the Joint Commission on
Accreditation of Healthcare Organizations.
Future Legislation and Regulation. As a result of the continued escalation
of healthcare costs and the inability of many individuals to obtain health
insurance, numerous proposals have been or may be introduced in the United
States Congress and state legislatures relating to healthcare reform. There can
be no assurance as to the ultimate content, timing or effect of any healthcare
reform legislation, nor is it possible at this time to estimate the impact of
potential legislation, which may be material, on the Company.
LEGAL PROCEEDINGS
The Company is named as a defendant in various legal actions arising
primarily out of services rendered by physicians employed by its affiliated
physician entities and Pioneer Hospital and USFMC, personal injury and
employment disputes. In addition, certain of its affiliated medical groups are
named as defendants in numerous actions alleging medical negligence on the part
of their physicians. In certain of these actions, the Company's and the medical
group's insurance carrier has either declined to provide coverage or has
provided a defense subject to a reservation of rights. Management does not view
any of these actions as likely to result in an uninsured award which would have
a material adverse effect on the operating results and financial condition of
the Company.
In May 1996, two stockholders, each purporting to represent a class, filed
complaints against Caremark and each of its directors in the Court of Chancery
of the State of Delaware alleging breaches of the directors' fiduciary duty in
connection with Caremark's then proposed merger with the Company. The complaints
seek unspecified damages, injunctive relief, and attorneys' fees and expenses.
The Company intends to defend these
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<PAGE> 47
cases vigorously. Although the ultimate outcome of such litigation cannot be
predicted, the Company does not believe such litigation, if adversely
determined, would have a material adverse effect on the operating results and
financial condition of the Company.
In May 1996, three pharmacies, purporting to represent a class consisting
of all of Caremark's competitors in the alternate site infusion therapy
industry, filed a complaint against Caremark, a subsidiary of Caremark, and two
other corporations in the United States District Court for the District of
Hawaii alleging violations of the federal conspiracy laws, the antitrust laws
and of California's unfair business practices statute. The complaint seeks
unspecified treble damages and attorneys' fees and expenses. The Company intends
to defend this case vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of the Company, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of the Company.
In June 1995, Caremark agreed to settle a nearly four year long
investigation with the DOJ, OIG, the Veterans Administration, the FEHBP, the
CHAMPUS and related state investigative agencies in all 50 states and the
District of Columbia. Under the terms of the OIG Settlement, which covered
allegations dating back to 1986, a subsidiary of Caremark pled guilty to two
counts of mail fraud -- one each in Minnesota and Ohio. The basis of these
guilty pleas was Caremark's failure to provide certain information to CHAMPUS
and FEHBP, federally funded healthcare benefit programs, concerning financial
relationships between Caremark and a physician in each of Minnesota and Ohio.
The OIG Settlement allows Caremark to continue participating in Medicare,
Medicaid and other government healthcare programs.
Under the OIG Settlement, Caremark agreed to make civil payments of $85.3
million to the federal government in installments and $44.6 million to the
states. The plea agreement imposed $29.0 million in federal criminal fines. All
of these fines and payments have been fully paid. In addition, Caremark has
contributed $2.0 million to a grant program set up under the Ryan White
Comprehensive AIDS Resources Emergency (CARE) Act. Caremark took an after-tax
charge of $154.8 million in 1995 for these settlement payments, costs to defend
ongoing derivative, security and other lawsuits, and other related costs. This
charge has been reflected in Caremark's discontinued operations and will not
materially affect the Company's ability to pursue its long-term business
strategy. There can be no assurance, however, that the ultimate costs related to
the OIG Settlement will not exceed these estimates or that additional costs,
claims and damages will not occur, or if they occur, will not have a material
adverse effect on the operating results and financial condition of the Company.
In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act and the Exchange Act, and
fraud and negligence and various state law claims in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the OIG investigation. The complaints seek unspecified damages, declaratory
and equitable relief, and attorneys fees and expenses. In June 1996, the
complaint filed by one group of stockholders alleging violations of the Exchange
Act only, was certified as a class. The parties to all of the complaints
continue to engage in discovery proceedings. The Company intends to defend these
cases vigorously. Although management believes, based on information currently
available, that the ultimate resolution of this matter is not likely to have a
material adverse effect on the operating results and financial condition of the
Company, there can be no assurance that the ultimate resolution of this matter,
if adversely determined, would not have a material adverse effect on the
operating results and financial condition of the Company.
In August 1994 and July 1995, stockholders filed derivative actions on
behalf of Caremark against Caremark, its directors and certain employees of
Caremark in the Court of Chancery of the State of Delaware, the United States
District Court for the Northern District of Illinois and the Circuit Court of
Cook County in Chicago, Illinois. The actions alleged breaches of fiduciary
duty, negligence in connection with Caremark's conduct of the business and lack
of corporate controls, and sought unspecified damages and attorneys fees and
expenses. In June 1996, the parties entered into a Stipulation and Agreement of
Compromise and Settlement which established proposed terms for the settlement of
the case. The Delaware court conducted a hearing on August 16, 1996 to consider
the proposed settlement and entered an order on September 26, 1996, approving
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<PAGE> 48
the settlement. The settlement does not provide for the payment of any damages
by any defendant, although plaintiffs were awarded $869,500 in attorneys fees
and expenses in conjunction with approval of the settlement. The Illinois and
Cook County courts entered stays of all proceedings in those actions pending
resolution of the Delaware derivative action. The action in the Northern
District of Illinois has now been dismissed, and the Company expects that the
Cook County action will be dismissed.
In late August 1994, certain patients of a physician who prescribed human
growth hormone distributed by Caremark and the sponsor of the health insurance
plan of one of those patients filed complaints against Caremark, employees of
Caremark and others in the United States District Court for the District of
Minnesota. Each complaint purported to be on behalf of a class and alleged
violations of the federal mail and wire fraud statutes, the federal conspiracy
statute and the state consumer fraud statute, as well as conspiracy to breach a
fiduciary duty, negligence and fraud. Each complaint sought unspecified treble
damages, and attorneys fees and expenses. In July 1996, these plaintiffs also
filed a separate lawsuit in the Minnesota State Court in the County of Hennepin
against a subsidiary of Caremark purporting to be on behalf of a class and
alleging all of the claims contained in the complaint filed with the Minnesota
federal court other than the federal claims contained therein. The complaint
seeks unspecified damages, attorneys' fees and expenses and an award of punitive
damages. In July 1995, another patient of this same physician filed a separate
complaint in the District Court of South Dakota against the physician, Caremark
and another corporation alleging violations of the federal laws prohibiting
payment of remuneration to induce referral of Medicare and Medicaid
beneficiaries, and the federal mail fraud and conspiracy statutes. The complaint
also alleges the intentional infliction of emotional distress and seeks trebling
of at least $15.9 million in general damages, attorneys fees and costs, and an
award of punitive damages. In August 1995, the parties to the case filed in
South Dakota agreed to a stay of all proceedings until final judgment has been
entered in a criminal case that is presently pending against this physician. The
Company intends to defend these cases vigorously. Although management believes,
based on information currently available, that the ultimate resolution of this
matter is not likely to have a material adverse effect on the operating results
and financial condition of the Company, there can be no assurance that the
ultimate resolution of this matter, if adversely determined, would not have a
material adverse effect on the operating results and financial condition of the
Company.
In September 1995, Coram filed a complaint in the San Francisco Superior
Court against Caremark and its subsidiary, Caremark Inc. and 50 unnamed
individual defendants. The complaint, which arises from Caremark's sale to Coram
of Caremark's home infusion therapy business in April 1995 for approximately
$209.0 million in cash and $100.0 million in securities, alleges breach of the
Asset Sale and Note Purchase Agreement, dated January 29, 1995, as amended April
1, 1995, between Coram and Caremark, breach of related contracts, fraud,
negligent misrepresentation and a right to contractual indemnity. Requested
relief in Coram's amended complaint includes specific performance, declaratory
relief, injunctive relief, and damages of $5.2 billion. Caremark filed
counterclaims against Coram in this lawsuit and also filed a lawsuit in the U.S.
District Court in Chicago claiming that Coram committed securities fraud in its
sale to Caremark of its securities in connection with the sale of the company's
home infusion business to Coram. The lawsuit filed in federal court in Chicago
has been dismissed, and Caremark's appeal of the dismissal was argued on May 10,
1996 and is now under submission. Coram's lawsuit is currently in the discovery
phase. Although management believes, based on information currently available,
that the ultimate resolution of this matter is not likely to have a material
adverse effect on the operating results and financial condition of the Company,
there can be no assurance, that the ultimate resolution of this matter, if
adversely determined, would not have a material adverse effect on the operating
results and financial condition of the Company.
Beginning in September 1994, Caremark was named as a defendant in a series
of new lawsuits added to a pending group of actions (including a class action)
brought in 1993 under the antitrust laws by local and chain retail pharmacies
against brand name pharmaceutical manufacturers, wholesalers and prescription
benefit managers other than Caremark. The new lawsuits, filed in federal
district courts in at least 38 states (including the United States District
Court for the Northern District of Illinois), allege that at least 24
pharmaceutical manufacturers provided unlawful price and service discounts to
certain favored buyers and conspired among themselves to deny similar discounts
to the complaining retail pharmacies (approximately 3,900 in number). The
complaints charge that certain defendant prescription benefit managers,
including Caremark, were favored buyers who knowingly induced or received
discriminatory prices from the manufacturers in violation
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of the Robinson-Patman Act. Each complaint seeks unspecified treble damages,
declaratory and equitable relief, and attorneys fees and expenses. All of these
actions have been transferred by the Judicial Panel for Multidistrict Litigation
to the United States District Court for the Northern District of Illinois for
coordinated pretrial procedures. Caremark was not named in the class action. In
April 1995, the Court entered a stay of pretrial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. On July 1, 1996, the district court directed
entry of a partial final order in the class action approving an amended
settlement with certain of pharmaceutical manufacturers. The amended settlement
provides for a cash payment of approximately $351.0 million to class members in
settlement of conspiracy claims as well as a commitment from the settling
manufacturers to abide by certain injunctive provisions. All class action claims
against non-settling manufacturers as well as all opt out and other claims
generally, including all Robinson-Patman Act claims against Caremark, remain
unaffected by the settlement. The district court also certified to the court of
appeals for interlocutory review certain orders relating to non-settled
conspiracy claims against the pharmaceutical manufacturers and wholesalers.
These interlocutory orders do not relate to any of the claims brought against
Caremark. The Company intends to defend these cases vigorously. Although
management believes, based on information currently available, that the ultimate
resolution of this matter is not likely to have a material adverse effect on the
operating results and financial condition of the Company, there can be no
assurance that the ultimate resolution of this matter, if adversely determined,
would not have a material adverse effect on the operating results and financial
condition of the Company.
In December 1994, Caremark was notified by the FTC that it was conducting a
civil investigation of the industry concerning whether acquisitions, alliances,
agreements or activities between prescription benefit managers and
pharmaceutical manufacturers, including Caremark's alliance agreements with
certain drug manufacturers, violate Sections 3 or 7 of the Clayton Act or
Section 5 of the Federal Trade Commission Act. The specific nature, scope,
timing and outcome of the investigation are not currently determinable. Under
the statutes, if violations are found, the FTC could seek remedies in the form
of injunctive relief to set aside or modify Caremark's alliance agreements and
an order to cease and desist from certain marketing practices and from entering
into or continuing with certain types of agreements. The Company intends to
defend these cases vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of the Company, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of the Company.
EMPLOYEES
As of June 30, 1996, the Company, including its affiliated professional
entities, employed approximately 20,000 people on a full-time equivalent basis.
CORPORATE LIABILITY AND INSURANCE
The Company's business entails an inherent risk of claims of physician
professional liability. To protect its overall operations from such potential
liabilities, the Company has a multi-tiered corporate structure and preserves
the operational integrity of each of its operating subsidiaries. In addition,
the Company maintains professional liability insurance, general liability and
other customary insurance on a claims-made and modified occurrence basis, in
amounts deemed appropriate by management based upon historical claims and the
nature and risks of the business, for all of the affiliated physicians,
practices and operations. This insurance includes "tail" coverage for claims
against the Company's affiliated medical organizations, including those acquired
from Caremark, to cover incidents which were or are incurred but not reported
during the periods for which the related risk was covered by "claims made"
insurance. There can be no assurance that a future claim will not exceed the
limits of available insurance coverage or that such coverage will continue to be
available.
Moreover, the Company requires each physician group with which it
affiliates to obtain and maintain professional liability insurance coverage.
Such insurance would provide coverage, subject to policy limits, in
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the event the Company were held liable as a co-defendant in a lawsuit for
professional malpractice against a physician. In addition, generally, the
Company is indemnified under the practice management agreements by the
affiliated physician groups for liabilities resulting from the performance of
medical services.
PROPERTIES
The Company's corporate headquarters is located at 3000 Galleria Tower in
Birmingham, Alabama and houses approximately 440 employees. Additionally, the
Company has corporate offices in Long Beach, California and Northbrook,
Illinois. The Company currently owns or leases facilities providing medical
services in 25 states, Puerto Rico and six countries. The Company also leases,
subleases or occupies, pursuant to certain acquisition agreements, the clinic
facilities of the affiliated physician groups. The Company anticipates that, as
the affiliated practices continue to grow and add new services, expanded
facilities will be required.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the executive
officers and directors of the Company as of September 15, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
-------------------------------------------- --- --------------------------------------------
<S> <C> <C>
Larry R. House(1)........................... 53 Chairman of Board, President and Chief
Executive Officer and Director
Mark L. Wagar............................... 45 President -- Western Operations
John J. Gannon.............................. 58 President -- Eastern Operations
James G. Connelly, III...................... 50 President -- Caremark
H. Lynn Massingale, M.D..................... 43 President -- Team Health
Harold O. Knight, Jr........................ 38 Executive Vice President and Chief Financial
Officer
Tracy P. Thrasher........................... 33 Executive Vice President of Administration
and Secretary
William R. Dexheimer........................ 39 Executive Vice President and Chief Operating
Officer -- East
J. Rodney Seay.............................. 49 Executive Vice President of Mergers and
Acquisitions
J. Brooke Johnston, Jr...................... 56 Senior Vice President and General Counsel
Peter J. Clemens, IV........................ 31 Vice President of Finance and Treasurer
Richard M. Scrushy.......................... 44 Director
Larry D. Striplin, Jr.(2)................... 66 Director
Charles W. Newhall III(1)................... 51 Director
Ted H. McCourtney(1)........................ 57 Director
Walter T. Mullikin, M.D..................... 78 Director
John S. McDonald, J.D.(1)................... 63 Director
Rosalio J. Lopez, M.D.(2)................... 43 Director
Richard J. Kramer........................... 53 Director
C.A. Lance Piccolo.......................... 56 Director
Roger L. Headrick........................... 60 Director
Thomas W. Hodson(2)......................... 49 Director
Harry M. Jansen Kraemer, Jr.(1)............. 41 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Larry R. House has been President and Chief Executive Officer of the
Company since August 1993, and has been Chairman of the Board since January
1993. From 1985 to 1992, he was Chief Operating Officer of HEALTHSOUTH
Rehabilitation Corporation, now HEALTHSOUTH Corporation, a publicly traded
provider of rehabilitative healthcare services ("HEALTHSOUTH"). From 1992 to
1993, Mr. House was President of HEALTHSOUTH International, Inc. Mr. House is a
member of the Board of Directors of each of HEALTHSOUTH, Capstone Capital
Corporation ("Capstone"), a publicly traded real estate investment trust, and
the American Sports Medicine Institute.
Mark L. Wagar has been President-Western Operations of the Company since
July 1996. From December 1995 until July 1996, Mr. Wagar was Executive Vice
President and Chief Operating Officer -- West. From January 1995 through
December 1995, Mr. Wagar was Chief Operating Officer of MME. From March 1994 to
December 1994, he was the President of CIGNA HealthCare of California, a
healthcare plan serving enrollees in California, Oregon and Washington, from
January 1993 through February 1994, was a Vice President of CIGNA HealthCare of
California, an HMO. From November 1989 to December 1992, he was the President of
Managed Care Partners, Inc., a private consulting management company
specializing in
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managed care services. He has been involved in healthcare management for over 20
years, including 10 years in managed care companies.
John J. Gannon has been President-Eastern Operations of the Company since
July 1996. For 23 years, Mr. Gannon was a Partner with KPMG Peat Marwick. His
most recent position with KPMG was that of National Partner-in-Charge of
Strategy and Marketing, Healthcare and Life Sciences. He served as one of the
firm's designated industry review specialists for healthcare financial
feasibility studies.
James G. Connelly, III has been President of Caremark since August 1992.
Mr. Connelly was the President of a subsidiary of Caremark from April 1992 to
November 1992. From May 1990 to November 1992, Mr. Connelly was a Group Vice
President of Baxter International, Inc., a publicly traded company that is a
leading manufacturer and marketer of healthcare products and services
("Baxter"). Prior to 1990, he was a Corporate Vice President of Baxter,
responsible for its hospital supply business group. Mr. Connelly also serves as
a director of Boise Cascade Office Products Corporation, a publicly traded
company.
H. Lynn Massingale, M.D. has been President of Team Health since its
formation in March 1994. Dr. Massingale has served as President of Southeastern
Emergency Physicians, Inc., a subsidiary of Team Health, since 1980. A graduate
of the University of Tennessee Center for Health Sciences in Memphis, Dr.
Massingale is certified by the National Board of Medical Examiners, Tennessee
Board of Medical Examiners and American Board of Emergency Medicine. Dr.
Massingale's professional memberships include the Knoxville Academy of Medicine,
Tennessee Medical Association, American Medical Association and American College
of Emergency Physicians.
Harold O. Knight, Jr. has been Executive Vice President and Chief Financial
Officer of the Company since November 1994. Mr. Knight was Senior Vice President
of Finance and Treasurer of the Company from August 1993 to November 1994, and
from March 1993 to August 1993, Mr. Knight served as Vice President of Finance
of the Company. From 1980 to 1993, Mr. Knight was with Ernst & Young LLP, most
recently as Senior Manager. Mr. Knight is a member of the Alabama Society of
Certified Public Accountants and the American Institute of Certified Public
Accountants.
Tracy P. Thrasher has been Executive Vice President of the Company since
July 1996 and has been Secretary since March 1994. Ms. Thrasher was Executive
Vice President of Administration from November 1994 to July 1996. Ms. Thrasher
was Senior Vice President of Administration from March 1994 to November 1994,
and from January 1993 to March 1994, she served as Corporate Comptroller and
Vice President of Development. From 1990 to 1993, Ms. Thrasher was the Audit and
Health Care Management Advisory Service Manager with Burton, Canady, Moore &
Carr, P.C., independent public accountants. Ms. Thrasher began her career with
Ernst & Young LLP in 1985, and became a certified public accountant in 1986.
William R. Dexheimer has been Executive Vice President and Chief Operating
Officer-East of the Company since August 1993. From 1989 to 1993, Mr. Dexheimer
was a principal stockholder and Chief Executive Officer of Strategic Health
Resources of the South, Inc., a healthcare development and consulting firm. From
1986 to 1989, Mr. Dexheimer was employed by AMI Brookwood Medical Center as
Senior Vice President of Development and Chief Executive Officer of AMI
Brookwood Primary Care Centers, Inc.
J. Rodney Seay has been Executive Vice President of Mergers and
Acquisitions of the Company since April 1995. From August 1993 to April 1995, he
served as Executive Vice President of Development of the Company. Mr. Seay was
also Secretary of the Company from August 1993 to March 1994. From 1992 to 1993,
he was Vice President of Finance of HEALTHSOUTH. From 1988 to 1992, Mr. Seay was
a Senior Manager with KPMG Peat Marwick. From 1982 to 1988, he served as Chief
Executive Officer of Medical Data Services, a physician practice management
company with over 650 employees and over 1,500 physician clients.
J. Brooke Johnston, Jr. has been Senior Vice President and General Counsel
of the Company since April 1996. Prior to that, Mr. Johnston was a senior
principal of the law firm of Haskell Slaughter Young & Johnston, Professional
Association, Birmingham, Alabama where he practiced corporate and securities law
for over seventeen years. Prior to that Mr. Johnston was engaged in the practice
of law in New York, New York
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<PAGE> 53
and at another firm in Birmingham. Mr. Johnston is a member of the Alabama State
Bar and the New York and American Bar Associations. Mr. Johnston is a member of
the Board of Directors of United Leisure Corporation, a publicly traded leisure
time company.
Peter J. Clemens, IV has been Vice President of Finance and Treasurer of
the Company since April 1995. From 1991 to 1995, Mr. Clemens worked in Corporate
Banking with Wachovia Bank of Georgia, N.A. Mr. Clemens began his career with
AmSouth Bank, N.A. in 1987, and received a Masters Degree in Business
Administration from Vanderbilt University in 1991.
Richard M. Scrushy has been a member of the Company's Board of Directors
since January 1993. Since 1984, Mr. Scrushy has been Chairman of the Board and
Chief Executive Officer of HEALTHSOUTH. Mr. Scrushy is also a member of the
Board of Directors of Capstone.
Larry D. Striplin, Jr. has been a member of the Company's Board of
Directors since January 1993. Since December 1995, Mr. Striplin has been the
Chairman and Chief Executive Officer of Nelson-Brantley Glass Contractors, Inc.
and Chairman and Chief Executive Officer of Clearview Properties, Inc. Until
December 1995, Mr. Striplin had been Chairman of the Board and Chief Executive
Officer of Circle "S" Industries, Inc., a privately owned bonding wire
manufacturer. Mr. Striplin is a member of the Board of Directors of Kulicke &
Suffa, Inc. a publicly traded manufacturer of electronic equipment, and of
Capstone.
Charles W. Newhall III has been a member of the Company's Board of
Directors since September 1993. He has been a general partner of New Enterprise
Associates, a venture capital firm, since 1978. Mr. Newhall is a member of the
Board of Directors of HEALTHSOUTH, Integrated Health Services, Inc. and OPTA
Food Ingredients, Inc., all publicly traded companies. He is founder and
Chairman of the Mid-Atlantic Venture Association, which was organized in 1988.
Ted H. McCourtney has been a member of the Company's Board of Directors
since August 1993. He has been a general partner of Venrock Associates, a
venture capital firm, since 1970. Mr. McCourtney is a member of the Board of
Directors of Cellular Communications, Inc., Cellular Communications of Puerto
Rico, Inc., Cellular Communications International, Inc., International CabelTel
Incorporated, SBSF, Inc. and Structural Dynamics Research Corporation, all
publicly traded companies.
Walter T. Mullikin, M.D., a surgeon, has been a member of the Company's
Board of Directors since November 1995. Dr. Mullikin was Chairman of the Board
of the general partner of MME from 1989 to 1995. He founded Pioneer Hospital and
the predecessors to MME's principal professional corporation in 1957. He was
also the Chairman of the Board, President and a shareholder of Mullikin
Independent Practice Association ("MIPA"), until November 1995. Dr. Mullikin is
a member of the Board of Directors of Health Net, a publicly traded HMO, and was
one of the founders and a past chairman of the Unified Medical Group
Association.
John S. McDonald, J.D. has been a member of the Company's Board of
Directors since November 1995. Mr. McDonald was the Chief Executive Officer of
the general partner of MME from March 1994 to 1995, and he was an executive of
Pioneer Hospital and their related entities since 1967. Mr. McDonald was also a
director, the Secretary and a shareholder of MME's general partner. Mr. McDonald
is on the Board of Directors of the Truck Insurance Exchange and is a past
president of the Unified Medical Group Association.
Rosalio J. Lopez, M.D. has been a member of the Company's Board of
Directors since November 1995. Mr. Lopez had been a director of the general
partner of MME since 1989. Dr. Lopez joined MME's principal professional
corporation in 1984 and serves as the Chairman of its Medical Council and Family
Practice and Managed Care committees. He also acted as a director and a Vice
President of MME's principal professional corporation. He is also a director and
shareholder of MIPA.
Richard J. Kramer has been a member of the Company's Board of Directors
since November 1995. Mr. Kramer is President/Chief Executive Officer and a
director of Catholic Healthcare West ("CHW"). Before joining CHW in September
1989, Mr. Kramer served as the Executive Vice President of LifeSpan, Inc., a
multi-hospital/healthcare system headquartered in Minneapolis, which he joined
in 1971, serving in a variety of capacities, including Vice President of
Planning and Marketing and administrator for Abbott-Northwestern Hospital. Mr.
Kramer is currently a member of the Board of Directors of the California
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<PAGE> 54
Association of Hospitals and Health Systems and the Hospital Council of Northern
and Central California, the Board of Directors of the California Chamber of
Commerce, the Governing Council of the American Hospital Association Section on
Health Systems and the House of Delegates of the American Hospital Association,
the Advisory Council for the Center for Clinical Integration and the Board of
Directors of the Alumni Association of the University of Minnesota Program in
Health Care Administration.
C.A. Lance Piccolo has been Vice Chairman of the Company's Board of
Directors since September 1996. From August 1992 to September 1996, he was
Chairman of the Board of Directors and Chief Executive Officer of Caremark. From
1987 until November 1992, Mr. Piccolo was an Executive Vice President of Baxter
and from 1988 until November 1992, he served as a director of Baxter. Mr.
Piccolo also serves as a director of Crompton & Knowles Corporation ("Crompton")
and Baxter, each of which is publicly traded.
Roger L. Headrick has been a member of the Company's Board of Directors
since September 1996 and has been President and Chief Executive Officer of the
Minnesota Vikings Football Club since 1991. Additionally, since June 1989, Mr.
Headrick has been president and chief executive officer of ProtaTek
International, Inc., a bio-process and biotechnology company that develops and
manufactures animal vaccines. Prior to 1989, he was Executive Vice President and
Chief Financial Officer of The Pillsbury Company, a food manufacturing and
processing company. Mr. Headrick also serves as a director of Crompton.
Thomas W. Hodson has been a member of the Company's Board of Directors
since September 1996, and was the Senior Vice President and Chief Financial
Officer of Caremark from August 1992 until September 1996. Mr. Hodson was a
Group Vice President of Baxter, from April 1992 to November 1992, and from 1990
to 1992 he was a Senior Vice President of Baxter responsible for financial
relations, strategic planning, acquisitions and divestitures and corporate
communications. From 1988 to 1990, Mr. Hodson was a corporate vice president of
Baxter. Mr. Hodson also serves as a director of APACHE Medical Systems, Inc., a
provider of clinically-based decision support information systems to the
healthcare industry.
Harry M. Jansen Kraemer, Jr. has been a member of the Company's Board of
Directors since September 1996, and is a Vice President and Chief Financial
Officer of Baxter, having served in that capacity since November 1993. He was
promoted to Baxter's three-member Office of the Chief Executive in June 1995,
and appointed to Baxter's Board of Directors in November 1995. In addition to
his duties as its chief financial officer he is responsible for Baxter's Global
Hospital Business, Global Renal Business, and the Baxter Japan subsidiary. Mr.
Kraemer has been an employee of Baxter since 1982 serving in a variety of
positions, including Vice President, Group Controller for Baxter's hospital and
alternate-site businesses, president of Baxter's Hospitex Division and Vice
President Finance and Operations for Baxter's global-business group.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the terms of the Certificate of Incorporation and the By-laws
of the Company, the Board of Directors is divided into three classes, with each
class being as nearly equal in number as reasonably possible. One class holds
office for a term that will expire at the Annual Meeting of Stockholders to be
held in 1997, a second class holds office for a term that will expire at the
Annual Meeting of Stockholders to be held in 1998 and a third class holds office
for a term that will expire at the Annual Meeting of Stockholders to be held in
1999. Each director holds office for the term to which he is elected and until
his successor is duly elected and qualified. At each annual meeting of
stockholders of the Company, the successors to the class of directors whose
terms expire at such meeting are elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election. Messrs. Scrushy, McCourtney and Piccolo and Dr. Lopez have terms
expiring in 1997, Messrs. House, McDonald, Kramer, Newhall and Headrick have
terms expiring in 1998, and Messrs. Striplin, Kraemer and Hodson and Dr.
Mullikin have terms expiring in 1999. The Company's Board of Directors elects
officers annually and such officers serve at the discretion of the Board of
Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors currently has two committees: the Audit
Committee and the Compensation Committee.
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The Audit Committee has the responsibility for reviewing and supervising
the financial controls of the Company. The Audit Committee makes recommendations
to the Company's Board of Directors with respect to the Company's financial
statements and the appointment of independent auditors, reviews significant
audit and accounting policies and practices, meets with the Company's
independent public accountants concerning, among other things, the scope of
audits and reports, and reviews the performance of overall accounting and
financial controls of the Company. The Audit Committee consists of Messrs.
Striplin and Hodson and Dr. Lopez.
The Compensation Committee has the responsibility for reviewing the
performance of the officers of the Company and recommending to the Company's
Board of Directors annual salary and bonus amounts for all officers of the
Company. The Compensation Committee consists of Messrs. House, Newhall,
McCourtney, McDonald and Headrick.
EXECUTIVE OFFICER COMPENSATION
Executive Officer Compensation. The following table presents certain
information concerning compensation paid or accrued for services rendered to the
Company in all capacities during the years ended December 31, 1995 and 1994, for
the chief executive officer and the four other most highly compensated executive
officers of the Company whose total annual salary and bonus in the last fiscal
year exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION HELD YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)
- ------------------------------------------- ----- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Larry R. House(2).......................... 1995 $ 349,908 $ 600,000 828,000 $ 28,335(3)
Chairman of the Board, President and 1994 335,000 -- 457,000 25,474(4)
Chief Executive Officer
Harold O. Knight, Jr....................... 1995 132,920 102,230 200,000 12,227(5)
Executive Vice President and Chief 1994 90,000 -- 30,000 3,541(6)
Financial Officer
William R. Dexheimer....................... 1995 172,996 2,196 55,000 12,254(7)
Executive Vice President and Chief 1994 162,940 -- 15,000 6,596(8)
Operating Officer -- East
Mark L. Wagar(9)........................... 1995 346,601 -- 250,000 30,485(10)
President -- Western Operations
Tracy P. Thrasher.......................... 1995 115,250 42,240 185,000 12,145(11)
Executive Vice President of 1994 83,000 -- 50,000 3,510(12)
Administration and Secretary
</TABLE>
- ---------------
(1) Dollar value of perquisites and other benefits were less than the lesser of
$50,000 or 10% of total salary and bonus for each Named Executive Officer.
(2) Pursuant to a reimbursement agreement, the Company paid HEALTHSOUTH the sum
of $150,195 as reimbursement for services rendered by Mr. House from
January 1, 1994 to August 31, 1994, when the agreement terminated. See
"-- Compensation Committee Interlocks and Insider Participation".
(3) Represents $585 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; $2,750 that was paid with
respect to automobile allowance; and $25,000 that was paid with respect to
split premium life insurance for Mr. House for 1995.
(4) Represents $434 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; $2,200 that was paid with
respect to automobile allowance; and $22,840 that was paid with respect to
split premium life insurance for Mr. House for 1994.
(5) Represents $477 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; $1,750 that was paid with
respect to automobile allowance; and $10,000 that was paid with respect to
split premium life insurance for Mr. Knight for 1995.
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<PAGE> 56
(6) Represents $391 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; and $3,150 that was paid
with respect to automobile allowance for Mr. Knight for 1994.
(7) Represents $504 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; $1,750 that was paid with
respect to automobile allowance; and $10,000 that was paid with respect to
split premium life insurance for Mr. Dexheimer for 1995.
(8) Represents $2,396 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; and $4,200 that was paid
with respect to automobile allowance for Mr. Dexheimer for 1994.
(9) Mr. Wagar commenced employment in January 1995.
(10) Represents $5,084 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; $1,548 that was paid as a
flex allowance; and $23,853 that was paid as an executive life insurance
benefit for Mr. Wagar for 1995.
(11) Represents $395 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; $1,750 that was paid for
automobile allowance; and $10,000 that was paid with respect to split
premium life insurance for Ms. Thrasher for 1995.
(12) Represents $360 that was paid with respect to life, long-term disability,
health, dental and accidental death insurance; and $3,150 that was paid
with respect to automobile allowance for Ms. Thrasher for 1994.
Option Grants in 1995. The following table contains information concerning
the grant of stock options under the Option Plans (as defined herein) to the
Named Executive Officers in 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUALS GRANTS(1) POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(2) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------- ------------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Larry R. House............ 328,000(3) 11.9% $ 12.00 2005 $2,475,329 $6,272,970
500,000(3) 18.1 27.25 2005 8,568,689 21,714,741
Harold O. Knight, Jr. .... 50,000 1.8 12.00 2005 377,337 956,245
150,000 5.4 27.25 2005 2,570,607 6,514,422
William R. Dexheimer...... 15,000 0.5 12.00 2005 113,201 286,874
40,000 1.4 27.25 2005 685,495 1,737,179
Mark L. Wagar............. 150,000 5.4 28.25 2005 2,664,941 6,753,484
100,000(3) 3.6 28.25 2005 1,776,627 4,502,322
Tracy P. Thrasher......... 85,000 3.1 12.00 2005 641,473 1,625,617
100,000 3.6 27.25 2005 1,713,738 4,342,948
</TABLE>
- ---------------
(1) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years). It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. No gain to the optionee is possible unless the stock price increases
over the option term, which will benefit all stockholders.
(2) The vesting of each option is cumulative and no vested portion expires until
the expiration of the option. Unless otherwise noted, options vest at the
rate of 20% per year over a five-year period beginning on the date of
grant.
(3) These options are 100% vested.
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<PAGE> 57
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table provides information with respect to options
exercised by the Named Executive Officers during 1995 and the number and value
of securities underlying unexercised options held by the Named Executive
Officers as of December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE OPTIONS AT FY-END(#) AT FY-END($)(1)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Larry House............... 402,000 $ 5,226,000 883,000/0 $11,567,000/$0
Harold O. Knight, Jr. .... 72,000 1,417,000 40,000/218,000 382,500/3,432,400
William R. Dexheimer...... 3,000 39,000 14,000/53,000 207,400/731,200
Mark L. Wagar............. -- -- 130,000/120,000 747,528/570,000
Tracy P. Thrasher......... 32,000 567,500 37,000/186,000 472,000/3,134,400
</TABLE>
- ---------------
(1) Based on the $33.00 per share closing sale price of the Common Stock on
December 29, 1995.
DIRECTOR COMPENSATION
Directors of the Company who are not also employed by the Company are paid
directors' fees of $2,500 for each meeting of the Company's Board of Directors
attended in person, $500 for each meeting of the Company's Board of Directors
attended by phone, and $1,000 for each meeting of the Audit Committee or the
Compensation Committee attended in person. In addition, directors are reimbursed
for travel costs and other out-of-pocket expenses incurred in attending each
directors' meeting and committee meeting. Outside directors are eligible to
receive the grant of stock options under the Company's Option Plans. In November
1995, each of Messrs. Scrushy, Striplin, Newhall, Meadow, McCourtney, McDonald
and Kramer and Dr. Mullikin were granted ten-year options to purchase 10,000
shares of Common Stock and Dr. Lopez was granted a ten-year option to purchase
20,000 shares, all at an exercise price of $28.25 per share, the market price on
the date of grant. See " -- Executive Officer Compensation -- Option Grants in
Last Fiscal Year" and "Principal Stockholders".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. House, Newhall and McCourtney served on the Compensation Committee
of the Company's Board of Directors during 1995, joined by Mr. McDonald in
November 1995 and Mr. Headrick in September 1996. Mr. House also served as
Chairman of the Board, President and Chief Executive Officer of the Company
while serving on the Compensation Committee.
On August 31, 1993, MedPartners entered into a Reimbursement Agreement with
HEALTHSOUTH to allow Mr. House to serve as President of HEALTHSOUTH
International, Inc. (the "Reimbursement Agreement"). The Reimbursement Agreement
provided for the reimbursement by MedPartners to HEALTHSOUTH of one-half of Mr.
House's compensation and benefits. Under the Reimbursement Agreement,
MedPartners paid HEALTHSOUTH the sum of $150,195 for the period from January 1,
1994 to August 31, 1994, when the Reimbursement Agreement terminated. On
September 1, 1994, MedPartners entered into a consulting agreement, terminated
in February 1995, with HEALTHSOUTH, under which MedPartners agreed to make
available to HEALTHSOUTH from time to time at reasonable times and upon
reasonable requests the services of Mr. House as a consultant in connection with
the activities of HEALTHSOUTH International, Inc. In exchange for such services,
HEALTHSOUTH paid MedPartners a consulting fee equal to one-half of Mr. House's
compensation and benefits.
In connection with the sale of the convertible preferred stock described
below, the Company entered into a non-competition and severance agreement with
Mr. House. Mr. House's agreement was terminated upon his entry into the
employment agreement described below.
In September 1993 and March 1994, the Original Predecessor issued shares of
Series A and Series B Convertible Preferred Stock in private transactions.
Entities affiliated with Messrs. House, Newhall and McCourtney purchased shares
in each transaction. See "Certain Transactions -- Financings".
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<PAGE> 58
In connection with the acquisition of MME described under
"Business -- Acquisition Program", the Company entered into Termination and
Consulting Agreements with Mr. McDonald. Under the Termination Agreement, Mr.
McDonald's employment agreement with MME was terminated in consideration of
which Mr. McDonald received a lump sum payment of $796,000, continuation of
certain fringe benefits and perquisites under the former employment agreement
for 36 months, access to an office and support staff until death or disability,
payments from the Company and a trust set up by the Company to fund the
remainder of MME's pension obligations to Mr. McDonald, and payment of all
health and medical care (including prescriptions) for Mr. McDonald for the
remainder of his life through a Company-sponsored health insurance plan. The
Company and Mr. McDonald entered into a five-year Consulting Agreement whereby
Mr. McDonald will receive in consideration for his services a consulting fee of
$2,230,000, to be paid over five years with an initial payment of $669,000 in
November 1995 and equal payments of $390,250 on each anniversary of such date,
access to an office and support staff and certain other benefits. See "Certain
Transactions -- Acquisition-Related Agreements". See also "Certain
Transactions".
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. House, Wagar and Knight
and Ms. Thrasher (individually, the "Executive" and collectively, the
"Executives"). Mr. House's employment agreement, which has a term of five years,
provides that Mr. House shall be employed as the Chairman of the Board,
President and Chief Executive Officer and shall be nominated as a director of
the Company during such term. The agreement provides for a base salary of
$935,700, an annual incentive bonus of up to $776,700, based on the achievement
of certain performance standards established by the Compensation Committee, and
eligibility for other benefits normally found in executive employment
agreements. The employment agreements for each of Messrs. Wagar and Knight and
Ms. Thrasher provide for base salaries of $350,000, $250,000 and $235,000,
respectively, and for annual incentive and performance bonuses of up to 75% of
base salary in addition to employee benefits similar to those provided in Mr.
House's agreement. Each of the employment agreements is automatically extended
for an additional year on the anniversary thereof unless MedPartners shall give
prior notice of non-extension.
The Executives are entitled to certain compensation upon termination of
their employment agreement prior to its expiration. If the Company terminates
the agreement for "Cause" (as defined) or if the Executive terminates without
"Good Reason" (as defined), the Executive will receive a lump sum payment of six
months base salary (12 months in the case of Mr. House) plus certain employment
benefits. If the agreement terminates due to the Executive's death, disability
or retirement, the Executive will receive a lump sum payment of six months base
salary (12 months in the case of Mr. House), accrued bonus and immediate vesting
of all stock options. If the Executive terminates the agreement for "Good
Reason" and no "Change in Control" (as defined) of the Company has occurred, the
Executive will receive continued salary and bonus payments for three years (or,
if greater, for the remainder of the contract term in the case of Mr. House),
continued participation in employee benefit plans for such period and immediate
vesting of all stock options. If the Company terminates the agreement without
Cause after a Change in Control or if the Executive terminates after a Change in
Control for Good Reason, the Executive shall receive a lump sum payment equal to
three times the Executive's base salary and bonus at the time of termination,
continued benefits for a term of three years and immediate vesting of all stock
options. The agreements provide that any payment by the Company to the Executive
which is subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), shall be "grossed up" such that
the Executive retains an amount of the "gross up" payment equal to the excise
tax imposed on the original payment.
NON-COMPETITION AND SEVERANCE AGREEMENTS
In September 1993, the Company entered into non-competition and severance
agreements with Mr. House and Mr. Dexheimer, each of which contains the terms
described above under "-- Compensation Committee Interlocks and Insider
Participation" related to the agreement with Mr. House. The Company also entered
into non-competition, nondisclosure and development agreements with each of
Messrs. Knight, Seay and Dexheimer and Ms. Thrasher pursuant to which each has
agreed not to disclose any of the Company's confidential information or assist
or work for any of the Company's competitors for a period of one year after
termination of employment. In addition, each of such executive officers agreed
to assign any rights in any
57
<PAGE> 59
design, invention, software, process, trade secret or intellectual property that
relates to or resulted from work performed at the Company.
STOCK OPTION PLANS
The Company has a 1993 Stock Option Plan (the "1993 Option Plan") and a
1995 Stock Option Plan (the "1995 Option Plan", together with the 1993 Option
Plan, the "Option Plans"). The objectives of Option Plans are to attract and
retain qualified personnel, to provide incentives to employees, officers and
directors of the Company and to promote the success of the Company. A total of
1,555,000 shares of Common Stock, including 1,055,000 shares of Common Stock for
issuance upon the exercise of options granted to officers, directors,
consultants and employees of the Company and 500,000 shares of Common Stock for
issuance upon the exercise of options issued in connection with the acquisition
of the assets of physician practices, are covered by the 1993 Option Plan. A
total of 7,099,150 shares of Common Stock are covered by the 1995 Option Plan.
Additionally, the 1995 Option Plan contains a provision whereby the number of
shares of Common Stock for which options may be granted under the 1995 Option
Plan shall automatically increase on the first trading day of each calendar year
during the term of the 1995 Option Plan by an amount equal to 1% of the shares
of Common Stock outstanding on December 31 of the immediately preceding year.
However, such additional shares shall be available only for the grant of
non-qualified stock options and not for the grant of incentive options. The
Option Plans authorize the grant of options to purchase Common Stock intended to
qualify as incentive stock options ("Incentive Options") under Section 422 of
the Code and the grant of options that do not qualify as Incentive Options
("Non-Qualified Options") under Section 422 of the Code.
The Option Plans are administered by the Compensation Committee. The
Compensation Committee, subject to the approval of the Company's Board of
Directors and the provisions of the Option Plans, has full power to select the
individuals to whom awards will be granted, to fix the number of shares that
each optionee may purchase, to set the terms and conditions of each option, and
to determine all other matters relating to the Option Plans. The Option Plans
provide that the Compensation Committee will select grantees from among
full-time employees, officers, directors and consultants of the Company or its
subsidiaries, and individuals or entities subject to an acquisition or
management agreement with the Company.
The option exercise price of each option shall be determined by the
Compensation Committee, but shall not be less than 100% of the fair market value
of the shares on the date of grant in the case of Incentive Options and not less
than 85% of the fair market value of the shares on the date of grant in the case
of Non-Qualified Options granted to employees. No Incentive Option may be
granted to any employee who owns at the date of grant stock representing in
excess of 10% of the combined voting power of all classes of stock of the
Company or a parent or a subsidiary unless the exercise price for stock subject
to such options is at least 110% of the fair market value of such stock at the
time of grant and the option term does not exceed five years. The aggregate fair
market value of stock with regard to which Incentive Options are exercisable by
an individual for the first time during any calendar year may not exceed
$100,000.
The term of each option shall be fixed by the Committee and may not exceed
ten years from the date of grant. If a participant who holds options ceases to
be an employee, consultant or director or otherwise affiliated with the Company
(the "Termination"), for cause (as defined in the Option Plans), and such person
shall not have fully exercised any option granted under the Option Plans, the
option or the remaining portion thereof will expire on the date of Termination.
Any option or portion thereof which has not expired or been exercised on or
before the date of Termination, without cause, expires 90 days after the date of
Termination. Notwithstanding the foregoing, in the event of Termination due to
the optionee's death or incapacity, the option will terminate 12 months
following the date of such optionee's death or incapacity. Options granted under
the Option Plans may be exercisable in installments.
Upon the exercise of options, the option exercise price must be paid in
full, either in cash or other form acceptable to the Committee, including
delivery of a full recourse promissory note, delivery of shares of Common Stock
already owned by the optionee or delivery of other property. Unless terminated
earlier, the 1993 Option Plan will terminate in 2003 and the 1995 Option Plan
will terminate in 2005.
As of June 30, 1996, the Company had outstanding options at exercise prices
ranging from $0.20 to $19.25 to acquire 647,170 shares of Common Stock under the
1993 Option Plan. At the same date, there were outstanding options under the
1995 Option Plan to acquire 5,172,440 shares of Common Stock at exercise prices
ranging from $12.00 to $33.00 per share.
In connection with the Caremark Acquisition, the Company assumed and
adopted the Caremark International Inc. 1992 Incentive Compensation Plan (the
"Caremark Incentive Plan"), renaming it the
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"MedPartners Incentive Compensation Plan" (the "Incentive Plan"). The purpose of
the Incentive Plan is to increase stockholder value and to advance the interests
of the Company by awarding equity and performance-based incentives designed to
attract, retain and motivate employees. A total of 13,771,964 shares of Common
Stock are covered by the Incentive Plan. The Incentive Plan is administered by
the Board of Directors of the Company, which has the authority to manage the
operation of the Incentive Plan, prescribe rules relating to the Incentive Plan,
make awards under the Incentive Plan as it deems appropriate, modify the terms
of outstanding awards and take all other actions as it deems necessary or
desirable for the implementation and administration of the Incentive Plan.
The Incentive Plan authorizes the grant of options to purchase Common
Stock. The term of each option is fixed by the terms of its grant and may not
exceed ten years from the date of grant. Under the Incentive Plan, the price of
each option shall not be less than the fair market value of the Common Stock on
the date of the grant. The Incentive Plan also authorizes the grant of stock
appreciation rights, restricted stock and performance shares. Immediately prior
to consummation of the Caremark Acquisition, giving effect to the conversion of
the options and restricted shares outstanding immediately prior to the Caremark
Acquisition, there were options to purchase 8,294,019 shares of Common Stock and
69,766 shares of restricted stock outstanding under the Incentive Plan, leaving
4,890,004 shares available for future grant. No stock appreciation rights or
performance shares are outstanding under the Incentive Plan.
CAREMARK BENEFIT PLANS
Caremark maintains several benefit plans which may be deemed
"discriminatory" for purposes of the Code and may be considered "excess benefit
plans" within the meaning of Section 3(36) of Employee Retirement Income
Security Act of 1974, as amended. The following plans are included in this
category: the Caremark International Inc. Non-Employee Director Stock Option
Plan, the Caremark International Inc. 401 CARE Excess Plan, the Caremark
International Inc. Deferred Compensation Plan and the Caremark International
Inc. Supplemental Pension Plan (collectively, the "Caremark Benefit Plans"). The
Company is currently determining whether such plans will be terminated or
modified. The Caremark Benefit Plans have been filed as exhibits to the
Registration Statement. Reference is hereby made to the exhibits of the
Registration Statement for further information concerning the Caremark Benefit
Plans.
CERTAIN TRANSACTIONS
ACQUISITION AGREEMENTS
In connection with the acquisition of MME and the Caremark Acquisition, the
Company entered into certain termination and consulting agreements with Dr.
Mullikin and Messrs. McDonald, Piccolo and Hodson.
Termination Agreements. In November 1995, the Company and each of Dr.
Mullikin and Mr. McDonald entered into a Termination Agreement that terminated
their previous employment agreements with MME, in consideration of which they
received, or shall receive, a lump sum payment of $1,064,000, in the case of Dr.
Mullikin, and $796,000 in the case of Mr. McDonald, continuation of certain
fringe benefits and perquisites for 36 months, payments from the Company and a
trust set up by the Company to fund the remainder of MME's pension obligations
to Dr. Mullikin or to Dr. Mullikin's spouse, should she survive him, and Mr.
McDonald, payment of all health and medical care (including prescriptions) for
Dr. Mullikin and his spouse and Mr. McDonald for the remainder of their lives
through the Company sponsored health insurance plan, a death payment benefit to
be paid to Dr. Mullikin's designated beneficiary or estate of $2,700,000, and
certain other benefits. See "Management -- Compensation Committee Interlocks and
Insider Participation".
Consulting Agreements. In November 1995, the Company and each of Dr.
Mullikin and Mr. McDonald entered into a five-year Consulting Agreement whereby
each will receive in consideration for his services: consulting fees of
$2,480,000 to Dr. Mullikin, to be paid over five years with an initial payment
of $744,000 in November, 1995, and equal payments of $434,000 on each
anniversary of such date, and $2,230,000 to Mr. McDonald, to be paid over five
years with an initial payment of $669,000 in November 1995, and equal
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payments of $390,250 on each anniversary thereof, access to an office and
support staff and certain other benefits.
In September 1996, the Company and each of Messrs. Piccolo and Hodson
entered into a consulting agreement (the "Piccolo Agreement" and "Hodson
Agreement", respectively). The term of the Piccolo Agreement is ten years,
unless terminated sooner. Over the course of such ten- year period, Mr. Piccolo
will be paid consulting fees totaling approximately $5.4 million. Upon
commencement of the term of the Piccolo Agreement, Mr. Piccolo's employment with
Caremark was terminated entitling him to a severance payment of $2,805,426 and
the other benefits provided for in his severance agreement and the "gross up"
provisions of that agreement will apply to payments made pursuant to the Piccolo
Agreement in the event such consulting payments are determined to be "excess
parachute" payments. Mr. Piccolo will be eligible to participate in all health
and medical employee benefit plans and programs available, from time to time, to
employees of the Company and Caremark until he reaches the age of 65. In the
event Mr. Piccolo dies prior to age 65, his spouse will be entitled to receive
these benefits until she reaches the age of 65. After age 65, Mr. Piccolo and
his spouse will be provided with a prescription drug program comparable to that
provided Caremark employees through Caremark's prescription drug benefit
program. Mr. Piccolo will be provided with an adequate office and secretarial
support, as well as reimbursement of reasonable expenses, and will be subject to
certain non-compete and confidentiality restrictions.
The term of the Hodson Agreement is one year, unless terminated sooner.
Over the term, Mr. Hodson will be paid consulting fees of $318,856. The Hodson
Agreement may be extended on the same terms for an additional one-year period.
Upon commencement of the term of the Hodson Agreement, Mr. Hodson's employment
with Caremark was terminated, entitling him to a severance payment of
$1,052,138, and the other benefits provided for in his severance agreement. The
"gross up" provisions of that severance agreement will apply to payments made
pursuant to the Hodson Agreement in the event such consulting payments are
determined to be "excess parachute" payments.
FINANCINGS
In September 1993 and February 1994, the Original Predecessor issued an
aggregate of 4,000,562 shares of Series A Convertible Preferred Stock in a
private placement transaction for aggregate consideration of $8,001,124. Certain
directors and officers of the Company, or entities affiliated with such
individuals, purchased shares of Series A Convertible Preferred Stock as
follows: New Enterprise Associates VI, L.P. -- 875,000 shares; New Venture
Partners III, L.P. -- 125,000 shares; Venrock Associates -- 750,000 shares;
Frontenac Venture VI, L.P. -- 1,000,000 shares; HEALTHSOUTH -- 157,500 shares;
and Ms. Thrasher -- 11,250 shares.
In March 1994 and May 1994, the Original Predecessor issued an aggregate of
3,000,000 shares of Series B Convertible Preferred Stock in a private placement
transaction for aggregate consideration of $12,000,000. Certain directors and
officers of the Original Predecessor, or entities affiliated with such
individuals, purchased shares of Series B Convertible Preferred Stock as
follows: New Enterprise Associates, VI, L.P. -- 625,000 shares; New Venture
Partners III, L.P. -- 37,500 shares; Venrock Associates -- 500,000 shares;
Frontenac Venture VI, L.P. -- 625,000 shares; HEALTHSOUTH -- 250,000 shares; Mr.
Scrushy -- 100,000 shares; Mr. Striplin -- 25,000 shares; and Ms.
Thrasher -- 10,000 shares.
All the shares of convertible preferred stock were automatically converted
into shares of the Original Predecessor's common stock upon the consummation of
its initial public offering in February 1995. See "Principal Stockholders" for
information about affiliations between directors and executive officers of the
Company and certain of the entities who purchased shares of the convertible
preferred stock.
The Mullikin Family Trust, a trust formed for the benefit of Dr. Mullikin
and his spouse, was the holder of two notes issued in November 1992 by 5000
Airport Plaza, a California limited partnership which is controlled by the
Company, one in the principal amount of $2,975,000, having a 20-year term and
bearing an interest rate of 10% per annum, and the other in the principal amount
of $850,000, having a 10-year term and bearing an interest rate of 10% per
annum, each secured by the 5000 Airport Plaza building, where the Company's
western executive offices are located. These notes were paid in full in April
1996.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
stock ownership of the Company as of September 15, 1996: (i) each director and
Named Executive Officer of the Company, (ii) all directors and executive
officers as a group, and (iii) each stockholder known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock. Except as
otherwise indicated, each person or entity listed below has sole voting and
investment power with respect to all shares shown to be beneficially owned by
him or it except to the extent such power is shared by a spouse under applicable
law. Shares of Common Stock subject to options held by directors and executive
officers that are exercisable within 60 days of September 15, 1996, are deemed
outstanding for the purpose of computing such director's or executive officer's
beneficial ownership and the beneficial ownership of all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE
THE COMPANY'S OF COMMON
NAME POSITION HELD COMMON STOCK STOCK OWNED
- ------------------------------- ------------------------------- -------------------- -----------
<S> <C> <C> <C>
Larry R. House................. Chairman, President and Chief 3,605,000(1) 2.42%
Executive Officer and
Director
Mark L. Wagar.................. President -- Western Operations 233,005(2) *
Harold O. Knight, Jr........... Executive Vice President and 198,000(3) *
Chief Financial Officer
William R. Dexheimer........... Executive Vice President and 258,000(4) *
Chief Operating
Officer -- East
Tracy P. Thrasher.............. Executive Vice President and 173,800(5) *
Corporate Secretary
Larry D. Striplin, Jr.......... Director 99,100(6) *
Richard M. Scrushy............. Director 1,915,500(7) 1.31
Charles W. Newhall III......... Director 1,502,000(8) 1.03
Ted H. McCourtney, Jr.......... Director 56,841(9) *
Walter T. Mullikin, M.D........ Director 432,424(10) *
John S. McDonald............... Director 303,281(11) *
Richard J. Kramer.............. Director 1,869,674(12) 1.28
Rosalio J. Lopez, M.D.......... Director 99,069(13) *
C.A. Lance Piccolo............. Director 1,422,611(14) *
Roger L. Headrick.............. Director 86,938(15) *
Thomas W. Hodson............... Director 707,910(16) *
Harry M. Jansen Kraemer, Jr. Director 565(17) *
All executive officers and
directors as a group (23
persons)..................... 14,253,929(18) 9.36
</TABLE>
- ---------------
* Less than 1%.
(1) Includes options to purchase 2,428,000 shares.
(2) Includes options to purchase 230,000 shares.
(3) Includes options to purchase 136,000 shares.
(4) Includes options to purchase 44,000 shares and 1,000 shares held in trust.
(5) Includes options to purchase 118,000 shares, 2,000 shares held in trust for
a minor child, and 11,250 shares held jointly with spouse.
(6) Includes options to purchase 2,000 shares.
(7) Includes options to purchase 17,000 shares, 250,000 shares held in trust
for minor children, and 1,098,500 shares owned by HEALTHSOUTH. Mr. Scrushy
is Chairman of the Board, President and Chief Executive Officer of
HEALTHSOUTH and disclaims beneficial ownership of the shares owned by
HEALTHSOUTH.
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(8) Includes options to purchase 2,000 shares, and 1,500,000 shares owned of
record by New Enterprise Associates VI, Limited Partnership ("NEA"), of
which Mr. Newhall is the general partner. Mr. Newhall shares voting and
investment power with respect to such shares owned by NEA.
(9) Includes options to purchase 2,000 shares.
(10) Includes options to purchase 2,000 shares and 430,424 shares held by the
Mullikin Family Trust U/D/T, dated February 10, 1976.
(11) Includes options to purchase 2,000 shares and 301,281 shares held by
certain trusts for the benefit of Mr. McDonald.
(12) Includes options to purchase 2,000 shares and 1,867,674 shares owned of
record by DCNHS-West Partnership, L.P. ("DCNHS"). Mr. Kramer is the
President and Chief Executive Officer of CHW, which is the sole general
partner of DCNHS. Mr. Kramer disclaims beneficial ownership of the shares
owned by DCNHS.
(13) Includes options to purchase 10,000 shares and 89,069 shares held by
certain trusts for the benefit of Dr. Lopez and members of his family.
(14) Includes options to purchase 1,422,611 shares, 10,399 shares held as joint
tenants with spouse, and 26,511 shares held in the Company's 401(k) plan.
(15) Includes options to purchase 54,208 shares and 1,210 held by spouse.
(16) Includes options to purchase 648,635 shares, 18,534 shares held in the
Company's 401(k) plan and 8,396 shares held jointly with spouse.
(17) Includes 50 shares held in spouse's individual retirement account.
(18) Includes options to purchase a total of 5,884,034 shares.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture to be dated as of October 8,
1996 (the "Indenture") between the Company and The First National Bank of
Chicago, as trustee (the "Trustee"). The following summary of certain provisions
of the Indenture does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of the Indenture (the
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part), including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended, as in effect on the date of the
Indenture.
GENERAL
The Notes will be general unsecured obligations of the Company limited to
$450,000,000 aggregate principal amount. The Notes will mature on October 1,
2006. Interest on the Notes will accrue at the rate of % per annum and will
be payable semi-annually on April 1 and October 1 of each year, commencing April
1, 1997, to the Holders of record of Notes at the close of business on the March
15 and September 15 immediately preceding such interest payment date. Interest
on the Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the original date of issuance of the
Notes. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Notes are not redeemable prior to maturity and will not be entitled to
the benefit of any mandatory sinking fund.
The Notes will be issued only in registered form without coupons, in
denominations of $1,000 and integral multiples thereof. The Notes will be
initially issued in the form of one or more book-entry notes (each, a "Global
Note"). Principal of and interest on the Global Notes will be payable, and the
Global Notes will be transferable and exchangeable, only as provided for below
under the caption "-- Global Notes: Form, Exchange and Transfer". Principal of
and interest on Notes subsequently issued in a form other than as a Global Note
will be payable, and such Notes will be transferable and exchangeable, at the
corporate trust office of the Trustee. In addition, interest payable with
respect to Notes subsequently issued in a form other than as a Global Note may
be paid, at the option of the Company, by check mailed to the Person entitled
thereto as shown on the security register of the Notes. No service charge will
be made for any transfer or exchange of Notes, except in certain circumstances
for any tax or other governmental charge that may be imposed in connection
therewith.
RANKING
The Notes will be general unsecured obligations of the Company ranking
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu in right of payment with all existing and future
unsubordinated and unsecured obligations of the Company. The Notes will be
effectively subordinated to all existing and future secured indebtedness of the
Company and to all existing and future indebtedness and other liabilities of the
Company's subsidiaries. As of June 30, 1996, after giving effect to the Offering
and the use of proceeds therefrom and the Borrowings, and assuming that all of
the outstanding Caremark Notes are purchased in the Debt Tender Offer, the
Company would have had approximately $757.1 million of indebtedness outstanding,
$161.9 million of which would have effectively ranked senior in right of payment
to the Notes and $145.2 million of which would have ranked pari passu with the
Notes.
Except as set forth under "Restrictions on Subsidiary Indebtedness" below,
the Indenture does not contain any restrictions on the incurrence of unsecured
indebtedness by the Company or its Subsidiaries or the payment of dividends or
any financial covenants. The Indenture does not contain provisions which would
afford the Holders of Notes protection in the event of a decline in the
Company's credit quality resulting from highly leveraged or other similar
transactions involving the Company.
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GLOBAL NOTES: FORM, EXCHANGE AND TRANSFER
The Notes will be initially issued in the form of fully registered Global
Notes deposited with or on behalf of, and registered in the name of, The
Depository Trust Company (the "Depositary") or a nominee thereof. Unless and
until it is exchanged in whole or in part for Notes in definitive registered
form, a Global Note may not be transferred, except as a whole: (i) by the
Depositary to a nominee of such Depositary, or (ii) by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or (iii) by
such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor.
Ownership of beneficial interests in a Global Note will be limited to
Persons that have accounts with the Depositary ("participants") or Persons that
may hold interests through participants. Upon the issuance of a Global Note, the
Depositary will credit, on its book-entry registration and transfer system, the
participants' accounts with the respective principal amounts of the Notes
represented by such Global Note beneficially owned by such participants. The
accounts to be credited will initially be designated by the Underwriters.
Ownership of beneficial interests in such Global Note will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to interests of
participants) and on the records of participants (with respect to interests of
Persons holding through participants). The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge beneficial interests in Global Notes.
So long as the Depositary, or its nominee, is the owner of record of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of Notes represented by such Global Note for
all purposes under the Indenture. Except as set forth below, owners of
beneficial interests in a Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, and will not receive
or be entitled to receive physical delivery of such Notes in definitive form and
will not be considered the owners or holders thereof under the Indenture.
Accordingly, each Person owning a beneficial interest in a Global Note must rely
on the procedures of the Depositary and, if such Person is not a participant, on
the procedures of the participant through which such Person owns its interest,
to exercise any rights of a Holder of record under the Indenture. The Company
understands that under existing industry practices, if the Company requests any
action of Holders, or if any owner of a beneficial interest in a Global Note
desires to give or take any action which a Holder is entitled to give or take
under the Indenture, the Depositary would authorize the participants holding the
relevant beneficial interests to give or take such action, and such participants
would authorize beneficial owners owning through such participants to give or
take such action or would otherwise act upon the instruction of beneficial
owners holding through them. No beneficial owner of an interest in a Global Note
will be able to transfer that interest except in accordance with the
Depositary's applicable procedures, in addition to those provided for in the
Indenture.
Payments of principal and interest on Notes represented by a Global Note
registered in the name of the Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the registered owner of such
Global Note. None of the Company, the Trustee or any other agent of the Company
or agent of the Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in such Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will immediately
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in such Global Note as shown on the records of
the Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Note held through
such participants will be governed by standing customer instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participants.
If the Depositary notifies the Company that it is at any time unwilling or
unable to continue as Depositary or ceases to be eligible under applicable law,
and a successor Depositary eligible under applicable law is not appointed by the
Company within 90 days, the Company will issue Notes in definitive form in
exchange for
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<PAGE> 66
Global Notes representing such Notes. In addition, the Company may at any time
and in its sole discretion determine not to have any of the Notes represented by
one or more Global Notes and, in such event, will issue Notes in definitive form
in exchange for Global Notes representing such Notes. Any Notes issued in
definitive form in exchange for any Global Notes will be registered in such name
or names as the Depositary shall instruct the Trustee. It is expected that such
instructions will be based upon directions received by the Depositary from
participants with respect to ownership of beneficial interests in such Global
Note.
The Depositary has advised the Company as follows: the Depositary is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a "banking organization" within the meaning of the Banking Law of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary holds securities that its participants deposit with
the Depositary. The Depositary also facilitates the settlement among
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its participants and by the New York
Stock Exchange, Inc., the American Stock Exchange Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary's system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. The rules applicable to the
Depositary and its participants are on file with the Commission.
Although the Depositary and its participants are expected to follow the
foregoing procedures in order to facilitate transfers of interests in a Global
Note among participants, they are under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee will have any responsibility for the
performance by the Depositary or the participants of their respective
obligations under the rules and procedures governing their operations.
SAME-DAY SETTLEMENT IN RESPECT OF GLOBAL NOTES
So long as any Notes are represented by Global Notes registered in the name
of the Depositary or its nominee, such Notes will trade in the Depositary's
Same-Day Funds Settlement System, and secondary market trading activity in such
Notes will therefore be required by the Depositary to settle in immediately
available funds.
CERTAIN COVENANTS
Restrictions on Liens
The Indenture will contain a covenant providing that so long as any of the
Notes are outstanding, the Company will not, and will not permit any Subsidiary
to, issue, assume, incur or guarantee any Indebtedness secured by a Lien on or
with respect to any property or assets of the Company or any Subsidiary, or upon
any shares of capital stock, Indebtedness or other obligations of any
Subsidiary, whether now owned or leased or hereafter acquired, without in any
such case effectively providing that the Notes shall be secured equally and
ratably with (or prior to) such Indebtedness for so long as such Indebtedness
shall be so secured, except that the foregoing restrictions shall not apply to:
(a) Liens existing as of the date of the Indenture;
(b) Liens created solely to secure the payment of Purchase Money
Indebtedness incurred by the Company or a Subsidiary; provided that any
such Lien shall not secure Indebtedness in excess of the amount expended in
the acquisition of, or construction of improvements on, the property or
assets and shall not extend to or cover any property or assets other than
the property or assets so acquired or the improvements thereon;
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(c) Liens upon any property or assets owned or leased by any
Subsidiary when it becomes a Subsidiary and not incurred as a result of, or
in connection with or in anticipation of, such Subsidiary becoming a
Subsidiary (except to the extent otherwise permitted by (b) above);
(d) Liens existing on any property or assets at the time of its
acquisition by the Company or a Subsidiary (including acquisition through
merger or consolidation) and not incurred as a result of, or in connection
with or in anticipation of, such acquisition (except to the extent
otherwise permitted by (b) above);
(e) Liens securing Indebtedness of a Subsidiary to the Company or to
another Subsidiary;
(f) Liens imposed by law for taxes, assessments or charges of any
Governmental Authority for claims not yet delinquent or which are being
contested in good faith by appropriate proceedings diligently conducted and
with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP and which Liens are not yet
enforceable against other creditors;
(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law or created in the
ordinary course of business and in existence less than 90 days from the
date of creation thereof for amounts not yet due or which are being
contested in good faith by appropriate proceedings diligently conducted and
with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP and which Liens are not yet
enforceable against other creditors;
(h) Liens incurred or deposits made in the ordinary course of business
(including, without limitation, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and other
types of social security benefits or to secure the performance of tenders,
bids, leases, contracts (other than for the repayment of Indebtedness),
statutory obligations and other similar obligations or arising as a result
of progress payments under government contracts;
(i) easements (including reciprocal easement agreements and utility
agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not recorded), which do not interfere materially
with the ordinary conduct of the business of the Company or any Subsidiary
and which do not materially detract from the value of the property to which
they attach or materially impair the use thereof to the Company or any
Subsidiary;
(j) Liens arising in connection with Capital Leases otherwise
permitted or not prohibited by the terms of the Indenture; provided that no
such Lien shall extend to any property other than the assets subject to
such Capital Leases;
(k) Liens securing Off-Balance Sheet Liabilities otherwise permitted
or not prohibited by the terms of the Indenture;
(l) Permitted Receivables Securitizations; and
(m) the extension, renewal or replacement (or successive extensions,
renewals or replacements), in whole or in part, of any Lien referred to in
the foregoing clauses (a) through (l), or of any Indebtedness secured
thereby, provided, however, that (i) such extension, renewal, refunding or
replacement Lien shall be limited to all or a part of the same property,
shares of stock or Indebtedness that were encumbered by the Lien extended,
renewed, refunded or replaced (plus improvements on such property) and (ii)
the Indebtedness secured by such Lien at such time is not increased.
Notwithstanding the foregoing, the Company or any Subsidiary may issue, assume,
incur or guarantee Indebtedness secured by Liens which otherwise would be
subject to the foregoing restrictions in an aggregate amount which, together
with (i) all other such Indebtedness of the Company and its Subsidiaries
outstanding which would otherwise be subject to the foregoing restrictions (not
including Indebtedness permitted to be secured under clauses (a) through (m)
above), (ii) all Indebtedness of the Subsidiaries (not including Indebtedness
permitted to be issued, assumed, incurred or guaranteed under clauses (a)
through (j) under "Restrictions on Subsidiary Indebtedness" below) and (iii) all
Attributable Debt in respect of Sale and
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Leaseback Transactions permitted under "Restrictions on Sale and Leaseback
Transactions" below, does not exceed 15% of Consolidated Net Worth of the
Company.
Restrictions on Sale and Leaseback Transactions
The Indenture will contain a covenant providing that so long as any of the
Notes are outstanding, the Company will not, nor will it permit any Subsidiary
to, enter into any arrangement with any Person (other than the Company or a
Subsidiary) providing for the leasing by the Company or any Subsidiary of any
property or assets, whether now owned or hereafter acquired, which has been or
is to be sold or transferred by the Company or such Subsidiary to such Person
with the intention of taking back a lease on such property or assets and which
arrangement would be characterized or qualified as either a Capital Lease or
Off-Balance Sheet Liability (a "Sale and Leaseback Transaction"), if, at the
time of entering into such Sale and Leaseback Transaction, and after giving
effect thereto, the amount of Attributable Debt in respect of such Sale and
Leaseback Transaction, together with all such other Attributable Debt
outstanding exceeds the greater of (i) $25,000,000 or (ii) together with (A) all
Indebtedness outstanding secured by Liens (not including Indebtedness permitted
to be secured under clauses (a) through (m) under "Restrictions on Liens" above)
and (B) all Indebtedness of Subsidiaries (not including Indebtedness permitted
to be issued, assumed, incurred or guaranteed under clauses (a) through (j)
under "Restrictions on Subsidiary Indebtedness" below), 15% of Consolidated Net
Worth of the Company.
Restrictions on Subsidiary Indebtedness
The Indenture will provide that so long as any of the Notes are
outstanding, the Company will not permit any of its Subsidiaries to issue,
assume, incur or guarantee any Indebtedness, except that the foregoing
restrictions shall not apply to:
(a) Indebtedness existing as of the date of the Indenture, including
all existing or available borrowings under the Bank Credit Agreement;
(b) Indebtedness of a corporation or other entity existing at the time
it becomes a Subsidiary and not incurred as a result of, or in connection
with or in anticipation of, such Subsidiary becoming a Subsidiary;
(c) Indebtedness of a corporation or other entity assumed at the time
of its acquisition by a Subsidiary (including acquisition through merger or
consolidation) and not incurred as a result of, or in connection with or in
anticipation of, such acquisition;
(d) unsecured intercompany Indebtedness of a Subsidiary for loans or
advances made to such Subsidiary by the Company or another Subsidiary;
provided that upon either (i) the transfer or other disposition by the
Company or a Subsidiary of any Indebtedness so permitted to a Person other
than the Company or another Subsidiary or (ii) the issuance, sale, transfer
or other disposition (other than a pledge of the shares of such Subsidiary
permitted under "Restrictions on Liens" above) of shares of capital stock
(including acquisition through merger or consolidation) of such Subsidiary
to a Person other than the Company or another Subsidiary which, after
giving effect thereto, results in such Subsidiary ceasing to be a
Subsidiary of the Company, the provisions of this clause (d) shall no
longer be applicable to such Indebtedness and such Indebtedness shall be
deemed to have been issued, assumed, incurred or guaranteed at the time of
such transfer or other disposition;
(e) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(f) Purchase Money Indebtedness and Capital Leases incurred or entered
into by a Subsidiary not to exceed an aggregate outstanding principal
amount at any time of $25,000,000; provided, however, that the aggregate
outstanding principal amount of Purchase Money Indebtedness and Capital
Leases permissible under this clause (f) shall be increased or decreased to
such amount as is permissible under the Bank Credit Agreement;
(g) Permitted Receivables Securitizations;
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<PAGE> 69
(h) Off-Balance Sheet Liabilities (other than Permitted Receivables
Securitizations) and other secured Indebtedness of a Subsidiary not to
exceed an aggregate outstanding principal amount of $25,000,000; provided,
however, that the aggregate outstanding principal amount of Off-Balance
Sheet Liabilities and other secured Indebtedness permissible under this
clause (h) shall be increased or decreased to such amount as is permissible
under the Bank Credit Agreement;
(i) Indebtedness arising from Rate Hedging Obligations incurred to
limit risks of currency or interest rate fluctuations to which a Subsidiary
is otherwise subject by virtue of the operations of its business, and not
for speculative purposes; provided, however, that the aggregate notional
amount of all such Rate Hedging Obligations shall not exceed at any time
$500,000,000; and provided, further, that the aggregate outstanding
principal amount of Indebtedness arising from Rate Hedging Obligations
under this clause (i) shall be increased or decreased to such amount as is
permissible under the Bank Credit Agreement; and
(j) the extension, renewal, refinancing or replacement (or successive
extensions, renewals, refinancings or replacements), in whole or in part,
of any Indebtedness referred to in the foregoing clauses (a) through (i);
provided, however, (i) that the Indebtedness so issued has (A) a principal
amount not in excess of the principal amount of the Indebtedness being
extended, renewed, refinanced or replaced (which amount shall be deemed to
include the amount of any undrawn or available amounts under any committed
credit or lease facility to be so extended, renewed, refinanced or
replaced), (B) a final redemption date later than the final stated maturity
or final redemption date, if any, of the Indebtedness being extended,
renewed, refinanced or replaced and (C) an Average Life at the time of
issuance of such Indebtedness that is greater than the Average Life of the
Indebtedness being extended, renewed refinanced or replaced; (ii) the group
of direct or contingent obligors on such Indebtedness shall not be expanded
as a result of any such action; and (iii) immediately prior to and
immediately after giving effect to any such extension, renewal or
replacement, no Event of Default shall have occurred and be continuing.
Notwithstanding the foregoing, any Subsidiary may issue, assume, incur or
guarantee Indebtedness which otherwise would be subject to the foregoing
restrictions in an aggregate amount, that together with all other such
Indebtedness of any Subsidiaries outstanding which would otherwise be subject to
the foregoing restrictions (not including Indebtedness permitted to be issued,
assumed, incurred or guaranteed under clauses (a) through (j) above), that does
not exceed 15% of Consolidated Net Worth of the Company.
Certain Definitions
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at the time of determination, the then present value (discounted at the actual
rate of interest of such transaction) of the obligation of the lessee for net
rental payments during the remaining term of the lease included in such Sale and
Leaseback Transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness multiplied by the
amount of such principal payment by (ii) the sum of all such principal payments.
"Bank Credit Agreement" means the Credit Agreement, dated as of September
5, 1996, by and among MedPartners, Inc. and NationsBank, National Association
(South), as administrative agent for a group of lenders, as such agreement may
be amended, renewed, extended, substituted, refinanced, restructured, replaced
or supplemented or otherwise modified from time to time (including without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements or supplementations or other modifications of the
foregoing).
"Capital Leases" means all leases which have been or should be capitalized
in accordance with GAAP as in effect from time to time including the provisions
of FAS No. 13 and any successor thereof.
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<PAGE> 70
"Consolidated Net Worth" means the excess of (i) the consolidated net book
value of the assets of the Company and its subsidiaries after all appropriate
deductions in accordance with GAAP as in effect on the date of the Indenture
(including without limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization) less (ii) the consolidated liabilities (including
tax and other proper accruals, but excluding, if applicable, the accumulated
postretirement benefit obligation resulting from the application of the
provisions of FAS No. 106 "Employers' Accounting for Postretirement Benefits
Other than Pensions") of the Company and its Subsidiaries, in each case computed
and consolidated in accordance with GAAP in effect on the date of the Indenture.
"Funded Debt" means Indebtedness of the Company and its Subsidiaries,
whether incurred, assumed or guaranteed, which by its terms matures more than
one year from the date of creation thereof, or which is extendable or renewable
at the sole option of the obligor so that it may become payable more than one
year from such date.
"GAAP" means, unless otherwise specified in the Indenture, such accounting
principles as are generally accepted in the United States as of the date of the
relevant calculation.
"Governmental Authority" shall mean any Federal, state, municipal, national
or other governmental department, commission, board, bureau, court, agency or
instrumentality or political subdivision thereof or any entity or officer
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a foreign
governmental entity.
"Indebtedness" with respect to any Person is defined to mean, at any time,
without duplication, (i) any debt (a) for money borrowed, or (b) evidenced by a
bond, note, debenture, or similar instrument for the payment of which such
Person is responsible or liable, or (c) which is a direct or indirect obligation
which arises as a result of banker's acceptances; (ii) any Off-Balance Sheet
Liability; (iii) any debt of others described in the preceding clause (i) which
such Person has guaranteed or for which it is otherwise directly liable; (iv)
the obligation of such Person as lessee under any lease of property which is
reflected on such Person's balance sheet as a capitalized lease; (v) to the
extent not otherwise included in this definition, net obligations under any Rate
Hedging Obligations; and (vi) any deferral, amendment, renewal, extension,
supplement or refunding of any liability of the kind described in any of the
preceding clauses (i), (ii), (iii), (iv) and (v); provided, however, that, in
computing the Indebtedness of any Person, there shall be excluded any particular
Indebtedness if, upon or prior to the maturity thereof, there shall have been
deposited with a depository in trust money (or evidence of Indebtedness if
permitted by the instrument creating such Indebtedness) in the necessary amount
to pay, redeem or satisfy such Indebtedness as it becomes due, and the amount so
deposited shall not be included in any computation of the assets of such Person.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority, or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Off-Balance Sheet Liabilities" means, with respect to any Person, (i) any
repurchase obligation or liability of such Person with respect to accounts or
notes receivable sold by such Person, (ii) the face amount of accounts
receivable pursuant to a Permitted Receivables Securitization, (iii) any
repurchase obligation or liability of such Person with respect to property
leased by such Person as lessee, (iv) obligations arising with respect to any
other transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheets of such Person excluding therefrom operating leases which do not require
payment by or due from such Person: (a) at the scheduled termination of such
operating lease, (b) pursuant to a required purchase by such Person of the
leased property, or (c) under any guaranty by such Person of the value of the
leased property, or (v) net liabilities under any Rate Hedging Obligations.
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<PAGE> 71
"Permitted Receivables Securitization" means limited recourse or
non-recourse sales and assignments of accounts receivable of a Person to one or
more entities, the proceeds of which shall be made available to such Person;
provided, however, that the maximum face amount of accounts receivable which may
be sold is $100,000,000 and the minimum price which shall be paid for
receivables is 70% of the face amount thereof; provided, further that
notwithstanding the immediately preceding proviso the maximum face amount of
accounts receivable which may be sold and the minimum price which shall be paid
for receivables shall be increased or decreased to such amount and percentages
as is permissible under the Bank Credit Agreement.
"Purchase Money Indebtedness" means Indebtedness incurred to finance all or
any part of the purchase price or cost of construction of improvements in
respect of property or assets acquired by a Person after the date of the
Indenture and incurred prior to, at the time of, or within 90 days after, the
acquisition of any such property or assets or the completion of any such
construction or improvements.
"Rate Hedging Obligations" means any and all obligations of any Person,
whether absolute or contingent and howsoever and whensoever created, arising,
evidenced or acquired (including all renewals, extensions and modifications
thereof and substitutions therefor), under (i) any and all agreements, devices
or arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, Dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap or collar
protection agreements, forward rate currency or interest rate options, puts,
warrants and those commonly known as interest rate "swap" agreements; and (ii)
any and all cancellations, buybacks, reversals, terminations or assignments of
any of the foregoing.
"Senior Funded Debt" means all Funded Debt, including the Notes, except
Funded Debt, the payment of which is subordinated to the payment of the Notes.
"Subsidiary" means any corporation, partnership, association or other
business entity of which more than 50% of the outstanding voting stock is owned,
directly or indirectly, by the Company or by one or more other Subsidiaries, or
by the Company and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock (or a similar interest) which ordinarily
has voting power for the election of directors, managers or trustees, whether at
all times or only so long as no senior class of stock (or similar interest) has
such voting power by reason of any contingency.
CONSOLIDATION, MERGER AND DISPOSITION OF ASSETS
The Company may not consolidate with or merge into, or convey, transfer or
lease its properties and assets substantially as an entirety to, any Person, and
may not permit any Person, to consolidate with or merge into, or convey,
transfer or lease its properties and assets substantially as an entirety to, the
Company, unless (a) the successor, if other than the Company, is a Person
organized and validly existing under the laws of the United States of America or
any jurisdiction thereof and such successor, if other than the Company,
expressly assumes the Company's obligations under the Indenture and the Notes,
(b) immediately after giving effect to such transaction, no Event of Default
under the Indenture or event which, after notice or lapse of time or both, would
become an Event of Default thereunder would exist and be continuing, (c) if as a
result of any such consolidation or merger or such conveyance, transfer or
lease, properties or assets of the Company would become subject to a mortgage,
pledge, lien, security interest or other encumbrance which would not be
permitted as described under "-- Certain Covenants -- Restrictions on Liens",
the Company or such successor Person, as the case may be, shall take such steps
as shall be necessary to effectively secure the Notes equally and ratably with
(or prior to) all indebtedness secured thereby, and (d) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction complies with the Indenture. Upon compliance
with these provisions, the successor Person will succeed to, and be substituted
for, the Company under the Indenture, and the Company will be relieved (except
in the case of a lease) of its obligations under the Indenture and the Notes.
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<PAGE> 72
EVENTS OF DEFAULT
Each of the following will constitute an "Event of Default" under the
Indenture with respect to the Notes: (a) default in the payment of principal of
any Note, (b) default in the payment of any interest upon any Note when due,
which default continues for 30 days, (c) default in the performance, or breach,
of any other covenant or warranty contained in the Indenture, which default
continues for 60 days after written notice to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in principal amount
of the Outstanding Notes, (d) default in the payment of principal at maturity
(subject to any applicable grace period) of any Indebtedness for money borrowed
by the Company or any Subsidiary in an aggregate principal amount of $25 million
or more or the acceleration of such indebtedness, if such acceleration is not
rescinded or annulled within 30 days after written notice as specified in clause
(c) and requiring the Company to cause such indebtedness to be discharged or
cause such acceleration to be rescinded or annulled, and (e) certain events of
bankruptcy, insolvency or reorganization.
If an Event of Default (other than an Event of Default described in clause
(e) above) with respect to the Outstanding Notes shall occur and be continuing,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Outstanding Notes may, by notice in writing to the Company (and to
the Trustee if given by Holders), declare the principal amount of all Notes to
be due and payable immediately. If an Event of Default described in clause (e)
above with respect to the Notes shall occur, the principal amount of all the
Notes will automatically, and without any action by the Trustee or any Holder,
become immediately due and payable. After any such acceleration, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of accelerated
principal, have been cured or waived as provided in the Indenture.
The Indenture will provide that the Trustee shall, within 90 days after the
occurrence of a default with respect to the Notes, give to the Holders of the
Notes notice of such default known to it, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of or interest on any of the Notes, the Trustee shall
be protected in withholding such notice if in good faith it determines that the
withholding of such notice is in the interest of such Holders. The Indenture
provides that, subject to the duty of the Trustee during a default to act with
the required standard of care, the Trustee will not be under an obligation to
exercise any right or power under the Indenture at the request or direction of
any of the Holders, unless the Holders shall have offered to the Trustee
reasonable security or indemnity. The Indenture provides that the Holders of a
majority in aggregate principal amount of the Outstanding Notes may direct the
time, method and place of conducting proceedings for remedies available to the
Trustee or exercising any trust or power conferred on the Trustee with respect
to the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless (a) such Holder shall have previously
given to the Trustee written notice of a continuing Event of Default with
respect to the Notes, (b) the Holders of not less than 25% in aggregate
principal amount of the Outstanding Notes shall have made written request to the
Trustee to institute proceedings as Trustee, (c) such Holder or Holders shall
have offered to the Trustee reasonable security or indemnity, (d) the Trustee
shall have failed to institute such proceeding within 60 days thereafter and (e)
the Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding Notes a direction inconsistent with such
request. However, such limitations do not apply to a suit instituted by a Holder
of a Note for the enforcement of payment of the principal of or interest on such
Note on or after the applicable due date specified in such Note.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of its obligations under the Indenture and
as to any default in such performance.
MODIFICATION AND WAIVERS
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of the Holders to: (a) evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Notes; (b) add to
the
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<PAGE> 73
covenants of the Company for the benefit of the Holders or an additional Event
of Default or surrender any right or power conferred upon the Company; (c)
secure the Notes; (d) cause the Notes to comply with applicable law; (e)
evidence and provide for the acceptance of appointment by a successor Trustee
with respect to the Notes; and (f) cure any defect or ambiguity or correct or
supplement any provision which may be defective or inconsistent with any other
provision, or make any other provisions with respect to matters or questions
arising under the Indenture which shall not be inconsistent with the provisions
of the Indenture; provided, however, that no such modification or amendment may
adversely affect the interest of the Holders in any material respect.
Modifications and amendments of the Indenture may be made by the Company
and the Trustee, with the consent of the Holders of at least a majority in
aggregate principal amount of the Outstanding Notes, by executing supplemental
indentures for the purpose of adding any provisions to, or changing in any
manner or eliminating any of the provisions of, the Indenture or modifying in
any manner the rights of the Holders of the Outstanding Notes; provided, that no
such modification or amendment may, without the consent of the Holders of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of or interest on, any Note, (c) change the place or currency
of payment of principal of, or any interest on, any Note, (d) impair the right
to institute suit for the enforcement of any payment on or with respect to any
Note when due, (e) reduce the percentage of aggregate principal amount of
Outstanding Notes necessary to modify or amend the Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, or (f) modify certain provisions of the Indenture with respect to
modification and waiver.
The Holders of at least a majority in aggregate principal amount of the
Outstanding Notes may waive compliance by the Company with certain restrictive
provisions of the Indenture. The Holders of at least a majority in aggregate
principal amount of the Outstanding Notes may waive any past default under the
Indenture, except a default in the payment of the principal of or interest on
any Note and certain covenants and provisions of the Indenture which cannot be
modified or amended without the consent of the Holder of each Outstanding Note.
SATISFACTION AND DISCHARGE; DEFEASANCE AND COVENANT DEFEASANCE
The Indenture will provide that the Company may discharge its obligations
under the Indenture while Notes remain Outstanding if all Outstanding Notes will
become due and payable at their scheduled maturity within one year and the
Company has deposited with the Trustee an amount sufficient to pay and discharge
all Outstanding Notes on the date of their scheduled maturity. The Indenture
will further provide that the Company, at its option, (a) will be discharged
from any and all obligations with respect to the Notes (except for certain
obligations which include exchanging or registering the transfer of the Notes,
replacing stolen, lost or mutilated Notes, maintaining paying agencies and
holding monies for payment in trust) ("defeasance"), or (b) need not comply with
certain restrictive covenants of the Indenture ("covenant defeasance"), and the
occurrence of certain events which would otherwise be or result in an Event of
Default will be deemed not to be or result in an Event of Default with respect
to the Notes, upon the deposit with the Trustee, in trust for the benefit of the
Holders of the Notes, of money or U.S. Government Obligations, or both, which
through the payment of principal of and interest in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
principal of and interest on the Notes on the dates such payments are due in
accordance with the terms of the Indenture. To establish such defeasance or
covenant defeasance, the Company will be required to meet certain conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
the Holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance or covenant defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred. In the case of defeasance pursuant to clause (a),
such Opinion of Counsel must refer to and be based upon either (i) a ruling
received by the Company from, or published by, the Internal Revenue Service or
(ii) a change in applicable federal income tax law after the date of the
Indenture.
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INFORMATION CONCERNING THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein, contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions with the Company; provided, however,
that if it acquires any conflicting interest (as defined in the Trust Indenture
Act of 1939, as amended) it must eliminate such conflict or resign. The Company
and its subsidiaries may maintain deposit accounts and conduct other banking
transactions with the Trustee in the ordinary course of business.
The First National Bank of Chicago, a national banking association with its
principal offices at One First National Plaza, Suite 0126, Chicago, Illinois
60670-0126, will act as Trustee for the benefit of the Holders of the Notes
under the Indenture. First Chicago Trust of New York, an affiliate of the
Trustee, is the Transfer Agent and Registrar for the Common Stock.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of
New York, without regard to principles of conflicts of law.
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<PAGE> 75
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, each Underwriter named below has severally agreed to purchase, and
the Company has agreed to sell to each Underwriter, the principal amount of
Notes set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
NAME OF NOTES
----------------------------------------------------------------------- ------------
<S> <C>
Smith Barney Inc....................................................... $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
J.P. Morgan Securities Inc.............................................
Morgan Stanley & Co. Incorporated......................................
NationsBanc Capital Markets, Inc.......................................
-----------
Total........................................................ $450,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to approval
of certain legal matters by counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all of the Notes offered hereby
if any such Notes are taken.
The Underwriters have advised the Company that they propose initially to
offer part of the Notes directly to the public at the public offering price set
forth on the cover page of this Prospectus and part to certain dealers at a
price that represents a concession not in excess of % of the public
offering price of the Notes. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of % of the public offering price of
the Notes to certain other dealers. After the Offering, the public offering
price and such concessions may be changed from time to time by the Underwriters.
The Company has agreed to indemnify the Underwriters, and the Underwriters
have agreed to indemnify the Company, against certain liabilities, including
liabilities under the Securities Act.
The Underwriters have informed the Company that the Underwriters intend to
make a market in the Notes, as permitted by applicable laws and regulations;
however, the Underwriters are not obligated to do so, and any such market
activity may be terminated at any time without notice to the Holders. No
assurance can be given as to the liquidity of or the trading market for the
Notes. See "Risk Factors -- Absence of Public Market for the Notes".
The net proceeds from the Offering are expected to be used to repay
outstanding indebtedness under the Credit Facility under which affiliates of
J.P. Morgan Securities Inc. and NationsBanc Capital Markets, Inc. are lenders.
See "Use of Proceeds".
In the ordinary course of their respective businesses, the Underwriters or
their affiliates have engaged and may in the future engage, in commercial
banking or investment banking transactions with the Company and its affiliates.
74
<PAGE> 76
EXPERTS
The consolidated financial statements of MedPartners/Mullikin, Inc. and the
financial statements of New Management for the indicated periods detailed in the
Index to Financial Statements appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Caremark International Inc. as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 included in this Prospectus and Registration Statement have
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Notes hereby will
be passed upon for the Company by Haskell Slaughter & Young, L.L.C., Birmingham,
Alabama, and for the Underwriters by Skadden, Arps, Slate Meagher & Flom, New
York, New York.
75
<PAGE> 77
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
MEDPARTNERS/MULLIKIN, INC.
Report of Independent Auditors...................................................... F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-4
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995.......................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1994 and 1995............................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995.......................................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
MEDPARTNERS/MULLIKIN, INC. (UNAUDITED)
Consolidated Balance Sheet as of June 30, 1996 (unaudited).......................... F-22
Consolidated Statements of Operations for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-23
Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-24
Notes to Unaudited Consolidated Financial Statements................................ F-25
CAREMARK INTERNATIONAL INC.(1)
Report of Independent Accountants................................................... F-29
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-30
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995.......................................................................... F-31
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1994,
and 1995.......................................................................... F-32
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994,
and 1995.......................................................................... F-33
Notes to Consolidated Financial Statements.......................................... F-34
CAREMARK INTERNATIONAL INC. (UNAUDITED)(1)
Consolidated Balance Sheet as of June 30, 1996 (unaudited).......................... F-50
Consolidated Statements of Operations for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-51
Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and
1996 (unaudited).................................................................. F-52
Notes to Consolidated Financial Statements (unaudited).............................. F-53
</TABLE>
F-1
<PAGE> 78
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
NEW MANAGEMENT(1)
Report of Independent Auditors...................................................... F-57
Balance Sheets as of December 31, 1994 and 1995..................................... F-58
Statements of Income for the years ended December 31, 1994 and 1995................. F-59
Statements of Partners' Deficiency for the years ended December 31, 1994 and 1995... F-60
Statements of Cash Flows for the years ended December 31, 1994 and 1995............. F-61
Notes to Financial Statements....................................................... F-62
NEW MANAGEMENT (UNAUDITED)(1)
Balance Sheet as of December 31, 1993 (unaudited)................................... F-64
Statement of Income for the year ended December 31, 1993 (unaudited)................ F-65
Statement of Cash Flows for the year ended December 31, 1993 (unaudited)............ F-66
Notes to Unaudited Financial Statements............................................. F-67
Condensed Balance Sheet as of June 30, 1996 (unaudited)............................. F-69
Condensed Statements of Income for the six months ended June 30, 1995 and 1996
(unaudited)....................................................................... F-70
Condensed Statements of Cash Flows for the six months ended June 30, 1995 and 1996
(unaudited)....................................................................... F-71
Note to Unaudited Condensed Financial Statements.................................... F-72
</TABLE>
- ---------------
(1) These entities were combined with MedPartners, Inc. prior to September 20,
1996.
F-2
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MedPartners/Mullikin, Inc.
We have audited the accompanying consolidated balance sheets of
MedPartners/Mullikin, Inc. as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
MedPartners/Mullikin, Inc. at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Birmingham, Alabama
February 22, 1996
F-3
<PAGE> 80
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 66,623 $ 55,328
Marketable equity securities........................................... 37,689 35,567
Accounts receivable, less allowances for bad debts of
$21,504,000 and $29,777,000......................................... 88,340 135,176
Inventories............................................................ 5,543 9,779
Income taxes........................................................... -- 977
Prepaid expenses and other current assets.............................. 8,759 19,214
-------- --------
Total current assets........................................... 206,954 256,041
Property and equipment, net.............................................. 122,023 155,376
Intangible assets, net................................................... 74,933 111,971
Deferred tax asset....................................................... 1,267 35,002
Other assets............................................................. 12,797 18,343
-------- --------
Total assets................................................... $417,974 $576,733
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 21,980 $ 32,158
Payable to physician groups............................................ 24,669 31,810
Accrued compensation................................................... 15,557 15,949
Other accrued expenses and liabilities................................. 9,834 31,650
Accrued medical claims payable......................................... 44,924 43,433
Income taxes payable................................................... 1,729 --
Current portion of long-term liabilities............................... 12,656 9,149
-------- --------
Total current liabilities...................................... 131,349 164,149
Long-term debt, net of current portion................................... 146,498 200,814
Other long-term liabilities.............................................. 5,936 6,272
Estimated malpractice liability.......................................... 4,958 2,781
Redeemable convertible preferred stock:
Series A $.001 par value; 4,500,000 shares authorized; 4,001,000 shares
issued.............................................................. 8,001 --
Series B $.001 par value; 3,500,000 shares authorized; 3,000,000 shares
issued.............................................................. 12,000 --
Stockholders' equity:
Common stock, $.001 par value; 75,000,000 shares authorized; issued --
28,123,000 in 1994 and 42,508,000 in 1995........................... 28 42
Additional paid-in capital............................................. 116,240 214,422
Notes receivable from stockholders..................................... (2,349) (1,930)
Unrealized gain (loss) on marketable equity securities, net of deferred
taxes............................................................... 14 (7)
Unamortized deferred compensation...................................... (3,552) (2,682)
Accumulated deficit.................................................... (1,149) (7,128)
-------- --------
Total stockholders' equity..................................... 109,232 202,717
-------- --------
Total liabilities and stockholders' equity..................... $417,974 $576,733
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 81
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
-------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net revenue........................................... $549,695 $815,041 $1,153,557
Operating expenses:
Cost of affiliated physician services............... 224,770 349,036 506,811
Clinic salaries, wages and benefits................. 112,489 159,010 216,119
Outside hospitalization expense..................... 59,861 86,974 109,934
Clinic rent and lease expense....................... 18,832 27,515 41,825
Clinic supplies..................................... 24,529 34,453 47,744
Other clinic costs.................................. 41,248 67,645 88,991
General corporate expenses.......................... 42,196 56,653 64,713
Depreciation and amortization....................... 14,057 21,892 29,088
Net interest expense................................ 3,338 5,958 8,443
Merger expenses..................................... -- -- 66,564
Loss on disposal of assets.......................... 122 1,627 --
-------- -------- ----------
Net operating expenses...................... 541,442 810,763 1,180,232
-------- -------- ----------
Income (loss) before income taxes and cumulative
effect of change in method of accounting............ 8,253 4,278 (26,675)
Income tax expense (benefit).......................... 4,685 5,071 (27,233)
-------- -------- ----------
Income (loss) before cumulative effect of change in
method of accounting................................ 3,568 (793) 558
Cumulative effect of change in method of accounting
for income taxes.................................... 298 -- --
-------- -------- ----------
Net income (loss)..................................... 3,270 (793) 558
Pro forma income taxes................................ 5,038 2,279 --
-------- -------- ----------
Pro forma net income (loss)........................... $ (1,768) $ (3,072) $ 558
======== ======== =========
Pro forma net income (loss) per share................. $ (0.06) $ (0.08) $ 0.01
======== ======== =========
Number of shares used in pro forma net income (loss)
per share........................................... 28,403 36,553 42,720
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 82
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
NOTES GAIN/(LOSS)
COMMON STOCK ADDITIONAL RECEIVABLE ON MARKETABLE UNAMORTIZED RETAINED TOTAL
--------------- PAID-IN FROM EQUITY DEFERRED EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS SECURITIES COMP. (DEFICIT) EQUITY
------ ------ ---------- ------------ ------------- ----------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1992..................... 15,709 $ 16 $ 33,466 $ (2,042) $ -- $ (11) $ 14,166 $ 45,595
Capital contributions.... 5,219 5 32,326 -- -- -- -- 32,331
Capital distributions.... (76) -- (389) -- -- -- -- (389)
Dividends and
distributions
paid................... -- -- -- -- -- -- (13,114) (13,114)
Net change in notes
receivable from
stockholders........... -- -- -- (354) -- -- -- (354)
Unrealized loss on
marketable equity
securities, net of
deferred taxes......... -- -- -- -- (166) -- -- (166)
Expenses related to
offering............... -- -- (71) -- -- -- -- (71)
Purchase of Medical
Business Solutions,
Inc.................... 60 -- 60 -- -- -- -- 60
Redemption of shares at
par on September 1,
1993................... (675) (1) -- -- -- -- -- (1)
Pro forma tax provision
of pooled entities..... -- -- -- -- -- -- 5,038 5,038
Stock options............ 251 -- 2,287 -- -- -- -- 2,287
Amortization of deferred
compensation........... -- -- -- -- -- 11 -- 11
Pro forma net loss....... -- -- -- -- -- -- (1,768) (1,768)
------ ------ ---------- ------------ ------ ----------- -------- -------------
Balances at December 31,
1993..................... 20,488 20 67,679 (2,396) (166) -- 4,322 69,459
Capital contributions.... 7,605 8 47,052 -- -- -- -- 47,060
Capital distributions.... (42) -- (3,594) -- -- -- -- (3,594)
Dividends and
distributions
paid................... -- -- -- -- -- -- (4,678) (4,678)
Net change in notes
receivable from
stockholders........... -- -- -- 47 -- -- -- 47
Unrealized gain on
marketable equity
securities, net of
deferred taxes......... -- -- -- -- 180 -- -- 180
Expenses related to
redeemable convertible
preferred stock........ -- -- (49) -- -- -- -- (49)
Pro forma tax provision
of pooled entities..... -- -- -- -- -- -- 2,279 2,279
Deferred compensation on
issuance of options.... -- -- 4,350 -- -- (4,350) -- --
Stock options............ 72 -- 802 -- -- -- -- 802
Amortization of deferred
compensation........... -- -- -- -- -- 798 -- 798
Pro forma net loss....... -- -- -- -- -- -- (3,072) (3,072)
------ ------ ---------- ------------ ------ ----------- -------- -------------
Balances at December 31,
1994..................... 28,123 28 116,240 (2,349) 14 (3,552) (1,149) 109,232
Balance for immaterial
pooling-of-interests
entities................. -- -- 2 -- -- -- (308) (306)
Capital contributions.... 6,605 6 77,532 -- -- -- -- 77,538
Capital distributions.... (26) -- (470) -- -- -- -- (470)
Dividends and
distributions
paid................... -- -- -- -- -- -- (6,229) (6,229)
Net change in notes
receivable from
stockholders........... -- -- -- 419 -- -- -- 419
Unrealized loss on
marketable equity
securities, net of
deferred taxes......... -- -- -- -- (21) -- -- (21)
Conversion of preferred
stock.................. 7,001 7 19,994 -- -- -- -- 20,001
Stock options............ 805 1 1,124 -- -- -- -- 1,125
Amortization of deferred
compensation........... -- -- -- -- -- 870 -- 870
Pro forma net income..... -- -- -- -- -- -- 558 558
------ ------ ---------- ------------ ------ ----------- -------- -------------
Balances at December 31,
1995..................... 42,508 $ 42 $214,422 $ (1,930) $ (7) $(2,682) $ (7,128) $ 202,717
====== ====== ======== ========== =========== ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 83
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Pro forma net income (loss)................................. $(1,768) $ (3,072) $ 558
Adjustments to reconcile pro forma net income (loss) to net
cash and cash equivalents provided by (used in) operating
activities:
Depreciation and amortization............................ 14,057 21,892 29,088
Provision for deferred taxes............................. (371) (1,564) (33,171)
Merger expenses.......................................... -- -- 66,564
Loss on disposal of assets............................... 122 1,627 --
Amortization of premium on marketable securities......... 67 1,111 1,218
Pro forma tax provision of pooled entities............... 5,038 2,279 --
Other.................................................... (316) 349 (617)
Changes in operating assets and liabilities, net of effects
of acquisitions.......................................... 13,819 (8,896) (77,099)
------- --------- ---------
Net cash and cash equivalents provided by (used in)
operating activities.............................. 30,648 13,726 (13,459)
Investing activities:
Net cash used to fund acquisitions.......................... (14,313) (57,597) (61,531)
Additions to intangible assets, net of effects of
acquisitions............................................. (745) (1,728) (7,235)
Purchase of property and equipment.......................... (15,627) (32,082) (39,394)
Proceeds from sale of property and equipment................ 961 2,124 --
Net proceeds (purchases) of marketable securities........... (8,212) (17,560) 1,636
Other....................................................... 379 (1,701) 546
------- --------- ---------
Net cash and cash equivalents used in investing
activities........................................ (37,557) (108,544) (105,978)
Financing activities:
Capital contributions....................................... 42,713 116,298 65,764
Capital distributions....................................... (389) (3,625) (7,650)
Net proceeds from debt...................................... 16,334 35,075 139,496
Repayment of debt........................................... (17,940) (27,319) (83,011)
Dividends and distributions paid............................ (13,114) (4,453) (6,455)
Other....................................................... (188) 67 (2)
------- --------- ---------
Net cash and cash equivalents provided by financing
activities........................................ 27,416 116,043 108,142
------- --------- ---------
Net increase (decrease) in cash and cash equivalents.......... 20,507 21,225 (11,295)
Cash and cash equivalents at beginning of year................ 24,891 45,398 66,623
------- --------- ---------
Cash and cash equivalents at end of year...................... $45,398 $ 66,623 $ 55,328
======= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest................................................. $ 5,223 $ 7,809 $ 12,226
======= ========= =========
Income taxes............................................. $ 3,027 $ 6,036 $ 8,014
======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 84
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ACCOUNTING POLICIES
Description of Business
MedPartners, Inc. (MedPartners) and Mullikin Medical Enterprises, L.P.
(MME) merged on November 29, 1995 to form MedPartners/Mullikin, Inc. (the
Company). MedPartners was incorporated in January 1993 in Delaware. MedPartners'
business is to operate and/or manage physician practices. MedPartners, through
wholly owned subsidiaries, acquires certain assets of and manages physician
practices under long-term practice management agreements with affiliated
physician groups that practice through such practices. MME was formed on March
26, 1994 through the merger of Mullikin Management Partnership, L.P. (MMP) and
the limited partners of Pioneer Hospital. The Company operates a 99-bed acute
care hospital (Pioneer) and a 102-bed acute care hospital (U.S. Family Care
Medical Center) and provides management systems and services, nonphysician
healthcare personnel, facilities and equipment to affiliated medical
organizations and independent hospitals. The affiliated medical organizations
employ and contract with physicians and health maintenance organizations (HMOs)
to provide professional healthcare services to members of HMOs. The Company also
contracts with the HMOs to provide institutional (hospital) services to a
majority of the same members. In addition, through its wholly owned
subsidiaries, the Company contracts with hospitals to provide Medical Staff for
various hospital departments.
Basis of Presentation
The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its wholly owned
subsidiaries. Through the 20 to 44-year practice management agreements between
the Company's wholly owned subsidiaries and the various professional
corporations, the Company has assumed full responsibility for the operating
expenses in return for the assignment of the revenue of the professional
corporations. The Company believes it has, as opposed to affiliates of the
Company, perpetual, unilateral control over the assets and operations of the
various professional corporations, and notwithstanding the lack of technical
majority ownership of the stock of such entities, consolidation of the various
professional corporations is necessary to present fairly the financial position
and results of operations of the Company because there exists a
parent-subsidiary relationship by means other than record ownership of a
majority of voting stock. Control by the Company is perpetual rather than
temporary because of (i) the length of the original terms of the agreements,
(ii) the successive extension periods provided by the agreements, (iii) the
continuing investment of capital by the Company, (iv) the employment of the
majority of the nonphysician personnel, and (v) the nature of the services
provided to the professional corporations by the Company. Two affiliated medical
organizations, Mullikin Medical Center, a Medical Group, Inc., and Moore-White
Medical Group have been treated as special purpose entities and consolidated
with the Company by virtue of the fact that these entities have nominal capital
and their activities and resulting substantive risks and rewards rest directly
or indirectly with the Company. On January 1, 1995, MMP entered into a long-term
management agreement with Mullikin Independent Physician Association, a Medical
Corporation (MIPA). This agreement expires in the year 2038 and provides for the
assignment of virtually all of MIPA's revenue to MMP. Accordingly, beginning
January 1, 1994, the revenues and expenses of MIPA are reflected in the
Company's consolidated statements of operations. All intercompany accounts and
transactions have been eliminated in the consolidation.
Nature of Physician Compensation Arrangements
MedPartners compensates PCs with which it has contracted to provide
healthcare services to MedPartners' clinics under four basic arrangements. In
all circumstances, MedPartners is responsible for the billing and collection of
the revenue related to services provided at MedPartners' clinics as well as for
paying all expenses of the clinic including physician compensation. In the
Company's financial statements, MedPartners records all such revenue for
services performed by the physicians at the clinics. In no instance is
F-8
<PAGE> 85
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MedPartners paid a fixed fee to cover clinic operating expenses. MedPartners
always remains at risk for the expenses of the clinics. In all four types of
arrangements described below, the Company is not sharing revenue with the PCs or
its physician owners.
Over one half of MedPartners' revenue (approximately 53.0% at December 31,
1995) is received under capitation arrangements. Under these arrangements,
MedPartners contracts with licensed HMOs for a broad range of healthcare
services and in turn subcontracts for the delivery of healthcare with hospitals,
ancillary providers, and professional medical organizations, including PC's that
are affiliated with MedPartners through management agreements. Pursuant to these
arrangements the PC is paid on a per member per month basis by MedPartners. From
this amount, the PC pays liability insurance premiums and compensates its
physician owners. The PCs do not have the authority to participate in the
negotiations of contracts with HMOs.
Under the second type of arrangement, which represents approximately 23.1%
of MedPartners' revenue at December 31, 1995, MedPartners pays the PC for the
healthcare services provided at MedPartners' clinics a negotiated fixed dollar
amount. At MedPartners' sole discretion, the physicians are eligible to receive
a bonus based on performance criteria and goals. The amount of the discretionary
bonus is determined solely by MedPartners management and is not directly
correlated to clinic revenue and gross profit. In these arrangements,
MedPartners is responsible for the billing and collection of all revenues for
the services provided at its clinics as well as paying all expenses, including
physicians compensation.
Under the third type of arrangement, which represents approximately 23.2%
of MedPartners' revenue at December 31, 1995, the PC is compensated on a
negotiated fee-for-service basis for healthcare services performed at
MedPartners' clinics. In these arrangements MedPartners bills and collects for
all services rendered at its clinics and pays all expenses of the clinics,
including physicians' compensation, which is based on the fee for service
revenue generated at the clinics (which typically represents between 40 to 70
percent of the clinic's net revenues). Again, the Company is not reimbursed for
the clinic expenses, rather it is responsible and at risk for all such expenses.
Under the fourth type of arrangement, representing approximately 0.7% of
MedPartners' revenue at December 31, 1995, MedPartners pays the PC a negotiated
percentage (typically 75 to 88 percent) of the gross profits of the clinic.
Gross profit represents net clinic revenues less operating expenses of the
clinic. In these arrangement, MedPartners is responsible for the billing and
collection for the services rendered at its clinics and the payment of the
clinic expenses, including physicians' compensation. In some instances under
these types of arrangements, the physicians are guaranteed a minimum salary.
The fee retained by MedPartners includes direct management expenses of
operating the clinics plus additional amounts which reflect a portion or all of
the residual equity interest in the clinics after payment of physician
compensation (including discretionary bonuses, if any), other medical costs and
management expenses. Under the four basic arrangements discussed above, these
additional amounts (representing clinic earnings) retained by MedPartners take
the following forms: (1) 100% of clinic earnings (as defined above); (2) 100% of
clinic earnings; (3) 100% of clinic earnings and (4) a variable percentage of
the clinic's gross profits (as defined above).
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying consolidated
financial statements and notes. Actual results could differ from those
estimates.
F-9
<PAGE> 86
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amounts
of all cash and cash equivalents approximates fair value.
Marketable Securities
Effective August 1, 1994, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires that investments in equity
securities that have readily determinable fair values and investments in debt
securities be classified in three categories: held-to-maturity, trading and
available-for-sale. Based on the nature of the assets held by the Company and
management's investment strategy, the Company's investments have been classified
as available-for-sale.
Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. The cost of securities sold is
based on the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment are stated at cost, which for the used assets being
acquired is usually determined by an independent appraisal. Depreciation of
property and equipment is calculated using either the declining balance or the
straight-line method over the shorter of the estimated useful lives of the
assets or the term of the underlying leases. Estimated useful lives range from 3
to 10 years for equipment, 5 to 20 years for leasehold improvements and 5 to 40
years for buildings and improvements based on type and condition of assets.
Routine maintenance and repairs are charged to expense as incurred, while costs
of betterments and renewals are capitalized.
Intangible Assets
Excess of cost over fair value of assets acquired (goodwill) is being
amortized using the straight-line method over terms of the related practice
management agreements, generally 20 to 40 years. As of December 31, 1995, the
Company had entered into practice management agreements with 14 physician groups
which contain a voluntary termination clause granting the affiliated physician
group the right to terminate the agreement after a specified time, typically on
the fifth anniversary of the agreement, these physician groups account for
approximately 6% of net revenue as of December 31, 1995, and the original
goodwill recorded related to the acquisition of these physician groups was
approximately $6,000,000. The Company believes that amortizing the related
goodwill over 20 years rather than the noncancellable term of the practice
management agreements generally is appropriate considering (i) termination
options are exercisable only during restrictive windows and (ii) the physician
groups exercising such option are required to purchase substantially all of the
assets used in the practice, which would make the termination of the practice
management agreements not probable. The goodwill that was previously on the
books of MME is generally being amortized over 30 years and that previously on
the books of PPSI over periods ranging from 5 to 25 years. The carrying value of
goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicates that goodwill will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, the carrying value of the goodwill is reduced by
the estimated shortfall of cash flows. Costs of obtaining practice management
agreements are capitalized as incurred and are amortized using the straight-line
method. These costs include all direct costs of obtaining such agreements, which
include such items as filing fees, legal fees and travel and related costs. The
Company has elected to amortize these costs over a shorter period than the term
of the
F-10
<PAGE> 87
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related practice management agreements. Currently, these costs are being
amortized over three years. Other intangible assets include costs associated
with obtaining long-term financing, which are being amortized, and included in
interest expense, systematically over the terms of the related debt agreements.
Payable to Physician Groups
Amounts payable to physician groups primarily represent monthly
compensation to the physicians which, based on the practice management
agreements, are generally payable to the physicians by the 15th day following
the end of each month.
Net Revenue
Net revenue is reported at the estimated realizable amounts from patients,
third-party payors and others for services rendered. Revenue under certain
third-party payor agreements is subject to audit and retroactive adjustments.
Provisions for estimated third-party payor settlements and adjustments are
estimated in the period the related services are rendered and are adjusted in
future periods as final settlements are determined.
During 1993, 1994 and 1995, approximately 5% of net revenue was received
under the Medicare program and approximately 4% was received under state
reimbursement programs. The Medicare program and state reimbursement programs
pay physician services based on fee schedules which are determined by the
related government agency.
The Company has contracts with various managed care organizations to
provide physician services based on negotiated fee schedules. Under various
contracts with HMOs, capitation is received to cover all physicians and hospital
services needed by the HMO members. Capitation payments are recognized as
revenue on the accrual basis, and represents approximately 67%, 62% and 54% of
the Company's net revenue in 1993, 1994 and 1995, respectively. Liabilities for
physician services provided and hospital services incurred are accrued in the
month services are rendered. The provision for accrued claims payable which
represents the amount payable for services incurred by patients not yet paid is
validated by actuarial review. Management believes that the provision at
December 31, 1995 is adequate to cover claims which will ultimately be paid.
Income Taxes
The Company is a corporation subject to federal and state income taxes.
Deferred income taxes are provided for temporary differences between financial
and income tax reporting relating primarily to net operating losses which must
be carried forward to future periods for income tax reporting purposes.
Unamortized Deferred Compensation
Unamortized deferred compensation represents the difference between the
grant price and the market price on the date that stock options were granted to
the physicians at Riverside Medical Clinic, Inc. This cost is being amortized
over the five year vesting period.
Reinsurance
The Company cedes reinsurance to allow management to control exposure to
potential losses arising from large risks. Reinsurance expense is estimated
based on the terms of the respective reinsurance agreements. The estimated
expense is continually reviewed and any adjustments which become necessary are
included in current operations. Amounts recoverable from reinsurers are
estimated in a manner consistent with the claim liability associated with the
reinsured policies.
F-11
<PAGE> 88
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restatement of Financial Statements
The Company has merged with the following entities during 1995 and in the
first quarter of 1996 in transactions that were accounted for as poolings of
interests. Accordingly, the financial statements for all periods prior to the
effective dates of these mergers have been restated to include the results of
these entities. The Company issued 27,819,000 shares of its common stock in
these and other immaterial transactions.
<TABLE>
<CAPTION>
EFFECTIVE DATE OF
ENTITY NAME MERGER
- ------------------------------------------------------------------------ -------------------
<S> <C>
MEDCTR, Inc. (MEDCTR)................................................... June 20, 1995
Team Health............................................................. June 30, 1995
Texas Back Institute, Inc. (TBI)........................................ November 2, 1995
Vanguard Healthcare Group, Inc. (Vanguard).............................. November 13, 1995
Mullikin Medical Enterprises, L.P. (MME) and related real estate
partnerships.......................................................... November 29, 1995
Pacific Physician Services, Inc. (PPSI)................................. February 22, 1996
</TABLE>
Prior to the pooling, MEDCTR, TBI and RVAA were S Corporations and MME and
related real estate entities were partnerships and were therefore not subject to
federal and state income taxes. Proforma income tax provisions are reflected in
the consolidated statements of operations to provide for additional federal and
state income taxes which would have been incurred had these entities been taxed
as C Corporations.
Fiscal Year
At December 31, 1993, MME changed its fiscal year-end from January 31 to
December 31. As a result, the consolidated financial statements for the year
ended December 31, 1993 contain only eleven months of operations for MME. PPSI's
financial statements are for twelve month periods ending October 31.
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed, after adjusting
historical net income for the estimated tax provisions applicable to the pooled
companies described above, by dividing net income (loss) by the number of common
and common equivalent shares outstanding during the periods in accordance with
the applicable rules of the Securities and Exchange Commission. All stock
options issued have been considered as outstanding common stock equivalents for
all periods presented, even if anti-dilutive, under the treasury stock method
(based on initial public offering price). Shares of common stock issuable upon
conversion of the Series A and Series B Convertible Preferred Stock of
MedPartners are assumed to be common share equivalents for all periods
presented.
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Impairment of Long-Lived Assets
Effective December 31, 1995, the Company adopted FASB Statement 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. Statement 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The Statement also addresses the
accounting for long-lived assets that are expected to be disposed of. Statement
121 is applicable for most long-lived assets, identifiable intangibles, and
goodwill related to those assets; it does not apply to financial instruments and
deferred taxes. Management has
F-12
<PAGE> 89
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determined that long-lived assets are fairly stated in the accompanying balance
sheet, and that no indicators of impairment are present. In accordance with the
new rules, the Company's prior year financial statements have not been restated
to reflect the change in accounting principle.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash......................................................................... $ 6,467 $14,118
Certificates of deposit...................................................... 14,783 15,780
Commercial paper............................................................. 4,994 --
Money market accounts........................................................ 37,560 15,437
Repurchase agreements........................................................ 2,819 9,993
------- -------
$66,623 $55,328
======== ========
</TABLE>
The amounts above approximate the fair value of the respective cash
equivalents.
The repurchase agreements represent overnight funds purchased through a
bank and are secured by Treasury Bills held in the bank's name.
Interest income, including interest income from marketable debt securities,
was $2,150,000, $3,489,000 and $5,353,000 for the years ended December 31, 1993,
1994 and 1995, respectively.
3. MARKETABLE SECURITIES
The following is a summary of available-for-sale securities at December 31,
1995:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
GROSS COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt securities issued by:
Federal government..................................... $ 7,799 $ -- $ -- $ 7,799
State and state agencies............................... 13,884 3 (19) 13,868
Political subdivision of state......................... 13,895 38 (33) 13,900
---------- --- ----- ----------
$ 35,578 $ 41 $(52) $ 35,567
========= ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of marketable securities
classified as available-for-sale at December 31, 1995, by contractual maturity,
are as follows:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------- ----------
(IN THOUSANDS)
<S> <C> <C>
Debt securities:
Due in one year or less................................................... $19,180 $ 19,163
Due after one year through two years...................................... 13,506 13,480
Due after two years through three years................................... 1,007 1,004
Due after three years..................................................... 1,885 1,920
------- ----------
$35,578 $ 35,567
======== ========
</TABLE>
F-13
<PAGE> 90
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of available-for-sale securities at December 31,
1994:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
GROSS COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt securities issued by:
Federal government................................. $ 5,890 $-- $ -- $ 5,890
State and state agencies........................... 15,108 -- (351) 14,757
Political subdivision of state..................... 14,855 -- (323) 14,532
Equity securities.................................... 2,510 -- -- 2,510
---------- --- ------ ----------
$ 38,363 $-- $ (674) $ 37,689
========= ======== ============= ========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Excess of cost over fair value of assets acquired........................... $59,471 $ 99,683
Noncompetition agreements................................................... 8,370 3,771
Medical records............................................................. 6,387 2,257
Favorable lease rate on facilities.......................................... 2,740 2,740
Organizational costs........................................................ 845 1,075
Clinic service agreements................................................... 2,554 7,879
Other intangible assets..................................................... 6,986 7,169
------- --------
87,353 124,574
Less accumulated amortization............................................... 12,420 12,603
------- --------
$74,933 $111,971
======== =========
</TABLE>
Amortization expense was $3,642,000, $6,820,000 and $9,040,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land....................................................................... $ 11,937 $ 12,798
Buildings and improvements................................................. 54,953 49,358
Equipment.................................................................. 82,014 117,165
Equipment under capital leases............................................. 10,790 5,855
Leasehold improvements..................................................... 22,185 43,269
Construction in progress................................................... 1,305 3,079
-------- --------
183,184 231,524
Less accumulated depreciation and amortization............................. 61,161 76,148
-------- --------
$122,023 $155,376
========= =========
</TABLE>
Depreciation and amortization expense was $10,415,000, $15,072,000 and
$20,048,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
F-14
<PAGE> 91
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Advances under Bank Credit Facility........................................ $ 17,900 $ 90,000
Convertible subordinated debentures with interest at 5.50%, interest only
paid semi-annually, due in 2003.......................................... 69,000 69,000
Notes payable to banks, collateralized by deeds of trust including
interest, at rates ranging from 6.5% to 10.5%, payable in monthly
installments through 2002................................................ 12,595 10,611
Notes payable to lenders secured by deeds of trust payable in monthly
installments, bearing interest at rates ranging from 8.75% to 10.25%..... 10,271 7,778
Notes payable to physicians and shareholders in annual installments through
2001, interest rates ranging from 7.0% to 12.0%.......................... 3,000 2,332
Notes payable to medical groups in annual installments through 1998,
interest rates ranging from 5.0% to 9.0%................................. 5,080 3,996
Notes payable to former partners for buyout of partnership interests,
unsecured, maturing through 1999, interest rates at 7.0% and 10.0%....... 3,165 4,456
10.0% note payable to Walter T. Mullikin and Kathryn D. Mullikin as
trustees of the Mullikin Family Trust, collateralized by deed of trust on
partnership property..................................................... 3,706 3,477
Notes payable to stockholders.............................................. 7,180 --
Other long-term notes payable.............................................. 22,318 13,066
Capital lease obligations.................................................. 4,939 5,247
-------- --------
159,154 209,963
Less amounts due within one year........................................... (12,656) (9,149)
-------- --------
$146,498 $200,814
========= =========
</TABLE>
The amounts recorded above approximate the fair value of the obligations.
On November 29, 1995, the Company entered into a Revolving Credit and
Reimbursement Agreement with a syndicate of banks which provides a revolving
credit facility (the Bank Credit Facility) of up to $150 million. Advances under
the Bank Credit Facility initially bear interest at the London Interbank Offered
Rate (LIBOR) plus 2.0% which approximates 7.9% at December 31, 1995. The Bank
Credit Facility has an expiration date of May 10, 1998 and is renewable for two
additional one-year periods. In conjunction with the Bank Credit Facility, the
Company granted the banks a first priority security interest in all shares of
stock of its subsidiaries and provided a negative pledge on substantially all
assets.
The Bank Credit Facility contains affirmative and negative covenants which,
among other things, require the Company to maintain certain financial ratios
(including maintain net worth, minimum fixed charge overage ratio, maximum
indebtedness to cash flow), limit the amount of additional indebtedness, and set
certain restrictions on investments, mergers and sales of assets. As of December
31, 1995, the Company was in compliance with the covenants in the Bank Credit
Facility. Additionally, the Company is required to obtain bank consent for
acquisitions with an aggregate purchase price in excess of $15 million.
In December 1993, PPSI issued $69 million of convertible subordinated
debentures for net proceeds of approximately $66,547,000. The debentures are
convertible into common stock of PPSI at the option of the holder at a
conversion price of $29 per share. Interest on the debentures at 5 1/2% is
payable semi-annually on June 15 and December 15. The debentures are redeemable
for cash at any time, at the option of PPSI and are subordinated to all senior
indebtedness, as defined in the Indenture Agreement. The Indenture Agreement
governing the debentures provides that upon a change in control over PPSI, the
holders of the debentures have the right to require PPSI to purchase all or part
of the debentures at 100% of the principal amount plus accrued interest. There
are no restrictions on the incurrence of additional indebtedness by PPSI or any
subsidiary. At December 31, 1995, the fair value of the convertible subordinated
debentures, based on quoted
F-15
<PAGE> 92
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market price, was approximately $57,788,000. Subsequent to the acquisition of
PPSI in February of 1996, the Company paid off these debentures.
The following is a schedule of principal maturities of long-term debt as of
December 31, 1995.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996........................................................ $ 9,215
1997........................................................ 8,577
1998........................................................ 96,967
1999........................................................ 4,962
2000........................................................ 2,266
Thereafter.................................................. 87,976
--------------
Total............................................. $209,963
===========
</TABLE>
Operating Leases: Operating leases generally consist of short-term lease
agreements for professional office space where the medical practices are
located. These leases generally have five-year terms with renewal options.
The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1995.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996........................................................ $ 36,426
1997........................................................ 32,286
1998........................................................ 28,776
1999........................................................ 24,934
2000........................................................ 21,411
Thereafter.................................................. 111,110
--------------
$254,943
===========
</TABLE>
Interest expense was $5,488,000, $9,447,000 and $13,796,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
7. INCOME TAX EXPENSE
At December 31, 1995, the Company had a cumulative net operating loss
carryforward for federal income tax purposes of approximately $57 million
available to reduce future amounts of taxable income. If not utilized to offset
future taxable income, the net operating loss carryforwards will expire on
various dates through 2010. Approximately $1 million of the total $57 million
net operating loss carryforward (which was generated in 1993), is available at a
reduced rate due to certain tax limitations.
In 1994, the Company established a valuation allowance of $14,571,000
because it was more likely than not that the deferred tax asset would not be
utilized in future periods. The valuation allowance has been decreased by
$14,240,000 in 1995 because the realization of the deferred tax asset is now
more likely than not.
F-16
<PAGE> 93
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- -------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Net operating losses............................................ $ 8,419 $22,992
Purchase reserves and restructuring............................. -- 14,724
Accrued payroll and vacation.................................... 2,129 3,383
Accrued and deferred compensation benefits...................... 2,464 3,375
Bad debts....................................................... 6,210 9,474
Other........................................................... 4,463 3,270
-------- -------
Gross deferred tax assets......................................... 23,685 57,218
Valuation allowance for deferred tax assets....................... (14,571) (331)
Deferred tax liabilities
Goodwill........................................................ -- 8,590
Excess tax depreciation......................................... 1,193 2,463
Prepaid expenses................................................ 504 2,419
Accrual to cash adjustment...................................... 1,863 273
Shared risk receivable.......................................... 4,041 7,182
Other........................................................... 246 958
-------- -------
Gross deferred tax liabilities.................................... 7,847 21,885
-------- -------
Net deferred tax asset............................................ $ 1,267 $35,002
======== =======
</TABLE>
Income tax expense (benefit) for the years ended December 31, 1993, 1994
and 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................. $4,109 $5,454 $ 5,414
State.................................................... 1,068 1,417 1,323
------ ------ --------
5,177 6,871 6,737
Deferred:
Federal.................................................. (466) (1,629) (29,793)
State.................................................... (26) (171) (4,177)
------ ------ --------
(492) (1,800) (33,970)
------ ------ --------
$4,685 $5,071 $(27,233)
====== ====== ========
</TABLE>
The differences between the provision (benefit) for income taxes and the
amount computed by applying the statutory federal income tax rate to income
before taxes were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal tax at statutory rate.............................. $3,944 $4,216 $ (8,484)
Add (deduct):
State income tax, net of federal tax benefit............. 608 684 (3,355)
Decrease in valuation allowance.......................... -- -- (14,240)
Other.................................................... 133 171 (1,154)
------ ------ --------
$4,685 $5,071 $(27,233)
====== ====== ========
</TABLE>
F-17
<PAGE> 94
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CAPITALIZATION
The Company's Restated Certificate of Incorporation provides that the
Company may issue 9,500,000 shares of Preferred Stock, par value $0.001 per
share, 500,000 shares of Series C Junior Participating Preferred Stock, par
value $0.001 per share, and 75,000,000 shares of Common Stock.
On September 1, 1993, the Company committed to sell 4,001,000 shares of
Series A Convertible Preferred Stock at $2.00 per share. The Company received,
net of expenses, $7,230,000 in 1993 and $698,000 on February 1, 1994. During
1994, the Company sold 3,000,000 shares of Series B Convertible Preferred Stock
at $4.00 per share. The Company received, net of expenses, $11,958,000. Upon
consummation of the Company's initial public offering on February 28, 1995, all
of the issued and outstanding shares of Series A and Series B Convertible
Preferred Stock were converted into 7,001,000 shares of the Company's Common
Stock.
On February 28, 1995, the Company completed an initial public offering of
5,060,000 shares of its common stock. Gross and net proceeds of the offering
were $65,780,000 and $60,417,000, respectively. Proceeds of the offering were
used to pay all outstanding indebtedness under the bank credit facility of
$30,400,000. The remainder of the net proceeds were used to fund acquisitions of
certain assets of physician practices, expansion of physician services, working
capital and other general corporate purposes.
In March of 1996, 6,632,800 shares of the Company's Common Stock were sold
in a secondary offering. The net proceeds from this offering were approximately
$194 million. The offering provided for over-allotments of 1,237,500 shares
which have not yet been exercised. If exercised, the Company would receive an
additional $36 million from the over-allotments. These proceeds were used to
pay-off the line of credit and the debentures discussed in Note 6.
9. STOCK OPTIONS
The Company's Board of Directors adopted and a majority of the Company's
stockholders approved the 1993 and 1995 Stock Option Plans (the Plans), covering
a maximum of 1,555,000 and 5,899,150 shares of Common Stock, respectively. The
number of shares covered under the 1995 Stock Option Plan is subject to
expansion to 7,099,150 at the Annual Shareholders' Meeting on April 25, 1996.
The Plans, under which both incentive stock options and non-qualified stock
options may be issued, provide that options may be granted to officers,
directors, consultants and employees of the Company. Options granted under the
Plans generally vest equally over five years from the date of grant and
terminate ten years from the date of grant. All stock options were granted prior
to the initial public offering of the Company at estimated fair market value. As
of December 31, 1995, the Company had granted options to acquire 4,426,750
shares of its Common Stock under the Plans at option prices ranging from $.20 to
$28.25. All stock options granted in 1995 were granted at fair market value.
During 1995 options to acquire 702,380 shares of the Company's Common Stock were
exercised at prices ranging from $.20 to $22.00 per share. Gross proceeds from
the exercise of these options totaled $377,000.
10. ACQUISITIONS
During the year ended December 31, 1995, the Company, through its
wholly-owned subsidiaries, acquired certain operating assets of various medical
practices. Simultaneously with each medical practice acquisition, the Company
entered into practice management agreements which generally have a 20-year term.
Pursuant to the practice management agreements, the Company manages all aspects
of the affiliated practice other than the provision of medical services, which
is controlled by the physician groups. For providing services under the practice
management agreement, the physicians receive a fixed percentage of the accrual
net revenue of the practice. The percentage varies from practice to practice and
is based upon the overhead structure of the practice at the time of affiliation.
Generally, the practice management agreements cannot be terminated by the
physician group or Company without cause, which includes material default or
bankruptcy. Upon termination for cause or expiration of the clinic services
agreement, the physician group has the option to purchase some or all of the
assets owned by the Company, generally at current book values.
F-18
<PAGE> 95
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the net
assets based on the estimated fair values at the date of acquisition. The
accounts receivable were valued at net collective value based upon detailed
analyses by the Company and the property and equipment values were based upon
independent appraisals. The estimated fair value of assets acquired is
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Accounts receivable, net............................................... $ 22,117
Prepaid expenses and other current assets.............................. 2,100
Property and equipment................................................. 15,128
Liabilities assumed.................................................... (9,888)
Excess of costs over fair value of assets acquired..................... 45,521
-------
74,978
Less value of stock issued............................................. 13,447
-------
Cash purchase price, net of cash received.............................. $ 61,531
=======
</TABLE>
11. RETIREMENT SAVINGS PLAN
Effective April 4, 1994, the Company adopted the MedPartners, Inc. and
Subsidiaries Employee Retirement Savings Plan (the "Plan"). The Plan is a Code
Section 401(k) Plan which requires the attainment of age 21 and one year of
service, with a minimum of 1,000 hours worked, to become a participant in the
Plan. Service for a predecessor employer will be considered for participation
requirements in the Plan for all employees employed through acquisition
activities. The Company, at its sole discretion, may contribute an amount which
it designates as a qualified nonelective contribution. The Company anticipates a
required contribution of three percent of non-key employee salaries for the Plan
year ended December 31, 1995, however, no additional contributions are
anticipated at this time. Company contributions are gradually vested over a
six-year service period. The various entities that were acquired or merged into
the Company during 1995 also had varying employee retirement plans, which may be
incorporated into the Company's plan during 1995 and 1996. The expenses related
to all plans during the years ended December 31, 1993, 1994 and 1995 were
approximately $1,464,000, $1,858,000 and $3,195,000, respectively.
F-19
<PAGE> 96
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. MERGERS
The Company merged with the following entities in transactions that were
accounted for as pooling of interests. Accordingly, the Company's historical
financial statements for all periods have been restated to include the results
of all transactions accounted for as pooling of interests.
<TABLE>
<CAPTION>
MME AND
RELATED PPSI
REAL OTHER AND
ESTATE IMMATERIAL TEAM
MEDPARTNERS PARTNERSHIPS MEDCTR TBI VANGUARD POOLINGS HEALTH COMBINED
----------- ------------ ------- ------- -------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1993
Net revenue.......... $ 1,277 $298,415 $11,410 $25,881 $17,128 $7,972 $187,612 $ 549,695
Net (loss) income.... (1,206) (1,495) (369 ) (177) (873 ) 276 7,114 3,270
Year ended December 31,
1994
Net revenue.......... 77,432 370,798 10,963 20,816 18,493 8,313 308,226 815,041
Net (loss) income.... (1,601) (4,647) 76 (1,346) (847 ) (26) 7,598 (793)
Year ended December 31,
1995
Net revenue.......... 238,887 431,875 11,343 23,679 28,684 7,957 411,132 1,153,557
Net (loss) income.... 3,022 (9,412) (11 ) (453) (2,905 ) 112 10,205 558
</TABLE>
Included in pre-tax loss for the year ended December 31, 1995 are merger
costs totaling $66.6 million. Approximately $55.6 million relates to the merger
with MME and related real estate partnerships. The components of this cost are
as follows:
<TABLE>
<S> <C>
Investment banking fees............................................... $ 8,771,200
Professional fees..................................................... 7,267,075
Other transaction costs............................................... 5,028,820
Restructuring charges:
Severance costs for identified employees............................ 19,625,728
Impairment of assets................................................ 8,095,411
Abandonment of facilities........................................... 6,401,246
Noncompatible technology............................................ 2,601,578
Unamortized loan costs.............................................. 2,323,667
Conforming of accounting policies................................... 2,248,810
Restructuring of benefits........................................... 1,888,749
Other restructuring charges......................................... 2,311,654
-----------
Total................................................................. $66,563,938
==========
</TABLE>
The PPSI merger was effective February 22, 1996, therefore, the merger
costs related to this transaction are not included in the amounts above. They
will be included in the results of operations for 1996.
13. CONTINGENCIES
In addition to the general liability and malpractice insurance carried by
the individual physicians, the Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management is
not aware of any claims against the Company which might have a material impact
on the Company's consolidated financial position.
Employed physicians are also covered by a general liability and malpractice
insurance policy. The Company has not accrued a loss for reported or unreported
incidents, as the amount, if any, cannot be reasonably estimated and the
probability of an adverse outcome cannot be determined at this time. It is the
F-20
<PAGE> 97
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
opinion of management that the ultimate resolution of any asserted or unasserted
claims will not have a material adverse effect on the financial position or
operating results of the Company.
PPSI, through its wholly-owned captive insurance company, Pacific
Indemnity, Ltd., has provided for an estimate of the cost of the incurred but
not reported claims and deductible amounts for the employed physicians servicing
emergency departments. At July 31, 1995, Pacific Indemnity, Ltd. purchased
insurance to cover all claims for incidents occurring through July 31, 1995
("tail coverage") for all employee physicians of the affiliated medical
organizations. Team Health has an agreement with its insurance carrier to
purchase insurance associated with claims incurred and not yet reported.
Management believes that the recorded accruals for such losses and deductibles
related to malpractice claims for the hospital-based contracting physicians and
the hospital are sufficient to cover incidents occurring prior to December 31,
1995.
PPSI is self-insured for employee and dependent health insurance costs and
certain workers' compensation costs. Reinsurance of defined excess cost has been
purchased from an outside insurance company. Management believes that amounts
accrued are sufficient to cover claims and costs incurred through December 31,
1995.
14. MAJOR PAYORS
Two payors represented individually more than 10% of the Company's net
revenue as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NET REVENUE
----------------------
YEAR ENDED DECEMBER
31,
----------------------
CUSTOMER 1993 1994 1995
---------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Pacificare...................................................... 17% 19% 18%
Health Net...................................................... 13 11 9
</TABLE>
F-21
<PAGE> 98
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1996
---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 56,221
Accounts receivable, less allowances for bad debts of $39,574,000............ 165,105
Inventories.................................................................. 11,087
Income tax receivable........................................................ 4,139
Prepaid expenses and other current assets.................................... 23,839
---------------
Total current assets................................................. 260,391
Property and equipment, net.................................................... 167,502
Intangible assets, net......................................................... 139,169
Deferred tax asset............................................................. 34,285
Other assets................................................................... 16,837
---------------
Total assets......................................................... $ 618,184
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 29,084
Payable to physician groups.................................................. 28,616
Accrued compensation......................................................... 19,165
Accrued medical claims payable............................................... 44,235
Other accrued expenses and liabilities....................................... 30,605
Current portion of long-term liabilities..................................... 7,648
---------------
Total current liabilities............................................ 159,353
Long-term debt, net of current portion......................................... 35,080
Other long-term liabilities.................................................... 9,140
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 52,311,000
shares issued............................................................. 52
Additional paid-in capital................................................... 435,618
Notes receivable from stockholders........................................... (1,818)
Accumulated deficit.......................................................... (19,241)
---------------
Total stockholders' equity........................................... 414,611
---------------
Total liabilities and stockholders' equity........................... $ 618,184
===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-22
<PAGE> 99
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net revenue............................................................ $547,450 $703,683
Operating expenses:
Cost of affiliated physician services................................ 240,225 301,280
Clinic salaries, wages and benefits.................................. 105,133 116,600
Outside hospitalization expense...................................... 50,364 83,516
Clinic rent and lease expense........................................ 19,744 23,814
Clinic supplies...................................................... 22,519 30,953
Other clinic costs................................................... 43,776 59,154
General corporate expenses........................................... 32,167 39,540
Depreciation and amortization........................................ 13,962 16,482
Net interest expense................................................. 3,367 2,811
Merger expenses...................................................... 1,051 34,448
-------- --------
Net operating expenses....................................... 532,308 708,598
-------- --------
Income (loss) before income taxes...................................... 15,142 (4,915)
Income tax expense (benefit)........................................... 4,411 360
-------- --------
Net income (loss)...................................................... $ 10,731 $ (5,275)
======== ========
Pro forma net income (loss) per share.................................. $ 0.26 $ (0.11)
======== ========
Number of shares used in pro forma net income (loss) per share......... 41,867 50,034
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-23
<PAGE> 100
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Pro forma net income (loss)............................................ $ 10,731 $ (5,275)
Adjustments to reconcile pro forma net income (loss) to net cash and
cash provided by (used in) operating activities:
Depreciation and amortization....................................... 13,962 16,482
Provision for deferred taxes........................................ (1,425) (5,848)
Merger expenses..................................................... 1,051 34,448
Other............................................................... 129 --
Changes in operating assets and liabilities, net of effects of
acquisitions........................................................ (11,288) (33,762)
-------- --------
Net cash and cash equivalents provided by operating
activities.................................................... 13,160 6,045
INVESTING ACTIVITIES:
Cash paid for merger charges........................................... (541) (25,932)
Net cash used to fund acquisitions..................................... (27,237) (29,671)
Additions of intangible assets, net of effects of acquisitions......... (3,440) (4,478)
Purchase of property and equipment..................................... (15,571) (21,833)
Net proceeds (purchases) of marketable securities...................... (12,132) 27,482
Other.................................................................. (959) 5
-------- --------
Net cash and cash equivalents used in investing activities..... (59,880) (54,427)
FINANCING ACTIVITIES:
Capital contributions.................................................. 62,231 214,656
Capital distributions.................................................. (3,259) --
Net proceeds from debt................................................. 43,262 --
Repayment of debt...................................................... (46,256) (167,453)
Other.................................................................. (3,492) 105
-------- --------
Net cash and cash equivalents provided by financing
activities.................................................... 52,486 47,308
-------- --------
Net increase (decrease) in cash and cash equivalents........... 5,766 (1,074)
Cash and cash equivalents at beginning of period....................... 66,623 56,133
Beginning cash and cash equivalents of immaterial pooling-of-interests
entities............................................................ -- 1,162
-------- --------
Cash and cash equivalents at end of period............................. $ 72,389 $ 56,221
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................................... $ 5,975 $ 4,252
======== ========
Income taxes................................................... $ 3,752 $ 476
======== ========
Issuance of 316,000 common shares as consideration for
acquisitions accounted for as purchases....................... $ -- $ 5,920
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE> 101
MEDPARTNERS/MULLIKIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries and have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. As a result of the merger with
Pacific Physician Services, Inc. (PPSI) in February 1996, certain
reclassifications have been made to the financial statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
items) necessary for a fair presentation of results for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements and footnote
disclosures should be read in conjunction with the December 31, 1995 audited
consolidated financial statements and the notes thereto.
Restatement of Financial Statements
During the first quarter of 1996 the Company combined with PPSI in a
business combination that was accounted for as a pooling of interests.
Accordingly, the financial statements for all periods prior to February 22,
1996, the effective date of the merger, have been restated to include the
results of PPSI (Note 3).
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed by dividing net income
(loss) by the number of common and common equivalent shares outstanding during
the periods in accordance with the applicable rules of the Securities and
Exchange Commission. All stock options issued have been considered as
outstanding common stock equivalents for all periods presented, even if
anti-dilutive, under the treasury stock method. Shares of common stock issuable
upon conversion of the Series A and Series B Convertible Preferred Stock of
MedPartners in February 1995 are assumed to be common share equivalents for all
periods presented.
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (ABP 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock option equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
2. CAPITALIZATION
The Company's Second Amended and Restated Certificate of Incorporation
provides that the Company may issue 9,500,000 shares of Preferred Stock, par
value $0.001 per share, 500,000 shares of Series C Junior Participating
Preferred Stock, par value $0.001 per share, and 200,000,000 shares of Common
Stock, par value $0.001 per share. As of December 31, 1995 and June 30, 1996 no
shares of the preferred stock were outstanding.
On March 13, 1996, the Company completed a secondary public offering of
6,632,800 shares of its Common Stock. The net proceeds of the offering were $194
million. Proceeds of the offering were used to pay all outstanding indebtedness
under the bank credit facility of $70 million. In April 1996, $69 million of the
proceeds were used to pay-off the Company's convertible subordinated debentures.
The remainder of the net proceeds will be used to fund acquisitions of certain
assets of physician practices, expansion of physician services, working capital
and other general corporate purposes.
F-25
<PAGE> 102
MEDPARTNERS/MULLIKIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996 the number of shares covered under the 1995 Stock Option Plan
(the Plan) was increased on two occasions. At a special meeting of the
stockholders on February 22, 1996, the Plan was increased by 1,325,000 shares
and on April 25, 1996 at the Annual Meeting of Stockholders it was increased by
1,200,000 shares. As of April 25, 1996 a maximum of 7,099,150 shares of Common
Stock were covered by the Plan.
3. ACQUISITIONS
During the six months ended June 30, 1996, the Company, through its
wholly-owned subsidiaries, acquired certain operating assets of various medical
practices. Simultaneously with each medical practice acquisition, the Company
entered into practice management agreements which generally have 20 to 44 year
terms. Pursuant to the practice management agreements, the Company manages all
aspects of the affiliated practice other than the provision of medical services,
which is controlled by the physician groups. Generally, the practice management
agreements cannot be terminated by the physician group or Company without cause,
which includes material default or bankruptcy. Upon termination for cause or
expiration of the clinic services agreement, the physician group has the option
to purchase some or all of the assets owned by the Company, generally at current
book values. The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the net
assets based on the estimated fair values at the date of acquisition. The
estimated fair value of assets acquired is $35,593,000. A total of $29,671,000
in cash and 316,000 shares of stock valued at $5,920,000 were given in exchange
for these assets during the six months ended June 30, 1996.
Effective February 22, 1996, the Company merged with PPSI in a transaction
that was accounted for as a pooling of interests. Accordingly, the Company's
historical statements for all periods prior to the effective date of the merger
have been restated to include the results of PPSI. The Company exchanged
10,983,346 shares of its common stock in exchange for all of the outstanding
common stock of PPSI.
Prior to its merger with the Company, PPSI reported on a fiscal year ending
on July 31. The restated financial statements for all periods prior to and
including December 31, 1995 are based on a combination of the Company's results
for its December 31 fiscal year and an October 31 fiscal year for PPSI.
Beginning January 1, 1996, PPSI adopted a December 31 fiscal year end;
accordingly, all consolidated financial statements for periods after December
31, 1995 are based on a consolidation of all of the Company's subsidiaries on a
December 31 year end. PPSI's historical results of operations for the two months
ended December 31, 1995 are not included in the Company's consolidated
statements of operations or cash flows. An adjustment has been made to
stockholders' equity as of January 1, 1996 to adjust for PPSI's results of
F-26
<PAGE> 103
MEDPARTNERS/MULLIKIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations for the two months ended December 31, 1995. The following is a
summary of operations and cash flows for the two months ended December 31, 1995:
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Net revenue............................................................ $ 69,850
Operating expenses:
Cost of affiliated physician services................................ 32,600
Clinic salaries, wages and benefits.................................. 13,142
Outside hospitalization expenses..................................... 14,861
Clinic rent and lease expense........................................ 1,963
Clinic supplies...................................................... 3,556
Other clinic costs................................................... 7,373
General corporate expenses........................................... 5,235
Depreciation and amortization........................................ 2,371
Net interest expense................................................. 426
Loss on disposal of assets........................................... 41
--------------
Net operating expenses....................................... 81,568
--------------
Loss before taxes...................................................... (11,718)
Income tax benefit..................................................... (3,661)
--------------
Net loss..................................................... $ (8,057)
===========
STATEMENT OF CASH FLOW DATA:
Net cash and cash equivalents used in operating activities........... $ (3,569)
Net cash and cash equivalents provided by investing activities....... 4,455
Net cash and cash equivalents used in financing activities........... (81)
--------------
Net increase in cash and cash equivalents.................... $ 805
===========
</TABLE>
Included in pre-tax loss for the six months ended June 30, 1996 are merger
costs totaling $34.4 million. The components of this cost are as follows:
<TABLE>
<S> <C>
Investment banking fees................................................. $ 6,624,920
Professional fees....................................................... 2,616,356
Other transaction costs................................................. 1,098,444
Restructuring charges:
Abandonment of facilities............................................. 10,767,562
Severance costs for identified employees.............................. 5,865,295
Restructuring of benefits............................................. 2,392,431
Unamortized bond issue costs.......................................... 1,921,661
Noncompatible technology.............................................. 1,700,000
Impairment of assets.................................................. 1,361,004
Other restructuring charges........................................... 100,000
-----------
Total................................................................... $34,447,673
==========
</TABLE>
4. CONTINGENCIES
In addition to the general liability and malpractice insurance carried by
the individual physicians, the Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management is
not aware of any claims against the Company which might have a material impact
on the Company's consolidated financial position.
F-27
<PAGE> 104
MEDPARTNERS/MULLIKIN, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employed physicians are also covered by a general liability and malpractice
insurance policy. The Company has not accrued a loss for reported or unreported
incidents, as the amount, if any, cannot be reasonably estimated and the
probability of an adverse outcome cannot be determined at this time. It is the
opinion of management that the ultimate resolution of any asserted or unasserted
claims will not have a material adverse effect on the financial position or
operating results of the Company.
PPSI, through its wholly-owned captive insurance company, Pacific
Indemnity, Ltd., has provided for an estimate of the cost of the incurred but
not reported claims and deductible amounts for the employed physicians servicing
emergency departments. At July 31, 1995, Pacific Indemnity, Ltd. purchased
insurance to cover all claims for incidents occurring through July 31, 1995
("tail coverage") for all employee physicians of the affiliated medical
organizations. Team Health has an agreement with its insurance carrier to
purchase insurance associated with claims incurred and not yet reported.
Management believes that the recorded accruals for such losses and deductibles
related to malpractice claims for the hospital-based contracting physicians and
the hospital are sufficient to cover incidents occurring prior to June 30, 1996.
PPSI is self-insured for employee and dependent health insurance costs and
certain workers' compensation costs. Reinsurance of defined excess cost has been
purchased from an outside insurance company. Management believes that amounts
accrued are sufficient to cover claims and costs incurred through June 30, 1996.
5. SUBSEQUENT EVENTS
On March 11, 1996, the Company agreed to acquire CHS Management, Inc., a
healthcare management service organization that provides management services to
an IPA of 325 primary care and specialist physicians and a medical group of 43
primary care physicians. The consideration for this transaction is expected to
be approximately $47 million of the Company's Common Stock. The transaction is
expected to be accounted for as a pooling of interests and is expected to close
prior to September 30, 1996.
On May 14, 1996, the Company agreed to merge with Caremark International
Inc., a leading provider of healthcare services in the United States and
overseas. Caremark, through its large, multi-specialty group practices, is
affiliated with 1,604 physicians and provides care to more than one million
people, 663,000 of whom are in prepaid health plans. Caremark also provides
pharmaceutical services, disease management, and international services. The
consideration for this transaction is expected to be approximately $2.5 billion
of the Company's Common Stock. The transaction is expected to be accounted for
as a pooling of interests and is expected to close prior to September 30, 1996.
F-28
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Caremark International Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, cash flows and stockholders'
equity, present fairly, in all material respects, the financial position of
Caremark International Inc. and its subsidiaries at December 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Chicago, Illinois
January 24, 1996, except as to
the third paragraph of Note 14,
which is as of March 19, 1996
F-29
<PAGE> 106
CAREMARK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1994 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and equivalents.............................................. $ 32,100 $ 28,400
Accounts receivable, net.......................................... 311,600 365,400
Inventories....................................................... 92,700 112,500
Short-term deferred income taxes.................................. 33,300 41,100
Prepaid expenses and other current assets......................... 12,400 18,600
---------- ----------
Total current assets...................................... 482,100 566,000
---------- ----------
Property and equipment, net......................................... 168,300 299,200
Goodwill and other intangible assets................................ 105,300 259,300
Investments and other noncurrent assets............................. 38,600 69,700
Long-term deferred income tax asset................................. -- 33,700
Net assets of discontinued operations............................... 399,900 36,300
---------- ----------
Total assets.............................................. $1,194,200 $1,264,200
========= =========
Current liabilities:
Notes payable..................................................... $ 109,300 $ 81,900
Current maturities of long-term debt and lease obligations........ 2,600 3,900
Accounts payable, trade and other................................. 195,400 253,900
Accrued liabilities............................................... 92,600 135,000
---------- ----------
Total current liabilities................................. 399,900 474,700
---------- ----------
Long-term debt and lease obligations................................ 233,500 325,400
Long-term deferred income tax liability............................. 42,700 37,700
Other noncurrent liabilities........................................ 31,400 33,000
Commitments and contingent liabilities (Note 14)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 20,000,000 shares,
none issued.................................................... -- --
Common stock, $1 par value, authorized 200,000,000 shares, issued
71,898,166 shares in 1994 and 81,497,489 shares in 1995........ 71,900 81,500
Additional contributed capital.................................... 18,400 188,200
Shares held in trust, 7,700,000 shares in 1995.................... -- (150,200)
Retained earnings................................................. 400,900 281,700
Common stock in treasury, at cost, 259,300 shares in 1994 and
406,136 shares in 1995......................................... (4,500) (7,800)
---------- ----------
Total stockholders' equity.......................................... 486,700 393,400
---------- ----------
Total liabilities and stockholders' equity.......................... $1,194,200 $1,264,200
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 107
CAREMARK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net revenues............................................... $1,204,000 $1,775,200 $2,374,300
Cost of goods and services sold............................ 1,001,100 1,520,600 2,016,400
Marketing and administrative expenses...................... 107,600 138,000 207,100
Provision for doubtful accounts............................ 13,300 16,900 24,200
---------- ---------- ----------
Operating income from continuing operations................ 82,000 99,700 126,600
Non-operating expense (income):
Losses on investments.................................... -- -- 86,600
Interest expense, net.................................... 3,400 8,700 8,700
Other.................................................... (1,700) (200) (200)
---------- ---------- ----------
Income from continuing operations before income taxes...... 80,300 91,200 31,500
Income tax expense......................................... 33,400 36,700 11,300
---------- ---------- ----------
Income from continuing operations.......................... 46,900 54,500 20,200
Discontinued operations:
Income (loss) from discontinued operations, net of income
taxes of $20,700, $18,000 and $(72,100) in 1993, 1994
and 1995, respectively................................ 30,800 25,900 (168,300)
Net gains on sales of discontinued operations, net of
income taxes of $21,200............................... -- -- 31,800
---------- ---------- ----------
Income (loss) from discontinued operations............... 30,800 25,900 (136,500)
---------- ---------- ----------
Net income (loss).......................................... $ 77,700 80,400 $ (116,300)
========= ========= =========
Earnings (loss) per common and common equivalent share:
Primary
Income from continuing operations..................... $ 0.64 $ 0.73 $ 0.27
Operating income (loss) from discontinued
operations.......................................... $ 0.42 0.35 $ (2.24)
Net gains on sales of discontinued operations......... -- -- $ 0.42
Net income (loss)..................................... $ 1.06 $ 1.08 $ (1.55)
Fully Diluted
Income from continuing operations..................... $ 0.63 $ 0.73 $ 0.27
Operating income (loss) from discontinued
operations.......................................... $ 0.41 $ 0.35 $ (2.24)
Net gains on sales of discontinued operations......... -- -- $ 0.42
Net income (loss)..................................... $ 1.04 $ 1.08 $ (1.55)
Weighted average common and common equivalent shares
outstanding:
Primary.................................................. 73,300 74,800 75,100
Fully diluted............................................ 74,900 74,800 75,100
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 108
CAREMARK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Balance, beginning of year................................ $ 71,100 $ 71,800 $ 71,900
Stock issued under employee benefit plans................. 700 100 100
Stock issued in connection with acquisitions.............. -- -- 1,800
Contribution to employee benefit trust.................... -- -- 7,700
--------- --------- ---------
Balance, end of year...................................... 71,800 71,900 81,500
--------- --------- ---------
Additional contributed capital:
Balance, beginning of year................................ 12,300 19,000 18,400
Stock issued under employee benefit plans................. 6,700 (600) (3,400)
Stock issued in connection with acquisitions.............. -- -- 30,700
Contribution to employee benefit trust.................... -- -- 142,500
--------- --------- ---------
Balance, end of year...................................... 19,000 18,400 188,200
--------- --------- ---------
Shares held in trust:
Balance, beginning of year................................ -- -- --
Contribution to employee benefit trust.................... -- -- (150,200)
--------- --------- ---------
Balance, end of year...................................... -- -- (150,200)
--------- --------- ---------
Retained earnings:
Balance, beginning of year................................ 248,800 323,500 400,900
Net income (loss)......................................... 77,700 80,400 (116,300)
Common stock dividends.................................... (3,000) (3,000) (2,900)
--------- --------- ---------
Balance, end of year...................................... 323,500 400,900 281,700
--------- --------- ---------
Common stock in treasury:
Balance, beginning of year................................ -- (4,700) (4,500)
Purchases................................................. (7,600) (14,600) (27,200)
Stock issued under employee benefit plans................. 2,900 14,800 20,800
Stock issued in connection with acquisitions.............. -- -- 3,100
--------- --------- ---------
Balance, end of year...................................... (4,700) (4,500) (7,800)
--------- --------- ---------
Total stockholders' equity................................ $ 409,600 $ 486,700 $ 393,400
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 109
CAREMARK INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
--------- --------- --------
(IN THOUSANDS)
(BRACKETS DENOTE CASH OUTFLOWS)
<S> <C> <C> <C>
Cash flows from continuing operations:
Income from continuing operations.......................... $ 46,900 $ 54,500 $ 20,200
Adjustments for non-cash items:
Losses on investments...................................... -- -- 86,600
Provision for doubtful accounts............................ 13,300 16,900 24,200
Depreciation and amortization.............................. 11,400 18,900 28,600
Deferred income taxes...................................... 25,100 9,800 (14,400)
Other...................................................... 1,600 3,700 1,000
Changes in balance sheet items:
Accounts receivable........................................ (61,800) (95,500) (79,300)
Inventories................................................ (8,700) (4,200) (17,600)
Payables and accrued liabilities........................... 21,300 23,300 84,000
Prepaids and other......................................... (9,600) (600) (21,800)
--------- --------- --------
Cash flows from continuing operations........................ 39,500 26,800 111,500
--------- --------- --------
Cash flows from investing activities:
Capital expenditures....................................... (50,300) (70,200) (83,400)
Acquisitions, net of cash received......................... (3,100) (69,100) (143,500)
--------- --------- --------
Cash flows from investing activities......................... (53,400) (139,300) (226,900)
--------- --------- --------
Cash flows from financing activities:
Net change in short-term debt and credit facility
borrowings.............................................. (26,100) 230,900 7,500
Issuances of other long-term debt and lease obligations.... 112,100 400 5,000
Redemptions of other long-term debt and lease
obligations............................................. (19,300) (6,700) (1,500)
Stock issued under employee benefit plans.................. 9,100 11,800 16,300
Purchases of treasury stock................................ (7,600) (14,600) (27,200)
Common stock cash dividends................................ (3,000) (3,000) (2,900)
--------- --------- --------
Cash flows from financing activities......................... 65,200 218,800 (2,800)
--------- --------- --------
Cash flows from discontinued operations, net of divestiture
proceeds................................................... 25,500 (180,000) 114,500
--------- --------- --------
Increase (decrease) in cash and equivalents.................. 76,800 (73,700) (3,700)
Cash and equivalents, beginning of year...................... 29,000 105,800 32,100
--------- --------- --------
Cash and equivalents, end of year............................ $ 105,800 $ 32,100 $ 28,400
========= ========= ========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash and equivalents include cash, cash investments and marketable
securities with original maturities of three months or less. Income taxes
paid, net of refunds, were $24.0, $22.4 and $6.7 million in 1993, 1994 and
1995, respectively. Interest payments, net of amounts capitalized,
approximated $1.8, $10.2 and $20.7 million in 1993, 1994 and 1995,
respectively.
Non-cash investing activities include notes and other obligations issued
for acquisitions of $5.8, $1.2 and $30.8 million in 1993, 1994 and 1995,
respectively, and $123.6 million in notes and other securities received from
divestitures in 1995. Non-cash financing activities include the issuance of
$35.6 million of stock for acquisitions in 1995 and capital lease
obligations of $0.7, $0.4 and $3.9 million in 1993, 1994 and 1995,
respectively.
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 110
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
NOTE 1: NATURE OF OPERATIONS
Caremark International Inc. (the "company" or "Caremark") is a leading
provider of healthcare services in the United States and overseas, serving
millions of people through its Physician Practice Management, Pharmaceutical
Services, Disease Management and International businesses. The Physician
Practice Management business provides comprehensive management services to
physician groups, primarily multi-specialty physician practices located in major
metropolitan areas. The Pharmaceutical Services business manages outpatient
prescription drug benefit programs for corporations, insurance companies,
unions, government employee groups, and managed care organizations throughout
the United States. The Disease Management business provides therapies and
services to individuals suffering from hemophilia, immune system deficiencies
and other blood disorders characterized by protein deficiencies. In addition,
this business distributes recombinant growth hormone. In its International
business, the company offers selected healthcare services outside hospitals in
Canada, France, Germany, Japan, the Netherlands, the United Kingdom and Puerto
Rico.
INDUSTRY SEGMENTS
Caremark operates in four industry segments: Physician Practice Management,
Pharmaceutical Services, Disease Management and International.
NET REVENUES FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management.............................. $ 135,600 $ 190,100 $ 454,600
Pharmaceutical Services.................................... 631,200 1,097,300 1,432,300
Disease Management......................................... 389,800 422,300 408,000
International.............................................. 47,400 65,500 79,400
---------- ---------- ----------
Totals from continuing operations.......................... $1,204,000 $1,775,200 $2,374,300
========= ========= =========
</TABLE>
OPERATING INCOME FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management.............................. $ (1,400) $ 4,100 $ 16,100
% of segment revenues.................................... (1.0)% 2.2% 3.5%
Pharmaceutical Services.................................... $ 31,600 $ 46,200 $ 56,000
% of segment revenues.................................... 5.0% 4.2% 3.9%
Disease Management......................................... $ 76,000 $ 76,600 $ 69,500
% of segment revenues.................................... 19.5% 18.1% 17.0%
International.............................................. $ (2,400) $ (1,500) $ 1,300
% of segment revenues.................................... (5.1)% (2.3)% 1.6%
General Corporate.......................................... $(21,800) $(25,700) $(16,300)
-------- -------- --------
Totals from continuing operations.......................... $ 82,000 $ 99,700 $126,600
======== ======== ========
</TABLE>
F-34
<PAGE> 111
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IDENTIFIABLE ASSETS FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management................................. $ 90,400 $183,900 $ 482,500
Pharmaceutical Services....................................... 212,300 300,300 371,300
Disease Management............................................ 124,900 142,400 144,400
International................................................. 29,600 38,600 49,900
General Corporate............................................. 179,000 129,100 179,800
-------- -------- ----------
Totals from continuing operations............................. $636,200 $794,300 $1,227,900
======== ======== =========
</TABLE>
CAPITAL EXPENDITURES FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management..................................... $ 8,400 $17,100 $42,500
Pharmaceutical Services........................................... 24,700 37,000 30,700
Disease Management................................................ 900 1,200 3,200
International..................................................... 6,100 4,500 4,800
General Corporate................................................. 10,200 10,400 2,200
------- ------- -------
Totals from continuing operations................................. $50,300 $70,200 $83,400
======= ======= =======
</TABLE>
DEPRECIATION AND AMORTIZATION FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Physician Practice Management..................................... $ 4,200 $ 6,500 $14,300
Pharmaceutical Services........................................... 5,500 8,400 9,200
Disease Management................................................ 200 400 800
International..................................................... 900 1,700 2,300
General Corporate................................................. 600 1,900 2,000
------- ------- -------
Totals from continuing operations................................. $11,400 $18,900 $28,600
======= ======= =======
</TABLE>
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the
reader in understanding and evaluating the company's Consolidated Financial
Statements. These policies are in conformity with generally accepted accounting
principles, and have been consistently applied in all material respects. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of Caremark and
its majority-owned subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.
The company has acquired certain assets of and operates clinics under 33-40
year management service agreements with affiliated physician groups that
maintain separate legal entities within which they practice medicine. These
groups have no other operations or rights to practice except to conduct such
practices exclusively in company clinics. Under these agreements, the physician
groups have responsibility for all medical-related decisions, enter into payor
contracts and provide Caremark input on the management of the
F-35
<PAGE> 112
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
practice. Caremark compensates the physicians for their services under these
affiliations using four general models: (a) approximately 28% of clinic revenues
and 5% of total revenues in 1995 were generated by clinics whose physicians were
compensated on a capitated, per-member, per-month arrangement; (b) approximately
10% of clinic revenues and 2% of total revenues in 1995 were generated by
clinics whose physicians received a salary plus a bonus; (c) approximately 56%
of clinic revenues and 11% of total revenues in 1995 were generated by clinics
whose physicians received a salary plus bonus and receive a profit sharing
payment of 50% of consolidated clinic earnings before taxes ("clinic earnings").
Clinic earnings in these arrangements include all expenses, management fees paid
to the company and physician compensation; (d) approximately 6% of clinic
revenues and 1% of total revenues in 1995 were generated by clinics whose
physicians received 85% of a defined amount (generally, revenues less management
expenses paid to the company) to cover all medical costs including physician
compensation, outside referral expenses, allied healthcare expenses and
professional liability insurance. Any amounts remaining after paying these
expenses represented additional incentive compensation to the physicians.
Caremark is responsible for providing all non-medical personnel, premises,
equipment, and supplies necessary to operate the clinics, providing financial,
accounting and administrative services, negotiating all payor and vendor
contracts on behalf of the clinics, billing and collecting fees, paying clinic
expenses, and performing marketing and public relations services. Caremark also
has the right to utilize the cash in the physician group bank accounts and is
required to fund future capital expenditures as well as working capital needs.
The fee paid to Caremark includes Caremark's direct management expenses of
operating the clinics, plus incentive payments which reflect a portion or all of
the residual equity interest in the clinics after payment of physician
compensation, other medical costs and management expenses. Under the four
general models discussed above, these incentive payments take the following
forms: (a) a variable percentage of the clinic's managed capital; (b) a variable
percentage of the clinic's managed capital plus 100% of clinic earnings; (c) a
variable percentage of the clinic's managed capital or net revenues plus 50% of
clinic earnings; and (d) 15% of the defined amount described above.
Based on the legal structures in place, the physician groups record all
revenues from the payor contracts and related medical expenses including
physician compensation, allied health professional costs, professional liability
insurance costs and Caremark's management fee. However, Caremark believes it has
essentially all of the risks and rewards of ownership and perpetual and
unilateral control over the assets and operations of the various physician
groups. Therefore, notwithstanding the lack of ownership of the stock of the
legal entities in which the physicians practice, consolidation of the revenues
and expenses of the various physician groups is necessary to present fairly the
financial position and results of operations of the company because there exists
a parent-subsidiary relationship by means other than record ownership of a
majority of voting stock. Under consolidation, the company reports all the
revenues and operating expenses of the clinics as its own, eliminating the
management fees paid by the physician groups to the company, recording all
revenue initially reflected as physician revenue as company revenue and
reflecting physician earnings as compensation expense.
The company believes that this control over the assets and operations is
perpetual rather than temporary because of (i) the length of the original terms
of the agreements, (ii) the likelihood of successive extension periods of the
agreements, (iii) the continuing investment of capital by the company, (iv) the
control by the company of the assets necessary to operate the clinics, (v) the
employment of all non-medical personnel, (vi) the nature of the services
provided by the company to and the delegation of authority to the company from
the physician groups to carry out all of the critical revenue generating
responsibilities of the business other than the actual treating of patients, and
(vii) the nominal capital investments of the physician groups.
REVENUES
The company records revenues net of estimated contractual allowances.
Revenue is deferred related to cash payments received for which the company is
obligated to perform future services.
F-36
<PAGE> 113
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories, which are primarily finished goods, consist of pharmaceutical
drugs, medical equipment and supplies and are valued at the lower of cost
(first-in, first-out method) or market.
MARKETABLE SECURITIES
Investments in marketable securities with readily determinable fair values
have been classified as available-for-sale. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders' equity unless a decline in
value is judged other than temporary. When this is the case, unrealized losses
are reflected in income. The company owns no investments that are considered to
be trading or held-to-maturity securities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation.
Assets purchased in acquisitions are recorded at their respective fair values.
Expenditures that extend the useful life of property and equipment or that
increase productivity are capitalized, whereas maintenance and repairs are
charged to expense in the year incurred.
Interest costs associated with the construction of certain capital assets
are capitalized as part of the cost of those assets. Interest costs
approximating $5.1 million were capitalized in 1995. The company also
capitalizes purchased and internally developed software costs to the extent they
are expected to benefit future operations. Capitalized software costs included
in construction in progress approximated $67.8 million at December 31, 1995.
Depreciation and amortization are provided for financial reporting purposes
principally on the straight-line method over the estimated useful lives of the
assets or, for leasehold improvements, over the terms of related leases if
shorter. Both straight-line and accelerated methods of depreciation are used for
income tax purposes.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, which totaled $86.3 and $227.3 million at December 31, 1994 and
1995, respectively, represents the excess of consideration paid for companies
acquired in purchase transactions over the fair value of net assets acquired. It
is amortized on a straight-line basis over estimated useful lives not exceeding
40 years. Other intangible assets include management service agreements and
other identified rights that are amortized on a straight-line basis over the
lesser of their legal or estimated useful lives. As of December 31, 1994 and
1995, intangible assets, including goodwill, are stated net of accumulated
amortization of $8.9 and $14.2 million, respectively. The company reviews the
carrying value of intangibles and other long-lived assets for impairment when
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. This review is performed by comparing estimated
undiscounted future cash flows from use of the asset to the recorded value of
the asset.
INCOME TAXES
Income tax expense is based on pre-tax income for financial reporting
purposes, adjusted for the effects of permanent differences between such income
and that reported for tax return purposes. Deferred tax assets and liabilities
are recognized for expected future tax consequences of temporary differences
between the carrying amounts and tax bases of the underlying assets and
liabilities.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares represent the potential dilutive impact of
stock options, employee stock purchase plan subscriptions and contingent stock
rights.
F-37
<PAGE> 114
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain prior-year balances have been reclassified to conform with the
current year's presentation.
NOTE 3: ACQUISITIONS
In May 1995, Caremark entered into a long-term affiliation agreement with
Friendly Hills HealthCare Network ("Friendly Hills"), an integrated healthcare
delivery system headquartered in La Habra, California. Friendly Hills operates
18 medical offices and an acute care hospital. Caremark acquired substantially
all of the assets of Friendly Hills for approximately $140 million and agreed to
provide various management and administrative services. The transaction has been
accounted for by the purchase method of accounting. The following summary,
prepared on a pro forma basis, combines the results of operations of Caremark
and Friendly Hills as if the Friendly Hills transaction had been consummated as
of the beginning of the periods presented after including the impact of certain
adjustments such as amortization of intangibles, interest expense on debt
assumed to have been incurred to complete the transaction and the related income
tax effects.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1994 1995
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Net revenues.......................................................... $1,950,200 $2,437,400
Income before income taxes from continuing operations................. $ 90,500 $ 28,900
Income from continuing operations..................................... $ 54,100 $ 18,600
Earnings from continuing operations per common and common equivalent
share:
Primary............................................................. $ .72 $ .25
Fully diluted....................................................... $ .72 $ .25
</TABLE>
These pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for the entire periods
presented and are not intended to project future results.
The company invested approximately $68.2 million in cash, stock and notes
for other acquisitions in 1995 involving the Physician Practice Management
business. Consideration paid in connection with 1993 and 1994 acquisitions
approximated $9.4 and $69.1 million, respectively. Results of operations would
not have been materially different in 1993, 1994 and 1995 had these other
transactions occurred as of the beginning of the respective years.
In September 1995, Caremark entered into a definitive agreement with CIGNA
Healthcare of California, a managed healthcare subsidiary of CIGNA Corporation,
to acquire substantially all of the assets of CIGNA Medical Group, CIGNA
Healthcare's Los Angeles-area staff model delivery system. In 1994 net revenues
from these operations were in excess of $400 million. The transaction was
completed effective January 1, 1996 and will be accounted for using the purchase
method of accounting.
All of the aforementioned acquisitions have been (or will be) accounted for
by the purchase method of accounting. As such, operating results of acquired
businesses are included in Caremark's Consolidated Financial Statements as of
their respective dates of acquisition.
NOTE 4: DISCONTINUED OPERATIONS
During 1995, Caremark divested of several non-strategic businesses as part
of the company's transformation to four business lines -- Physician Practice
Management, Pharmaceutical Services, Disease Management and International. In
accordance with APB 30, which addresses the reporting for disposition of
business segments, the company's Consolidated Financial Statements present the
operating results and net assets of discontinued operations separately from
continuing operations. Prior periods have been restated to conform with this
presentation.
Effective March 31, 1995, the company sold its Clozaril(R) Patient
Management System to Health Management, Inc. for $23.3 million in cash and
notes. This business involved managing the care of schizophrenia patients
nationwide through the distribution of the Clozaril drug and related testing
services to
F-38
<PAGE> 115
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
monitor patients for potentially serious side effects. Net revenues of this
business for the three months ended March 31, 1995 were $12.3 million and were
$78.5 and $84.0 million for the years 1993 and 1994, respectively. The after-tax
gain on disposition of this business was $11.1 million.
Effective April 1, 1995, the company sold its Home Infusion business to
Coram Healthcare Corporation ("Coram") for $309 million in cash and securities,
subject to post-closing adjustments based on the net assets transferred. The
sale included Caremark's home intravenous infusion therapy, women's health
services and the Home Care Management System. Certain severance and legal
obligations remained with Caremark (see Note 14 -- Commitments and Contingent
Liabilities). Net revenues of this business for the period ended April 1, 1995
were $96.1 million and were $420.5 and $441.9 million for the years 1993 and
1994, respectively. The after-tax loss on disposition of this business was $4.0
million. In 1995 net losses from this business reflected in discontinued
operations include $154.8 million related to the legal settlement discussed in
Note 14.
Effective September 15, 1995, the company sold its Oncology Management
Services business to Preferred Oncology Networks of America, Inc. for securities
valued at $3.6 million. The business provides management services to
single-specialty oncology practices. Net revenues of this business for the 1995
period up to the date of sale were $8.9 million and were $30.6 and $29.4 million
for the years 1993 and 1994, respectively. There was no after-tax gain or loss
on the disposition.
Effective December 1, 1995 the company sold its Caremark Orthopedic
Services, Inc. subsidiary to HealthSouth Corporation for $127.0 million in cash,
subject to post-closing adjustments. This business provides outpatient physical
therapy and rehabilitation services. Net revenues of this business for the 1995
period up to the date of sale were $69.1 million and were $47.0 and $55.8
million for the years 1993 and 1994, respectively. The after-tax gain on
disposition of this business was $24.7 million.
In September 1995, the company adopted a formal plan to dispose of its
Nephrology Services division by sale to a third party. This business provides a
wide range of nephrology support services, including dialysis services and
supplies, transplant and laboratory services. Net revenues of this business were
$2.7, $39.7 and $46.6 million for the years 1993, 1994, and 1995, respectively.
Any gain or loss from this planned disposal is not expected to be material.
NOTE 5: FINANCIAL INSTRUMENTS
The company's financial instruments include cash and equivalents,
investments in marketable and non-marketable securities, and debt obligations.
The carrying value of marketable and non-marketable securities, which
approximated fair value, was $27.4 and $48.5 million at December 31, 1994 and
1995, respectively. The carrying value of debt obligations was $99.5 and $99.6
million at December 31, 1994 and 1995, respectively. The fair value of these
obligations approximated $83.8 and $98.6 million at December 31, 1994 and 1995,
respectively. The fair value of marketable securities is determined using market
quotes and rates. The fair value of nonmarketable securities, which are made up
primarily of investments in and notes from non-public companies, are estimated
based on information provided by these companies. The fair value of long-term
debt has been estimated using market quotes.
During 1995, the company recorded a pre-tax charge to income of $86.6
million ($52.0 million after tax) to reflect unrealized losses on investments
that were judged other than temporary.
Interest expense totaled $4.1, $11.8 and $16.7 million in 1993, 1994 and
1995, respectively. Interest income totaled $0.7, $3.1 and $8.0 million in 1993,
1994 and 1995, respectively.
NOTE 6: TRADE RECEIVABLES
The company provides credit, in the normal course of business, to
third-party payors (such as private insurers, Medicare and Medicaid), patients
and private enterprises. The company performs ongoing credit evaluations of its
customers and maintains an allowance for doubtful accounts based on the
collectibility of trade receivables. Credit losses have historically coincided
with management's expectations.
F-39
<PAGE> 116
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the activity in the allowance for doubtful accounts is
presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year............................. $ 14,700 $ 20,100 $ 28,700
Provision for doubtful accounts........................ 13,300 16,900 24,200
Write-offs, net of recoveries.......................... (9,200) (15,600) (24,200)
Other(1)............................................... 1,300 7,300 21,600
-------- -------- --------
Balance, end of year................................... $ 20,100 $ 28,700 $ 50,300
======== ======== ========
</TABLE>
- ---------------
(1) Represents valuation accounts of acquired or divested companies, account
transfers and foreign currency translation adjustments.
NOTE 7: OTHER BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment, net:
Land................................................................. $ 15,800 $ 25,700
Buildings and leasehold improvements................................. 45,000 97,200
Machinery and other equipment........................................ 88,200 137,700
Software systems..................................................... 14,300 36,500
Construction in progress............................................. 60,000 78,800
-------- --------
Property and equipment, at cost...................................... 223,300 375,900
Accumulated depreciation and amortization............................ (55,000) (76,700)
-------- --------
Property and equipment, net.......................................... $168,300 $299,200
======== ========
</TABLE>
Accrued liabilities include employee compensation and related taxes of
$31.0 and $25.8 million at December 31, 1994 and 1995, respectively.
NOTE 8: CREDIT FACILITIES
During 1995, Caremark entered into revised credit facilities aggregating
$380 million as of December 31, 1995 ($135 million expiring September 1996, $225
million expiring September 1998 and a $20 million letter of credit agreement),
enabling the company to borrow funds on an unsecured basis at variable interest
rates, typically determined by reference to the corporate base rate announced by
First National Bank of Chicago or the Eurodollar interbank rate. The modified
credit facilities contain maximum EBITDA, minimum interest coverage and
debt-to-total-capital ratio requirements, as well as certain restrictions
regarding compliance with the company's integrity program and litigation. The
company was in compliance with the debt covenants at year-end. Borrowings under
these facilities were $200.0 million at December 31, 1995, all of which was
classified as long-term debt. As of December 31, 1994, $210.0 million was
borrowed, of which $125.0 million was classified as long-term.
The company also has a $25 million uncommitted line of credit that offers
more flexible overnight borrowing capabilities to accommodate daily cash flow
needs. $25.0 million was outstanding under this facility at December 31, 1995.
The average annual interest rate for the aforementioned credit facilities
approximated 6.6% in 1995. The company also maintains short-term credit
arrangements approximating $20.4 million in support of international operations.
Borrowings under these arrangements were $6.4 and $14.5 million at December 31,
1994 and 1995, respectively.
F-40
<PAGE> 117
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt and lease obligations consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term credit facility borrowings........................... $125,000 $200,000
6 7/8% notes, due 2003, less unamortized discount of $0.4
million...................................................... 99,500 99,600
Long-term notes due 1996 through 2011, at various rates........ 9,200 24,400
Capitalized lease obligations due 1996 through 2000............ 2,400 5,300
-------- --------
Total long-term debt and lease obligations..................... 236,100 329,300
Current portion................................................ (2,600) (3,900)
-------- --------
Long-term portion.............................................. $233,500 $325,400
======== ========
</TABLE>
During 1993, the company issued $100 million of 6 7/8% senior notes
maturing in August 2003. The net proceeds, $98.8 million after discount and
underwriting fees, were used to repay credit facility borrowings and to fund
acquisitions, as well as for other general corporate purposes. Debt issuance
costs of $1.3 million were capitalized in connection with this offering and are
being amortized over the term of the debt. Other long-term notes relate
primarily to business acquisitions. The company has guaranteed secured loans
totaling $20.7 million on behalf of unconsolidated affiliates. The underlying
loans mature in 1996 through 1999. The affiliates have complied with related
debt service requirements.
The company leases certain facilities and equipment under operating and
capital leases expiring at various dates. Most of the operating leases contain
renewal options. Total rent expense under operating leases approximated $12.1,
$17.9 and $26.7 million in 1993, 1994 and 1995, respectively.
Future minimum lease payments (including interest) under capital and
noncancelable operating leases and aggregate long-term debt maturities are
summarized as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL DEBT
LEASES LEASES MATURITIES
--------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1996.................................................... $ 26,300 $ 2,500 $ 1,900
1997.................................................... 22,700 1,700 8,400
1998.................................................... 20,200 1,100 203,600
1999.................................................... 15,800 600 3,000
2000.................................................... 11,000 200 2,400
Thereafter.............................................. 55,700 -- 105,100
--------- ------- ----------
Total obligations and commitments....................... $ 151,700 $ 6,100 $ 324,400
========
Amounts representing interest and discounts............. (800) (400)
------- ----------
Carrying value of long-term debt and lease
obligations........................................... $ 5,300 $ 324,000
======= ========
</TABLE>
The net book value of capitalized lease property approximated $2.3 and $3.9
million at December 31, 1994 and 1995, respectively.
NOTE 10: PREFERRED STOCK AND PREFERRED SHARE PURCHASE RIGHTS
No shares of preferred stock are currently outstanding. The company's Board
of Directors is authorized to issue up to 20,000,000 shares of preferred stock
without further stockholder approval. The Board of Directors of the company is
also authorized to determine the voting powers, designations, preferences and
relative, participating, optional or other special rights, with respect to any
series of preferred stock.
Should the Board of Directors elect to exercise its authority to issue any
additional series of preferred stock, the rights, preferences and privileges of
holders of the company's common stock would be made subject to the rights,
preferences and privileges of such additional series.
F-41
<PAGE> 118
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the adoption of its Preferred Share Purchase Rights Plan
(the "Rights Plan"), the company has designated and reserved for issuance upon
exercise of such rights 2,000,000 shares of Series A Junior Participating
Preferred Stock.
The Board of Directors has authorized a Rights Plan in which common
stockholders received a dividend of one preferred share purchase right
(collectively, the "Rights") for each share of common stock held of record. Each
Right entitles the registered holder to purchase from the company one
one-hundredth of a share of Series A Junior Participating Preferred Stock for
$85, subject to adjustment. The Rights will become exercisable (and transferable
apart from the common stock) on the earlier of (1) 10 days following a public
announcement that a person or group has acquired 15% or more of the common stock
or (2) 10 business days following the commencement or announcement of an offer
to acquire 15% or more of the common stock.
If, after the Rights become exercisable, any person or group (the
"Acquirer") acquires 15% or more of the common stock (except pursuant to an
offer for all outstanding shares of common stock that the independent directors
determine to be fair and otherwise in the best interests of the company and its
stockholders), each Right may be exercised for common stock having a value of
$170. In specified circumstances, each Right may be exercised for common stock
of an acquiring entity having a value of $170. All Rights held by the Acquirer
will be null and void. The company may generally redeem the Rights at a price of
$.01 per Right at any time until 10 days following a public announcement that a
person or group has acquired 15% or more of the common stock. The Rights will
expire on November 30, 2002.
NOTE 11: COMMON STOCK
The company sponsors employee stock purchase plans that promote the sale of
its common stock to employees. The purchase price to employees is the lower of
85% of the closing market price on the date of subscription or 85% of the
closing market price on the date funds are actually used to purchase stock for
employees. Stock purchase plan transactions for the indicated years are
summarized below:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Shares subscribed:
Beginning of year........................................... 744,805 642,028
Subscriptions............................................... 664,035 414,662
Purchases................................................... (614,290) (481,101)
Cancellations............................................... (152,522) (239,207)
------------- -------------
End of year................................................. 642,028 336,382
============= =============
Subscription price per share at end of year................. $10.74-$22.10 $13.80-$22.10
</TABLE>
Expiration dates for outstanding subscriptions extend through 1997. The
weighted average subscription price was $15.90 at December 31, 1995.
The company offers participation in stock option plans to certain employees
and individuals. All of the outstanding options under these plans were granted
at 100% of market value of the stock on the dates of grant. The following table
summarizes stock option transactions for the indicated years:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Options outstanding:
Beginning of year............................................. 9,754,915 9,561,416
Granted....................................................... 805,500 1,849,800
Exercised..................................................... (344,271) (811,981)
Cancelled/expired............................................. (654,728) (1,949,075)
------------ ------------
End of year................................................... 9,561,416 8,650,160
============ ============
Option price per share:
Exercised..................................................... $7.71-$17.25 $6.45-$18.88
Outstanding at end of year.................................... $6.45-$21.88 $6.45-$21.88
</TABLE>
Awarded options typically vest and become exercisable in incremental
installments over five years and expire no later than 10 years and one day from
the date of grant. There were 3,271,574 options exercisable at
F-42
<PAGE> 119
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995. Expiration dates for outstanding options range from 1996 to
2005. The weighted average option price was $14.99 at December 31, 1995. The
company expects to adopt, in 1996, the disclosure requirements of Statement of
Financial Accounting Standards No. 123 -- Accounting for Stock-Based
Compensation.
Under various plans, Caremark has made grants of restricted common stock to
provide incentive compensation to key employees and to provide incentives
related to acquisitions. Restricted stock transactions for the indicated years
are summarized below:
<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Restricted stock outstanding:
Beginning of year.................................................. 1,268,319 265,037
Granted............................................................ 14,800 280,784
Cancelled.......................................................... -- (22,167)
Vested (free of restrictions)...................................... (1,018,082) (293,644)
---------- --------
End of year........................................................ 265,037 230,010
========== =========
</TABLE>
The company issued contingent stock rights in connection with a 1992
acquisition that permit holders to receive, upon exercise, a number of shares of
company common stock determined by reference to appreciation in excess of $16.56
in the per share market value of the company common stock. The contingent stock
rights became exercisable on December 31, 1994. As of December 31, 1995, 789,303
rights were outstanding.
In June 1995, Caremark issued 7.7 million common shares (at $19.50 per
share) into a trust established to fund employee benefits over the next 10
years, including pension plan contributions, 401(k) matching contributions, and
stock issued under option and employee purchase plans. The value of the common
stock contributed has been reflected in the Balance Sheet in "common stock"
($7.7 million) and "additional contributed capital" ($142.5 million), with a
corresponding offset of these amounts in the "shares held in trust" component of
stockholders' equity. These shares will be issued from the trust over time as
necessary to meet the company's benefit obligations and will have no impact on
the weighted average common and common equivalent shares outstanding for
earnings per share purposes until they are issued from the trust.
The company's Board of Directors has authorized the purchase of common
stock to fund various stock-based compensation programs and for acquisitions.
The company purchased 1,496,666 shares of common stock for $27.2 million in 1995
and has been authorized to purchase up to an additional 1,400,000 shares through
July 31, 1996.
The company's common stock was reserved for issuance as follows at December
31:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Reserved common stock:
Acquisitions..................................................................... 4,091,505
Stock option plans............................................................... 11,416,270
Stock purchase plans............................................................. 200,474
----------
Total shares reserved..................................................... 15,708,249
==========
</TABLE>
Stockholders of record totaled 54,849 at December 31, 1994, versus 49,003
at the end of 1995.
On October 31, 1995, the company's Board of Directors declared a third
annual dividend of four cents per share on all outstanding common stock to
stockholders of record on November 30, 1995. The dividend was paid on December
15, 1995.
NOTE 12: RETIREMENT PROGRAMS
The company sponsors retirement plans for all qualifying domestic employees
and certain employees in other countries. Benefits are typically based on years
of service and the employee's compensation during five of the last 10 years of
employment as defined by the plans. The company's funding policy is to make
contributions that meet or exceed the minimum requirements of the Employee
Retirement Income Security Act of 1974, based on the projected unit credit
actuarial cost method, and to limit such contributions to amounts currently
deductible for tax reporting purposes.
F-43
<PAGE> 120
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the components of net pension expense and
related actuarial assumptions used at the January 1 valuation date for the
respective years:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Assumptions:
Discount rate................................................. 8.0% 7.25% 8.75%
Increase in compensation levels(1)............................ 6.5% 5.0% 5.0%
Expected long-term return on assets........................... 10.5% 10.5% 9.5%
Components (in thousands):
Service cost-benefits earned.................................. $ 3,800 $ 4,600 $ 2,100
Interest cost on projected obligation......................... 1,600 2,300 2,200
Actual return on assets....................................... (,900) (1,300) (1,700)
Net amortizations............................................. 500 700 100
------- ------- -------
Net pension expense........................................... $ 5,000 $ 6,300 $ 2,700
======== ======== ========
</TABLE>
- ---------------
(1) The assumed annual rate of increase in compensation levels for 1993 was 4.0%
for the Puerto Rico plans, which were merged into the U.S. plan as of
December 31, 1993.
As a result of the disposal of the Home Infusion business (see Note
4 -- Discontinued Operations), the company realized a curtailment gain of $0.9
million related to its pension plan. This gain has been included in the net
gains on sales of discontinued operations in the Consolidated Statements of
Operations.
The following table presents the funded status of the plans, the net
pension liability recognized in the consolidated balance sheets and related
actuarial assumptions as of December 31:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Assumptions:
Discount rate.................................................... 8.75% 7.25%
Increase in compensation levels.................................. 5.0% 5.0%
Funded status and net pension liability (in thousands):
Actuarial present value of benefit obligations:
Vested benefits............................................... $15,000 $22,200
Accumulated benefits.......................................... 17,000 25,000
Effect of future salary increases............................. 6,600 7,200
------- -------
Projected benefits............................................ 23,600 32,200
Less: plan assets at fair value(1)................................. 15,000 20,900
------- -------
Projected benefit obligations in excess of plan assets............. 8,600 11,300
Less: unrecognized net loss........................................ 1,700 4,800
------- -------
Net pension liability.............................................. $ 6,900 $ 6,500
======= =======
</TABLE>
- ---------------
(1) Primarily equity and fixed income securities.
Pension expense under non-U.S. pension plans sponsored by the company for
the benefit of foreign employees has not been significant.
Most U.S. employees are eligible to participate in a qualified 401(k) plan.
Participants may contribute up to 12% of their annual compensation (limited in
1995 to $9,240 per individual) to the plan and the company matches the
participants' contributions up to 3% of compensation. Matching contributions
made by the company were $5.7, $6.0 and $2.8 million in 1993, 1994 and 1995,
respectively.
The company has provided post-retirement health benefits to qualified
employees and accrued for those costs over the service years of the employees in
accordance with Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The cost of this
plan and related liability have not been significant to Caremark. As a result of
the disposal of the Home Infusion business (see Note 4 -- Discontinued
Operations), the company realized a curtailment gain of $1.2 million.
F-44
<PAGE> 121
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This gain has been included in the net gains on sales of discontinued operations
in the Consolidated Statements of Income. In addition, during 1995, Caremark
terminated this plan, resulting in a reduction of the related liability of $2.2
million.
In 1994, the company adopted Statement of Financial Accounting Standards
No. 112 ("FAS 112"), "Employers' Accounting for Postemployment Benefits," which
requires employers to accrue the cost of postemployment benefits (including
salary continuation, severance and disability benefits, job training and
counseling and continuation of benefits such as healthcare and life insurance
coverage) to former or inactive employees. The adoption and ongoing impact of
FAS 112 have not been material to the company's financial statements.
NOTE 13: INCOME TAXES
Income tax expense from continuing operations for the indicated years
consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $15,800 $19,100 $ 39,100
State and local........................................ 5,200 5,600 7,500
------- ------- --------
Current income tax expense............................... 21,000 24,700 46,600
------- ------- --------
Deferred:
Federal................................................ 10,600 10,100 (29,800)
State and local........................................ 1,800 1,900 (5,500)
------- ------- --------
Deferred income tax expense (benefit).................... 12,400 12,000 (35,300)
------- ------- --------
Income tax expense from continuing operations............ $33,400 $36,700 $ 11,300
======= ======= ========
</TABLE>
Foreign income was not significant in 1993, 1994 and 1995.
Deferred tax assets (liabilities) under FAS 109 are composed of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Bad debt and sales allowances $ 11,800 $ 5,500
Legal settlement costs........................................... -- 26,800
Loss on investments.............................................. -- 33,700
Accrued compensation............................................. 10,100 6,300
Other accrued expenses........................................... 11,400 2,500
Net operating loss carryforwards................................. 2,900 3,300
Valuation allowances............................................. (2,900) (3,300)
-------- --------
Deferred tax assets, net of valuation allowances................. 33,300 74,800
-------- --------
Accelerated depreciation and amortization........................ (23,400) (33,100)
Goodwill......................................................... (16,900) --
Other timing..................................................... (2,400) (4,600)
-------- --------
Deferred tax liabilities......................................... (42,700) (37,700)
-------- --------
Net deferred tax assets (liabilities)............................ $ (9,400) $ 37,100
======== ========
</TABLE>
The company has established valuation allowances for foreign net operating
loss carryforwards. The $0.4 million net change in valuation allowances for 1995
is primarily attributable to the net change in these foreign net operating
losses in the current year.
F-45
<PAGE> 122
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense from continuing operations applicable to pre-tax income
for financial reporting purposes differs from that calculated using the U.S.
federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at statutory rate...................... $28,100 $31,900 $11,000
State and local taxes, net of federal tax benefit......... 4,200 4,600 $ 1,300
Tax rate changes.......................................... (1,000) -- --
Other..................................................... 2,100 200 (1,000)
------- ------- -------
Income tax expense from continuing operations $33,400 $36,700 $11,300
======= ======= =======
</TABLE>
In connection with its 1992 distribution from Baxter International Inc.
("Baxter"), Caremark entered into a tax-sharing agreement with Baxter under
which the company retained responsibility for its portion of federal income tax
returns filed by Baxter for the years after 1987.
Undistributed earnings of certain foreign subsidiaries that the company
expects to be permanently reinvested totaled $6.1 million as of December 31,
1995.
NOTE 14: COMMITMENTS AND CONTINGENT LIABILITIES
In June 1995, Caremark agreed to settle the investigation of the company
with the U.S. Department of Justice, the Office of the Inspector General of the
U.S. Department of Health and Human Services (the "OIG"), the Veterans
Administration, the Federal Employee Health Benefits Program, the Civilian
Health and Medical Program of the Uniformed Services and related state
investigative agencies in all 50 states and the District of Columbia. Under the
terms of the settlement, which covered allegations dating back to 1986, a
subsidiary of Caremark pled guilty to two counts of mail fraud -- one each in
Minnesota and Ohio. The settlement allows Caremark to continue participating in
Medicare, Medicaid and other government healthcare programs.
Under the settlement, Caremark agreed to make civil payments of $85.3
million to the federal government in installments, $20.0 million of which
remains payable in June 1996, and $44.6 million to the states. The plea
agreement imposed $29.0 million in federal criminal fines. In addition, Caremark
contributed $2.0 million to a grant program set up under the Ryan White
Comprehensive AIDS Resources Emergency (CARE) Act. The company took an after-tax
charge to discontinued operations of $154.8 million in 1995 for these settlement
payments, costs to defend ongoing derivative, security and related lawsuits, and
other associated costs. There can be no assurance that the ultimate costs
related to this settlement will not exceed these estimates.
In March 1996, the company agreed to settle all disputes with a number of
private payors. The settlements will result in an after-tax cost of
approximately $42.3 million. These disputes relate to businesses that were
covered by Caremark's settlement with federal and state agencies in June 1995.
In addition, Caremark will pay $23.3 million after-tax to cover the private
payors' pre-settlement and settlement-related expenses. An after-tax charge for
the above amounts will be recorded in first quarter 1996 discontinued
operations. Caremark may pay the settlement amounts in 1996 and 1997 or, under
certain circumstances, in semi-annual installments, including interest through
1999. No agreement, contract or other business relationship in existence at the
time of the settlements will be terminated or negatively affected by the
settlement agreements. The parties have also agreed to negotiate in good faith
to maintain or enhance ongoing business relationships. The company's lenders
have waived the impact of these settlements on the financial covenants under its
existing credit facility through September 15, 1996. The company currently
expects to enter into revised credit facilities prior to this date.
The company does not believe that the above-referenced settlements will
materially affect its ability to pursue its long-term business strategy. There
can be no assurances, however, that additional costs, claims and damages will
not occur.
F-46
<PAGE> 123
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934, and fraud and negligence in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the investigation discussed above. The complaints seek unspecified damages,
declaratory and equitable relief, and attorneys' fees and expenses. The parties
continue to engage in discovery proceedings. The company intends to defend this
case vigorously. Management is unable at this time to estimate the impact, if
any, of the ultimate resolution of this matter.
In August 1994 and July 1995, stockholders filed derivative actions on
behalf of Caremark against the company, its directors and certain employees of
Caremark in the Court of Chancery of the State of Delaware, the United States
District Court for the Northern District of Illinois and the Circuit Court of
Cook County in Chicago, Illinois alleging breaches of fiduciary duty, negligence
in connection with Caremark's conduct of the business and lack of corporate
controls, and seeking unspecified damages, and attorneys' fees and expenses. In
June 1995, the parties to the Delaware derivative action entered into a
memorandum of understanding providing for the terms of settlement of all claims
asserted in that case. Although the proposed settlement does not contemplate the
payment of any damages by any defendant, plaintiffs are expected to seek an
award of attorneys' fees and expenses in conjunction with any approval of the
settlement. The proposed settlement of the Delaware derivative action is subject
to a number of conditions and the Delaware court is expected to consider the
proposed settlement in mid-1996. The Illinois and Cook County courts have
entered stays of all proceedings in those actions pending resolution of the
Delaware derivative action. In the event the proposed settlement of the Delaware
derivative action is approved by the Delaware court, Caremark anticipates that
the Illinois and Cook County derivative actions will be dismissed. If the
proposed settlement is not approved, Caremark intends to defend these cases
vigorously. Management is unable at this time to estimate the impact, if any, of
the ultimate resolutions of these matters.
In late August 1994, certain patients of a physician who prescribed human
growth hormone distributed by Caremark and the sponsor of health insurance plan
of one of those patients filed complaints against Caremark, employees of
Caremark and others in the United States District Court for the District of
Minnesota. Each complaint purported to be on behalf of a class and alleged
violations of the federal mail and wire fraud statutes, the federal conspiracy
statute and the state consumer fraud statute, as well as conspiracy to breach a
fiduciary duty, negligence and fraud. Each complaint sought unspecified treble
damages, and attorneys' fees and expenses. In July 1995, another patient of the
same physician filed a separate complaint in the District of South Dakota
against the physician, Caremark and another corporation alleging violations of
the federal laws prohibiting payment of remuneration to induce referral of
Medicare and Medicaid beneficiaries, and the federal mail fraud and conspiracy
statutes. The complaint also alleges the intentional infliction of emotional
distress and seeks trebling of at least $15.9 million in general damages,
attorneys' fees and costs, and an award of punitive damages. In August 1995, the
parties to the case filed in South Dakota agreed to a stay of all proceedings
until final judgment has been entered in a criminal case that is presently
pending against this physician. Caremark intends to defend these cases
vigorously. Management is unable at this time to estimate the impact, if any, of
the ultimate resolution of these matters.
In September 1995, Coram filed a complaint against Caremark International
Inc. and its subsidiary, Caremark Inc., and 50 unnamed individual defendants in
the Superior Court of California in San Francisco. The complaint, which arises
from Caremark's sale to Coram of Caremark's Home Infusion business (see Note
4 -- Discontinued Operations), alleges breach of the Asset Sale and Note
Purchase Agreement and related contracts for the transaction, fraud, negligent
misrepresentation and a right to contractual indemnity. Requested relief
includes specific performance, declaratory and injunctive relief, and damages of
$5.2 billion. In November 1995, Coram also stated that if they prevail in this
litigation, they will cancel any debt it owes the company with respect to the
securities issued for the sale. Although the company cannot predict with
certainty the outcome of these proceedings, based on information currently
available, management believes that the ultimate resolution of this matter is
not likely to have a material adverse effect on Caremark's results of
operations, cash flows or financial position.
F-47
<PAGE> 124
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The company intends to defend vigorously the Coram lawsuit. In October
1995, Caremark filed motions in California Superior Court in San Francisco
seeking dismissal of this lawsuit. The San Francisco court subsequently
dismissed the case against Caremark (but not against Caremark Inc.) on the basis
of lack of jurisdiction. Caremark also filed a lawsuit in the U.S. District
Court in Chicago claiming Coram committed securities fraud in its sale of
Caremark's Home Infusion business to Coram. This case, which has been dismissed,
is on appeal and Caremark has filed counterclaims to the suit pending in San
Francisco against Caremark Inc.
Beginning in September 1994, Caremark was named as a defendant in a series
of new lawsuits added to a pending group of actions brought in 1993 under the
antitrust laws by local and chain retail pharmacies against brand name
pharmaceutical manufacturers, wholesalers and prescription benefit managers
other than Caremark. The new lawsuits, filed in federal district courts in at
least 38 states (including the United States District Court for the Northern
District of Illinois), allege that at least 24 pharmaceutical manufacturers
provided unlawful price and service discounts to certain favored buyers and
conspired among themselves to deny similar discounts to the complaining retail
pharmacies (approximately 3,900 in number). The complaints charge that certain
defendant prescription benefit managers, including Caremark, were favored buyers
who knowingly induced or received discriminatory prices from the manufacturers,
in violation of the Robinson-Patman Act. Each complaint seeks unspecified treble
damages, declaratory and equitable relief, and attorneys' fees and expenses. On
April 21, 1995, the Court entered a stay of pretrial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. The company intends to defend these cases
vigorously. Management is unable at this time to estimate the impact, if any, of
the ultimate resolution of this matter.
In December 1994, Caremark was notified by the Federal Trade Commission
(the "FTC") that it was conducting a civil investigation of the industry
concerning whether acquisitions, alliances, agreements or activities between
pharmacy benefit managers and pharmaceutical manufacturers, including Caremark's
alliance agreements with certain drug manufacturers, violate Sections 3 or 7 or
the Clayton Act or Section 5 of the Federal Trade Commission Act. The specific
nature, scope, timing and outcome of the investigation are not currently
determinable. Under the statutes, if violations are found, the FTC could seek
remedies in the form of injunctive relief to set aside or modify Caremark's
alliance agreements and an order to cease and desist from certain marketing
practices and from entering into or continuing with certain types of agreements.
Management is unable at this time to estimate the impact, if any, of the
ultimate resolution of this matter.
Caremark is party to various other commitments, claims and routine
litigation arising in the ordinary course of business. Based on the advice of
counsel, management does not believe that the result of such other commitments,
claims and litigation, individually or in the aggregate, will have a material
effect on the company's business or its results of operations, cash flows or
financial position.
F-48
<PAGE> 125
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15: QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------
FIRST SECOND(2) THIRD FOURTH(3)
-------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Net revenues........................................ $370,200 $ 457,500 $460,400 $ 487,100
Gross profit........................................ $ 59,300 $ 59,500 $ 62,500 $ 73,300
Operating income from continuing operations......... $ 21,300 $ 20,900 $ 24,400 $ 33,100
Income from continuing operations................... $ 11,300 $ 10,400 $ 13,800 $ 19,000
Net income.......................................... $ 4,300 $ 23,200 $ 25,700 $ 27,100
Earnings per share from continuing operations(1)
Primary........................................... $ 0.15 $ 0.14 $ 0.18 $ 0.25
Fully diluted..................................... $ 0.15 $ 0.14 $ 0.18 $ 0.25
Net earnings per share(1)
Primary........................................... $ 0.06 $ 0.32 $ 0.34 $ 0.36
Fully diluted..................................... $ 0.06 $ 0.32 $ 0.34 $ 0.36
Common stock prices:
High.............................................. $ 22.88 $ 20.25 $ 26.75 $ 25.00
Low............................................... $ 17.50 $ 15.75 $ 16.75 $ 16.63
1995
Net revenues........................................ $534,100 $ 586,000 $606,400 $ 647,800
Gross profit........................................ $ 70,700 $ 87,700 $ 97,600 $ 101,900
Operating income from continuing operations......... $ 25,700 $ 29,600 $ 35,300 $ 36,000
Income (loss) from continuing operations............ $ 13,100 $ 17,400 $19 ,400 $ (29,700)
Net income (loss)................................... $ 21,400 $(130,400) $ 13,600 $ (20,900)
Earnings (loss) per share from continuing
operations(1)
Primary........................................... $ 0.18 $ 0.23 $ 0.26 $ (0.39)
Fully diluted..................................... $ 0.18 $ 0.23 $ 0.26 $ (0.39)
Net earnings (loss) per share(1)
Primary........................................... $ 0.29 $ (1.75) $ 0.18 $ (0.28)
Fully diluted..................................... $ 0.29 $ (1.75) $ 0.18 $ (0.28)
Common stock prices:
High.............................................. $ 19.88 $ 21.88 $ 22.75 $ 21.13
Low............................................... $ 16.25 $ 16.88 $ 19.00 $ 17.88
</TABLE>
- ---------------
(1) The sum of quarterly earnings per share amounts may not equal full-year
amounts due to differences in average common and common equivalent shares
outstanding for the respective periods.
(2) Second quarter 1995 net loss reflects a $145.0 million ($1.94 per share)
after-tax charge related to the settlement of the government investigation
described in Note 14.
(3) Fourth quarter 1995 loss from continuing operations includes a special
after-tax charge of $52.0 million ($0.69 per share) to reflect a decline in
value of investments.
F-49
<PAGE> 126
CAREMARK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Current assets:
Cash and equivalents....................................................... $ 49,000
Restricted cash............................................................ 14,000
Accounts receivable, net................................................... 376,300
Inventories................................................................ 99,600
Short-term deferred income taxes........................................... 64,200
Prepaid expenses and other current assets.................................. 23,800
----------
Total current assets............................................... 626,900
----------
Property and equipment, net.................................................. 366,700
Goodwill and other intangible assets......................................... 320,500
Other noncurrent assets...................................................... 89,500
Long-term deferred income tax asset.......................................... --
----------
Total assets....................................................... $1,403,600
==========
Current liabilities:
Short-term debt............................................................ $ 289,600
Accounts payable, trade and other.......................................... 377,200
Accrued liabilities........................................................ 146,700
----------
Total current liabilities.......................................... 813,500
----------
Long-term debt and lease obligations......................................... 130,200
Long-term deferred income tax liability...................................... 42,200
Other noncurrent liabilities................................................. 29,700
Contingent liabilities (Note 5)
Stockholders' equity:
Preferred stock, $.01 par value, authorized 20,000,000 shares, none
issued.................................................................. --
Common stock, $1 par value, authorized 200,000,000 shares, issued
82,269,462 shares in 1996............................................... 82,200
Additional contributed capital............................................. 199,600
Shares held in trust, 7,700,000 shares..................................... (150,200)
Retained earnings.......................................................... 256,400
----------
Total stockholders' equity................................................... 388,000
----------
Total liabilities and stockholders' equity................................... $1,403,600
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE> 127
CAREMARK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------
1995 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues.......................................................... $1,120,100 $1,569,600
Cost of goods and services sold....................................... 961,800 1,349,600
Marketing and administrative expenses................................. 93,000 132,100
Provision for doubtful accounts....................................... 10,000 14,600
---------- ----------
Operating income from continuing operations........................... 55,300 73,300
Non-operating expense (income):
Interest expense, net............................................... 4,900 9,300
Other............................................................... (400) (400)
---------- ----------
Income from continuing operations before income taxes................. 50,800 64,400
Income tax expense.................................................... 20,300 22,900
---------- ----------
Income from continuing operations..................................... 30,500 41,500
Discontinued operations:
Operating loss from discontinued operations, net of income taxes of
$(57,500) and $(39,500) in 1995 and 1996, respectively........... (146,600) (68,900)
Gain on sale of discontinued operations, net of income taxes of
$4,700 and $1,400 in 1995 and 1996, respectively................. 7,100 2,100
---------- ----------
Income (loss) from discontinued operations.......................... (139,500) (66,800)
---------- ----------
Net income (loss)..................................................... $ (109,000) $ (25,300)
========= =========
Earnings (loss) per common and common equivalent share:
Primary
Income from continuing operations................................ $ 0.41 $ 0.54
Operating income (loss) from discontinued operations............. $ (1.98) $ (0.89)
Gain on sale of discontinued operations.......................... $ 0.10 $ 0.03
Net income (loss)................................................ $ (1.47) $ (0.33)
Fully Diluted
Income from continuing operations................................ $ 0.41 $ 0.54
Operating income (loss) from discontinued operations............. $ (1.98) $ (0.89)
Gain on sale of discontinued operations.......................... $ 0.09 $ 0.03
Net income (loss)................................................ $ (1.47) $ (0.33)
Weighted average common and common equivalent shares outstanding:
Primary............................................................. 74,200 77,400
Fully diluted....................................................... 74,800 77,400
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE> 128
CAREMARK INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1996
--------- ---------
(IN THOUSANDS)
BRACKETS DENOTES CASH
OUTFLOWS
<S> <C> <C>
Cash flows from continuing operations:
Income from continuing operations.................................... $ 30,500 $ 41,500
Adjustments for non-cash items:
Provision for doubtful accounts...................................... 10,000 14,600
Depreciation and amortization........................................ 14,400 25,000
Deferred income taxes................................................ 6,500 38,000
Changes in balance sheet items:
Accounts receivable.................................................. (54,500) (26,100)
Inventories.......................................................... 500 14,800
Payables and accrued liabilities..................................... 56,500 (16,100)
Prepaids and other................................................... 1,900 (6,500)
--------- ---------
Cash flows from continuing operations.................................. 65,800 85,200
--------- ---------
Cash flows from investing activities:
Capital expenditures................................................. (33,000) (48,400)
Acquisitions, net of cash received................................... (141,000) (71,600)
--------- ---------
Cash flows from investing activities................................... (174,000) (120,000)
--------- ---------
Cash flows from financing activities:
Net issuances of debt and lease obligations.......................... (52,200) 27,500
Stock issued under employee benefit plans............................ 11,700 19,800
Purchases of treasury stock.......................................... (19,900) --
--------- ---------
Cash flows from financing activities................................... (60,400) 47,300
--------- ---------
Cash flows from discontinued operations, net of divestiture proceeds... 158,000 22,100
--------- ---------
Increase (decrease) in cash and equivalents............................ (10,600) 34,600
Cash and equivalents, beginning of period.............................. 32,100 28,400
--------- ---------
Cash and equivalents, end of period.................................... $ 21,500 $ 63,000
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-52
<PAGE> 129
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE 1: FINANCIAL INFORMATION
The unaudited interim consolidated financial statements of Caremark
International Inc. and its subsidiaries (the "company" or "Caremark") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the company's 1995
Annual Report to Stockholders.
In the opinion of management, the unaudited interim consolidated financial
statements reflect all normal and recurring adjustments necessary for a fair
presentation of the interim periods. The results of operations for the interim
periods are not necessarily indicative of the results of operations for the full
year.
NOTE 2: INVENTORIES
Inventories of $99.6 million at June 30, 1996 consist primarily of finished
goods.
NOTE 3: DISCONTINUED OPERATIONS
During 1995 Caremark divested its Clozaril Patient Management System, Home
Infusion business, Oncology Management Services business and Caremark Orthopedic
Services, Inc. subsidiary. Effective February 29, 1996, the company sold its
Nephrology Services business to Total Renal Care, Inc. for $49.0 million in
cash, subject to certain post-closing adjustments. The after-tax gain on
disposition of this business, net of disposal costs, was $2.1 million.
In accordance with APB 30, which addresses the reporting for disposition of
business segments, the company's consolidated financial statements present the
operating income and net assets of these discontinued operations separately from
continuing operations. Prior periods have been restated to conform with this
presentation.
First quarter 1996 discontinued operations also reflects a $65.6 million
after-tax charge related to the settlements with private payors discussed in
Note 5 and a $3.3 million charge for a reduction in the amount expected to be
realized for deferred state income tax net operating loss benefits related to
discontinued operations.
NOTE 4: ACQUISITIONS
In January 1996, Caremark completed its agreement with CIGNA Healthcare of
California, a managed healthcare subsidiary of CIGNA Corporation, to acquire
substantially all of the assets of CIGNA Medical Group, CIGNA Healthcare's Los
Angeles area staff model delivery system ("CIGNA"). The transaction has been
accounted for by the purchase method of accounting. The accounting related to
this transaction remains subject to purchase accounting adjustments pending
completion of valuations and analysis to determine the respective fair values of
assets received and liabilities assumed. These valuations are expected to be
completed no later than the fourth quarter of 1996.
NOTE 5: CONTINGENT LIABILITIES
In May 1996, two stockholders, each purporting to represent a class, filed
(but have not yet served) complaints against Caremark and each of its directors
in the Court of Chancery of the State of Delaware alleging breached of the
directors' fiduciary duty in connection with Caremark's proposed merger with
Medpartners/Mullikin, Inc. The complaints seek unspecified damages, injunctive
relief, and attorneys' fees
F-53
<PAGE> 130
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
and expenses. The Company intends, if served, to defend these cases vigorously.
Management is unable at this time to estimate the impact, if any, of the
ultimate resolution of these matters.
On September 11, 1995, Coram Healthcare Company ("Coram") filed a complaint
in the San Francisco Superior Court against Caremark International Inc. and its
subsidiary, Caremark Inc., and 50 unnamed individual defendants. The complaint,
which arises from Caremark's sale to Coram of Caremark's Home Infusion business
in April 1995 for approximately $209.0 million in cash and $100.0 million in
securities, alleges breach of the Asset Sale and Note Purchase Agreement dated
January 29, 1995 as amended on April 1, 1995 between Coram and the company,
breach of related contracts, fraud, negligent misrepresentation and a right to
contractual indemnity. Requested relief in Coram's amended complaint includes
specific performance, declaratory relief, injunctive relief, and damages of $5.2
billion. The company filed motions in October 1995 in the Superior Court of
California seeking (i) to strike certain causes of action due to the speculative
nature of the claims and damages asserted and (ii) dismissal of Coram's lawsuit
on grounds of lack of jurisdiction over Illinois-based Caremark. The Superior
Court of California subsequently dismissed the case against the company (but not
against Caremark Inc.) on the basis of lack of jurisdiction. Caremark also filed
a lawsuit in the U.S. District Court in Chicago claiming that Coram committed
securities fraud in its sale to the company of its securities in connection with
the sale of the company's Home Infusion business to Coram. This case, which has
been dismissed, is on appeal and the company has filed counterclaims to the
lawsuit pending in San Francisco. Coram's lawsuit is currently in the discovery
phase.
Although the company cannot predict with certainty the outcome of these
proceedings, based on information currently available, management believes that
the ultimate resolution of this matter is not likely to have a material adverse
effect on Caremark's results of operations, cash flows or financial position.
The company intends to defend these cases vigorously.
In May 1996, three pharmacies, purporting to represent a class consisting
of all of Caremark's competitors in the alternate site infusion therapy
industry, filed a complaint against Caremark, a subsidiary of Caremark, and two
other corporations in the United States District Court for the District of
Hawaii alleging violations of the federal conspiracy statute, the antitrust laws
and of California's unfair business practice statute. The complaint seeks
unspecified treble damages, and attorneys' fees and expenses. Caremark intends
to defend this case vigorously. Management is unable at this time to estimate
the impact, if any, of the ultimate resolution of this matter.
In August and September 1994, stockholders, each purporting to represent a
class, filed complaints against Caremark and certain officers and employees of
Caremark in the United States District Court for the Northern District of
Illinois, alleging violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934, and fraud and negligence in connection with public
disclosures by Caremark regarding Caremark's business practices and the status
of the OIG investigation discussed below. The complaints seek unspecified
damages, declaratory and equitable relief, and attorneys' fees and expenses. In
June 1996, the complaint filed by one group of stockholders alleging violations
of the Securities Exchange Act of 1934 only, was certified as a class. The
parties to all of the complaints continue to engage in discovery proceedings.
The company intends to defend these cases vigorously. Management is unable at
this time to estimate the impact, if any, of the ultimate resolution of these
matters.
In August 1994 and July 1995, stockholders filed derivative actions on
behalf of Caremark in the Court of Chancery of the State of Delaware, the United
States District Court for the Northern District of Illinois and the Circuit
Court of Cook County in Chicago, Illinois alleging breaches of fiduciary duty,
negligence in connection with Caremark's conduct of the business and lack of
corporate controls, and seeking unspecified damages, attorneys' fees and
expenses. In June 1996, the parties entered into a Stipulation and Agreement of
Compromise and Settlement which established proposed terms for the settlement of
the case. The Delaware court will conduct a hearing on August 16, 1996 to
consider the proposed settlement. Although the proposed settlement does not
contemplate the payment of any damages by any defendant, plaintiffs are expected
to seek
F-54
<PAGE> 131
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
an award of attorneys' fees and expenses not in excess of $1.025 million in
conjunction with any approval of the settlement. The Illinois and Cook County
Courts have entered stays of all proceedings in those actions pending resolution
of the Delaware derivative action. In the event the proposed settlement of the
Delaware derivative action is approved by the Delaware court, Caremark
anticipates that the Illinois and Cook County derivative actions will be
dismissed. If the proposed settlement is not approved, Caremark intends to
defend these cases vigorously. Management is unable at this time to estimate the
impact, if any, of the ultimate resolution of these matters.
In late August 1994, certain patients of a physician who prescribed human
growth hormone distributed by Caremark and the sponsor of a health insurance
plan of one of those patients filed complaints against Caremark, employees of
Caremark and others in the United States District Court for the District of
Minnesota. Each complaint purported to be on behalf of a class and alleged
violations of the federal mail and wire fraud statutes, the federal conspiracy
statute and the state consumer fraud statute, as well as conspiracy to breach a
fiduciary duty, negligence and fraud. Each complaint sought unspecified treble
damages, and attorneys' fees and expenses. In July 1996, these plaintiffs also
served (but have not yet filed) a separate lawsuit in the Minnesota State Court
in the County of Hennepin against a subsidiary of Caremark purporting to be on
behalf of a class and alleging all of the claims contained in the complaint
filed with the Minnesota federal court other than the federal claims contained
therein. The complaint seeks unspecified damages, attorneys' fees and expenses
and an award of punitive damages. In July 1995, another patient of the same
physician filed a separate complaint in the District of South Dakota against the
physician, Caremark and another corporation alleging violations of the federal
laws prohibiting payment of remuneration to induce referral of Medicare and
Medicaid beneficiaries, and the federal mail fraud and conspiracy statutes. The
complaint also alleges the intentional infliction of emotional distress and
seeks trebling of at least $15.9 million in general damages, attorneys' fees and
costs, and an award of punitive damages. In August 1995, the parties to the case
filed in South Dakota agreed to a stay of all proceedings until final judgment
has been entered in a criminal case that is presently pending against this
physician. Caremark intends to defend these cases vigorously. Management is
unable at this time to estimate the impact, if any, of the ultimate resolution
of these matters.
Beginning in September 1994, Caremark was named as a defendant in a series
of new lawsuits added to a pending group of actions brought in 1993 under the
antitrust laws by local and chain retail pharmacies against brand name
pharmaceutical manufacturers, wholesalers and prescription benefit managers
other than Caremark. The new lawsuits, filed in federal district courts in at
least 38 states (including the United States District Court for the Northern
District of Illinois), allege that at least 24 pharmaceutical manufacturers
provided unlawful price and service discounts to certain favored buyers and
conspired among themselves to deny similar discounts to the complaining retail
pharmacies (approximately 3,900 in number). The complaints charge that certain
defendant prescription benefit managers, including Caremark, were favored buyers
who knowingly induced or received discriminatory prices from the manufacturers,
in violation of the Robinson-Patman Act. Each complaint seeks unspecified treble
damages, declaratory and equitable relief, and attorneys' fees and expenses. On
April 21, 1995, the Court entered a stay of pre-trial proceedings as to certain
Robinson-Patman Act claims in this litigation, including the Robinson-Patman Act
claims brought against Caremark, pending the conclusion of a first trial of
certain of such claims brought by a limited number of plaintiffs against five
defendants not including Caremark. The company intends to defend these cases
vigorously. Management is unable to estimate at this time the impact, if any, of
the ultimate resolution of this matter.
In December 1994, Caremark was notified by the Federal Trade Commission
(the "FTC") that it was conducting a civil investigation of the industry
concerning whether acquisitions, alliances, agreements or activities between
pharmacy benefit managers and pharmaceutical manufacturers, including Caremark's
alliance agreements with certain drug manufacturers, violate Sections 3 or 7 of
the Clayton Act or Section 5 of the Federal Trade Commission Act. The specific
nature, scope, timing and outcome of this investigation are not currently
determinable. Under the statutes, if violations are found, the FTC could seek
remedies in the
F-55
<PAGE> 132
CAREMARK INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
form of injunctive relief to set aside or modify Caremark's alliance agreements
and an order to cease and desist from certain marketing practices and from
entering into or continuing with certain types of agreements. Management is
unable at this time to estimate the impact, if any, of the ultimate resolution
of this matter.
In March 1996, the company agreed to settle all disputes with a number of
private payors. The settlements resulted in an after-tax charge of $42.3
million. These disputes relate to businesses that were covered by Caremark's
settlement with federal and state agencies in June 1995 discussed below. In
addition, Caremark will pay $23.3 million after-tax to cover the private payors'
pre-settlement and settlement-related expenses. An after-tax charge for the
above amounts has been recorded in first quarter 1996 discontinued operations.
Caremark may pay the settlement amounts in 1996 and 1997 or, under certain
circumstances, in semi-annual installments, including interest, through 1999. No
agreement, contract or other business relationship in existence at the time of
the settlements will be terminated or negatively affected by the settlement
agreements. The parties have also agreed to negotiate in good faith to maintain
or enhance ongoing business relationships. The company's lenders have waived the
impact of these settlements on the financial covenants under its existing credit
facility through September 15, 1996. The company currently expects to enter into
revised credit facilities prior to this date.
In June 1995, Caremark agreed to settle an investigation of the company
with the U.S. Department of Justice, the Office of the Inspector General of the
U.S. Department of Health and Human Services, the Veterans Administration, the
Federal Employees Health Benefits Program, the Civilian Health and Medical
Program of the Uniformed Services and related state investigative agencies in
all 50 states and the District of Columbia (the "OIG investigation"). The
company took an after-tax charge to discontinued operations of $154.8 million in
1995 for these settlement payments, costs to defend ongoing derivative, security
and related lawsuits, and other associated costs.
The company does not believe that the above-referenced settlements will
materially affect its ability to pursue its long-term business strategy. There
can be no assurances, however, that additional costs, claims and damages will
not occur or that the ultimate costs related to the settlements will not exceed
these estimates.
Caremark is party to various other commitments, claims and routine
litigation arising in the ordinary course of business. Management does not
believe that the result of such commitments, claims and litigation, individually
or in the aggregate, will have a material effect on the company's business or
its income, cash flows or financial condition.
NOTE 6: MERGER
On May 13, 1996, Caremark and MedPartners/Mullikin, Inc. ("MedPartners")
signed a definitive agreement to merge. Under the terms of the agreement, which
has been approved by the Boards of Directors of both companies, each Caremark
share will be converted into MedPartners common stock at a fixed ratio of 1.21
shares of MedPartners per Caremark share. The merger is expected to close in the
third quarter of 1996 and is subject to stockholder and regulatory approval.
F-56
<PAGE> 133
REPORT OF INDEPENDENT AUDITORS
The Partners
New Management
We have audited the accompanying balance sheets of New Management (a
California general partnership) (the Partnership) as of December 31, 1994 and
1995, and the related statements of income, partners' deficiency and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New Management at December
31, 1994 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
July 26, 1996
F-57
<PAGE> 134
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ 55,197 $ 13,445
Administrative capitation fee receivable........................ 267,277 --
Other receivables............................................... 162 162
Due from related parties........................................ 56,827 58,976
----------- -----------
Total assets............................................ $ 379,463 $ 72,583
========== ==========
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities:
Current portion of long term debt............................... $ 114,590 $ 123,793
Accounts payable................................................ 4,900 1,113
Due to affiliate................................................ -- 15,577
Deferred income................................................. -- 1,593
Accrued interest payable........................................ 19,023 18,283
----------- -----------
Total current liabilities............................... 138,513 160,359
Long-term debt, net of current portion............................ 2,831,001 2,707,208
Partners' deficiency.............................................. (2,590,051) (2,794,984)
----------- -----------
Total liabilities and partners' deficiency.............. $ 379,463 $ 72,583
========== ==========
</TABLE>
See accompanying notes.
F-58
<PAGE> 135
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Net revenue......................................................... $3,084,648 $2,947,577
---------- ----------
Expenses:
Administrative and executive fees................................. 163,808 189,300
Management fee.................................................... -- 15,577
Accounting and legal.............................................. 55,655 109,042
Interest.......................................................... 232,170 223,590
---------- ----------
Total expenses............................................ 451,633 537,509
---------- ----------
Net income.......................................................... $2,633,015 $2,410,068
========= =========
</TABLE>
See accompanying notes.
F-59
<PAGE> 136
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIENCY
<TABLE>
<S> <C>
Balance at December 31, 1993.................................................... $(2,902,752)
Net income.................................................................... 2,633,015
Contributions................................................................. 87
Distributions................................................................. (2,320,401)
-----------
Balance at December 31, 1994.................................................... (2,590,051)
Net income.................................................................... 2,410,068
Distributions................................................................. (2,615,001)
-----------
Balance at December 31, 1995.................................................... $(2,794,984)
==========
</TABLE>
See accompanying notes.
F-60
<PAGE> 137
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income........................................................ $ 2,633,015 $ 2,410,068
Adjustments to reconcile net income to net cash provided by
operating activities:
Changes in assets and liabilities:
(Increase) decrease in capitation fee receivable............. (150,510) 267,277
(Increase) decrease in due from related parties.............. 439,999 (2,149)
Increase in other receivables................................ (77) --
Increase (decrease) in accounts payable...................... 4,900 (3,787)
Increase in due to affiliate................................. -- 15,577
Increase in deferred income.................................. -- 1,593
Decrease in accrued interest payable......................... (686) (740)
----------- -----------
Net cash provided by operating activities................. 2,926,641 2,687,839
----------- -----------
FINANCING ACTIVITIES:
Principal payments on long-term debt.............................. (106,070) (114,590)
Additional partner contributions.................................. 87 --
Distributions to partners......................................... (2,320,401) (2,615,001)
Decrease in distributions payable................................. (500,000) --
----------- -----------
Net cash used in financing activities..................... (2,926,384) (2,729,591)
----------- -----------
Net increase (decrease) in cash........................... 257 (41,752)
Cash at beginning of year........................................... 54,940 55,197
----------- -----------
Cash at end of year................................................. $ 55,197 $ 13,445
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on borrowings....................................... $ 232,855 $ 224,330
========== ==========
</TABLE>
See accompanying notes.
F-61
<PAGE> 138
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
New Management (NM), a California general partnership, was formed and
commenced operations on July 31, 1992. The partnership was formed for the
purpose of providing management services in connection with the delivery of
healthcare services to patients who are enrollees of certain health maintenance
organizations which have contracted with West Hills Hospital (Hospital) located
in West Hills, California. Approximately 100% of the organization's revenue was
provided under contract with the hospital.
Partnership income and losses are allocated to the respective partners
based on percentage ownership subject to certain provisions as defined in the
partnership agreement.
Basis of Presentation
The financial statements have been prepared on the accrual basis of
accounting.
Management Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying financial
statements and notes. Actual results could differ from those estimates.
Administrative Capitation Fee
NM contracts with West Hills Hospital under a Managed Care Agreement. Under
the terms of the agreement, NM provides certain administrative services to
enrollees in various health plans that have contracted with West Hills Hospital
in exchange for an administrative fee based upon various components including a
percentage of capitation revenue and utilization results. The contract which
commenced August 10, 1992 has a term of ten years with an automatic five year
renewal. Premiums are due monthly and are recognized as revenue by NM during the
period in which Community Medical Group (CMG), under a management agreement with
NM, and NM are obligated to provide services to the enrollees.
Income Taxes
As a partnership, the income and expenses of the partnership are allocated
to the respective partners; as such, the partnership does not pay federal or
state income taxes. Accordingly, no provision for income taxes has been included
in the accompanying financial statements.
2. ADMINISTRATIVE CAPITATION FEE RECEIVABLE
The capitation fee receivable represents amounts owed to NM from the
Hospital under the terms of the management agreement. The amount, which relates
to the period January 1, 1994 through August 31, 1994, was received in February
1995.
3. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Note payable to Hospital, monthly payments of principal and
interest (7.75%) of $28,238 due through July 1, 1999,
balloon payment of $2,354,530 due on August 1, 1999....... $2,945,591 $2,831,001
Less current portion...................................... 114,590 123,793
---------- ----------
Long-term debt, net of current portion............ $2,831,001 $2,707,208
========= =========
</TABLE>
The amounts recorded above approximate the fair value of the obligation.
On July 7, 1992, NM entered into a managed care agreement with the Hospital
that included the issuance of a $3,000,000 loan to New Management from the
Hospital. The loan is secured by payments owed to NM by the Hospital for
capitation revenue received directly by the Hospital. The individual partners
have
F-62
<PAGE> 139
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
guaranteed the loan pro rata to the extent of two times each partner's
percentage ownership interest in NM at the date of the loan.
As of December 31, 1995, aggregate principal maturities of long-term debt
are as follows:
<TABLE>
<S> <C>
1996..................................................................... $ 123,793
1997..................................................................... 133,735
1998..................................................................... 144,474
1999..................................................................... 2,428,999
----------
$2,831,001
=========
</TABLE>
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Advances
NM advanced amounts to CMG to cover working capital requirements and tenant
improvements. The balance of these advances is $56,827 as of December 31, 1994
and 1995. The advances are due on demand and do not bear interest.
NM advanced $2,149 to a physician who is also a partner in NM. The advance
is due upon demand and does not bear interest.
General and Administrative Services
NM, in performing its responsibilities under the managed care agreement
with the Hospital, receives certain employee services and facilities usage
without cost from CMG.
CMG's partners are substantially identical to the partners of NM as
required under the terms of both partnership agreements. CMG provides medical
services for enrollees of certain health maintenance organizations.
Management Services
Under an agreement effective September 1, 1995, CHS Management, Inc. (CHS),
an affiliate incorporated in 1995 to perform management services for CMG and
Health Source Medical Group (HSMG), performed certain management services on
behalf of NM. The agreement provides that CHS will receive a monthly management
fee based upon 12% per dollar per enrolled life under the capitation agreement
between NM, CMG and West Hills Hospital. The amount of the management fee
totaled $15,577 for the period from September 1 through December 31, 1995 and
has been accrued on the balance sheet as due to affiliate.
Professional Services
Accounting services are performed for NM by a partnership of which one
partner acts as a financial advisor to the Executive Committee of CMG and also
serves as a board member of CHS Management, Inc. Charges for services rendered
to NM by the partnership amounted to $35,655 and $94,025 for the years ended
December 31, 1994 and 1995, respectively.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
All current assets and current liabilities, are carried at cost, which
approximates fair value due to the short maturity of those instruments.
6. SUBSEQUENT EVENT
On March 11, 1996, NM entered into a letter of intent to be acquired by
MedPartners/Mullikin, Inc., a publicly held physicians practice management
company, in exchange for shares of MedPartners/Mullikin, Inc. common stock.
F-63
<PAGE> 140
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
ASSETS
Cash............................................................................ $ 54,940
Administrative capitation fee receivable........................................ 116,767
Due from affiliates............................................................. 496,826
Capital contributions receivable from partners.................................. 85
------------
Total assets.......................................................... $ 668,618
==========
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities
Distribution payable.......................................................... $ 500,000
Accrued interest payable...................................................... 19,709
Current portion of long-term debt............................................. 106,070
------------
Total current liabilities............................................. 625,779
Long-term debt, net of current portion........................................ 2,945,591
------------
Partners' deficiency............................................................ (2,902,752)
------------
Total liabilities and partners' deficiency............................ $ 668,618
==========
</TABLE>
See accompanying notes.
F-64
<PAGE> 141
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
------------
<S> <C>
Net revenue..................................................................... $3,109,869
Expenses
Accounting.................................................................... 18,663
Interest expense.............................................................. 238,711
Administrative fee............................................................ 42,000
Executive committee fees...................................................... 24,000
------------
Total expenses........................................................ 323,374
------------
Net income...................................................................... $2,786,495
==========
</TABLE>
See accompanying notes.
F-65
<PAGE> 142
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
------------
<S> <C>
OPERATING ACTIVITIES:
Net Income.................................................................... $ 2,786,495
Adjustments to reconcile net income to net cash provided by operating
activities:
Changes in assets and liabilities:
(Increase) decrease in capitation fee receivable......................... (116,767)
(Increase) decrease in due from related parties.......................... (496,827)
(Increase) decrease in other receivables................................. (85)
(Increase (decrease) in accrued interest payable......................... (74,041)
------------
Net cash provided by operating activities............................. 2,098,775
------------
FINANCING ACTIVITIES:
Increase in long-term debt.................................................... 51,661
Additional partner contributions.............................................. 85
Distributions to partners..................................................... (2,600,037)
Increase in distributions payable............................................. 500,000
------------
Net cash used in financing activities................................. (2,048,291)
------------
Net increase in cash.................................................. 50,484
Cash at beginning of year....................................................... 4,456
------------
Cash at end of year............................................................. $ 54,940
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on borrowing...................................................... $ 238,711
==========
</TABLE>
See accompanying notes.
F-66
<PAGE> 143
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. ORGANIZATION
New Management, a California general partnership (the Partnership), was
formed and commenced operations on July 31, 1992. The Partnership was formed for
the purpose of providing management services in connection with the delivery of
hospital healthcare services to patients who are enrollees of certain health
maintenance organizations which have contracted with West Hills Hospital and the
Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Policy
The financial statements have been prepared using the accrual method of
accounting.
Income Taxes
Income and expenses represent only the operations of the Partnership and do
not include other activity to be reflected on the individual partners' federal
and state income tax returns. As such, no provision has been made for income
taxes.
3. MANAGED CARE AGREEMENT
The Partnership receives an administrative capitation fee under the terms
of a Managed Care Agreement with West Hills Hospital. Under the terms of the
agreement, New Management has capitated West Hills to provide hospital care
under five contracts with health maintenance organizations. The Partnership
receives income based upon the spread between the average per member per month
capitation received from the HMO's and the contracted sub-capitation rate paid
to West Hills Hospital for providing the hospital services. Under the terms of
the Managed Care Agreement the Partnership is obligated to provide certain
administrative and management services to administer the HMO contracts. The
Managed Care Agreement was entered into in July, 1992 and is effective through
July, 2002.
4. ADMINISTRATIVE CAPITATION FEE RECEIVABLE
The Partnership is owed additional revenue under the terms of the Managed
Care Agreement for 1993 based on a calculation adjustment which has been agreed
on with West Hills Hospital.
5. ADVANCES TO COMMUNITY MEDICAL GROUP (CMG)
The Partnership advanced $455,026 to Community Medical Group of the West
Valley (CMG) (a related party) to be used for working capital. The advance does
not bear interest and is due on demand. The Partnership advanced $41,800 for
tenant improvements at CMG's Simi Valley facility. The advance does not bear
interest and is due on demand.
F-67
<PAGE> 144
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
6. LOAN PAYABLE
The Partnership received a $3,000,000 loan from West Hills Hospital on
August 7, 1992. The loan is payable in monthly installments bearing interest at
7.75% as follows:
<TABLE>
<CAPTION>
TIME PERIOD PAYMENTS
---------------------------------------- ----------------------------------------
<S> <C>
September 1, 1992 -- January 31, 1993 Interest Accrued -- No Payments
February 1, 1993 -- July 1, 1993 Interest Only Payments of $19,973
August 1, 1993 -- July 1, 1999 Monthly Payments of $28,238 consisting
of principal and interest, based on a
fifteen year amortization.
</TABLE>
There is a balloon payment of $2,354,529 due on July 1, 1999.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------------------------------------------------------------------- ----------
<S> <C>
1994............................................................ $ 100,071
1995............................................................ 114,590
1996............................................................ 123.792
1997............................................................ 139,735
1998............................................................ 144,475
1999............................................................ 2,428,998
----------
$3,051,661
=========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Partnership is receiving employee services and facilities in order to
perform their obligations under the Managed Care Agreement (Note 3) without cost
from Community Medical Group of the West Valley, a California general
partnership (CMG). CMG's partners are substantially identical to the partners of
New Management as required under the terms of both partnership agreements. CMG
provides medical services to enrollees of prepaid health plans.
F-68
<PAGE> 145
NEW MANAGEMENT
(A CALIFORNIA PARTNERSHIP)
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
<S> <C>
ASSETS
Current assets
Cash.......................................................................... $ 175,331
Other receivables............................................................. --
Due from related parties...................................................... 58,976
-----------
Total current assets.................................................. 234,307
Other assets.......................................................... 543,467
-----------
Total assets.......................................................... $ 777,774
===========
LIABILITIES AND PARTNERS' DEFICIENCY
Current liabilities
Current portion of long-term debt............................................. $ 128,668
Accounts payable.............................................................. 4,849
Deferred income............................................................... 439
Accrued interest payable...................................................... 17,891
-----------
Total current liabilities............................................. 151,847
Long-term debt, net of current portion.......................................... 2,641,633
Partners' deficiency............................................................ (2,015,706)
-----------
Total liabilities and partners' deficiency............................ $ 777,774
===========
</TABLE>
See accompanying note.
F-69
<PAGE> 146
NEW MANAGEMENT
(A CALIFORNIA PARTNERSHIP)
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net revenue......................................................... $1,524,490 $1,313,931
Expenses
Administrative and executive fees................................. 95,000 87,260
Management fee.................................................... -- 22,625
Accounting and legal.............................................. 53,495 96,872
Interest.......................................................... 112,908 108,362
---------- ----------
Total expenses............................................ 261,403 315,119
---------- ----------
Net income.......................................................... $1,263,087 $ 998,812
========== ==========
</TABLE>
See accompanying note.
F-70
<PAGE> 147
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------
1995 1996
----------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 1,263,087 $ 998,812
Adjustments to reconcile net income to net cash provided by
operating activities:
Decrease in administrative capitation fee receivable............ 267,277 --
Decrease in other receivables................................... -- 162
Increase in other assets........................................ -- (543,467)
Increase in accounts payable.................................... -- 3,736
Decrease in due to affiliate.................................... -- (15,577)
Decrease in deferred income..................................... -- (1,154)
Decrease in accrued interest payable............................ (362) (392)
----------- ---------
Net cash provided by operating activities.................. 1,530,002 442,120
----------- ---------
FINANCING ACTIVITIES:
Principal payments on long-term debt............................... (56,189) (60,700)
Increase in distributions payable.................................. 17,580 --
Distributions to partners.......................................... (1,500,001) (219,534)
----------- ---------
Net cash used in financing activities...................... (1,538,610) (280,234)
----------- ---------
Net increase (decrease) in cash............................ (8,608) 161,886
Cash at beginning of period.......................................... 55,197 13,445
----------- ---------
Cash at end of period................................................ $ 46,589 $ 175,331
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on borrowings.......................................... $ 112,417 $ 109,112
========== =========
</TABLE>
See accompanying note.
F-71
<PAGE> 148
NEW MANAGEMENT
(A CALIFORNIA GENERAL PARTNERSHIP)
NOTE TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. CONDENSED FINANCIAL STATEMENTS
The Condensed Balance Sheet as of June 30, 1996, the Condensed Statements
of Income and the Condensed Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 have been prepared by New Management (the Partnership)
without audits. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at June 30, 1996 and 1995 have
been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's December 31, 1995 audited financial statements. The results of
operations for the period ended June 30, 1996 are not necessarily indicative of
the operation results for the year.
F-72
<PAGE> 149
------------------------------------------------------
------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Forward-Looking Statements............ 2
Prospectus Summary.................... 3
The Company........................... 8
Risk Factors.......................... 8
Use of Proceeds....................... 16
Capitalization........................ 17
The Debt Tender Offer................. 18
Selected Historical Financial Data.... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Pro Forma Condensed Combined Financial
Information......................... 27
Business.............................. 35
Management............................ 50
Certain Transactions.................. 59
Principal Stockholders................ 61
Description of the Notes.............. 63
Underwriting.......................... 74
Experts............................... 75
Legal Matters......................... 75
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$450,000,000
% SENIOR
NOTES DUE 2006
(LOGO) MedPartners(TM)
------------
PROSPECTUS
OCTOBER , 1996
------------
SMITH BARNEY INC.
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
MORGAN STANLEY & CO.
INCORPORATED
NATIONSBANC CAPITAL
MARKETS, INC.
------------------------------------------------------
------------------------------------------------------
<PAGE> 150
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the Notes, offered hereby other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................... $ 148,953.55
Trustee's Fees................................................................ 50,000
Blue Sky Fees and Expenses.................................................... 20,000
Legal Fees and Expenses....................................................... 100,000
Rating Agency Fees............................................................ 120,000
Accounting Fees............................................................... 100,000
Printing Costs................................................................ 300,000
Miscellaneous Expenses........................................................ 161,046.45
-------------
Total............................................................... $ 1,000,000
============
</TABLE>
- ---------------
* Actual amount.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of Delaware ("DGCL")
grants corporations the right to limit or eliminate the personal liability of
their directors in certain circumstances in accordance with provisions therein
set forth. The Company's Second Amended and Restated Certificate of
Incorporation, as amended, contains a provision eliminating or limiting director
liability to the Company and its stockholders for monetary damages arising from
acts or omissions in the director's capacity as a director. The provision does
not, however, eliminate or limit the personal liability of a director (i) for
any breach of such director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the Delaware
statutory provision making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the Board of Directors of
the Company protection against awards of monetary damages resulting from
breaches of their duty of care (except as indicated above). As a result of this
provision, the ability of the Company or a stockholder thereof to successfully
prosecute an action against a director for a breach of his duty of care is
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his duty of care. The Commission has taken the position that the provision will
have no effect on claims arising under the federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. The Company's Second Amended and Restated By-laws provide for
mandatory indemnification rights, subject to limited exceptions, to any
director, officer, employee, or agent of the Company who, by reason of the fact
that he or she is a director, officer, employee, or agent of the Company, is
involved in a legal proceeding of any nature. Such indemnification rights
include reimbursement for expenses incurred by such director, officer, employee,
or agent in advance of the final disposition of such proceeding in accordance
with the applicable provisions of the DGCL.
The Company has agreed to indemnify all of its directors and executive
officers against liability incurred by them by reason of their services as a
director to the fullest extent allowable under applicable law. In addition, the
Company has purchased insurance containing customary terms and conditions as
permitted by Delaware law on behalf of its directors and officers, which may
cover liabilities under the Securities Act of 1933, as amended.
II-1
<PAGE> 151
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below are all sales of unregistered securities by the Registrant
within the past three years.
In August 1995, in connection with its incorporation, the Company sold and
issued 100 shares of its Common Stock to Larry R. House for $1.00 per share.
Those shares of Common Stock were subsequently cancelled in connection with the
consummation of the business combination between the Original Predecessor and
Mullikin Medical Enterprises, L.P.
In December 1995, the Company sold and issued an aggregate of 860,068
shares of its Common Stock to Retina and Vitreous Associates of Alabama, Inc.
("RVAA"), in return for substantially all of the assets of RVAA. As of the
closing date, the shares of Common Stock had a value of approximately
$28,400,000.*
In March 1996, the Company sold and issued an aggregate of 82,954 shares of
its Common Stock to Eaton Medical Group in return for substantially all of the
assets of Eaton Medical Group. As of the closing date, the shares of Common
Stock had a value of approximately $2,364,000.*
In March 1996, the Company sold and issued an aggregate of 444,091 shares
of its Common Stock to the Atlanta Allergy Clinic, PA ("Atlanta Allergy"), in
return for substantially all of the assets of Atlanta Allergy. As of the closing
date, the shares of Common Stock had a value of approximately $12,657,000.*
In April 1996, the Company sold and issued an aggregate of 70,174 shares of
its Common Stock to Dwight W. Clark, M.D. and H. Frank Martin, M.D. in return
for the termination of certain Medical Director Agreements. As of the closing
date, the shares of Common Stock had a value of approximately $2,026,000.*
In May 1996, the Company sold and issued 116,452 shares to East Bay
Fertility OB-GYN-Medical Group, Inc. ("East Bay") in exchange for substantially
all of the assets of East Bay. As of the closing date, the shares of Common
Stock had a value of approximately $2,737,000.*
In June 1996, the Company sold and issued an aggregate of 1,218,441 shares
of its Common Stock to the sole shareholder of Emergency Physician Associates,
Inc. ("EPA") as consideration for the merger of a wholly-owned subsidiary of the
Company with and into EPA whereby EPA became a wholly-owned subsidiary of the
Company. As of the closing date, the shares of Common Stock had a value of
approximately $25,892,000.*
In June 1996, the Company sold and issued an aggregate of 76,633 shares of
its Common Stock to Global Care, Inc. in return for substantially all of the
assets of Global Care, Inc. As of the closing date, the shares of Common Stock
had a value of approximately $1,628,000.*
In June 1996, the Company sold and issued an aggregate of 85,827 shares of
its Common Stock to Brevard OB/GYN Specialists, P.A. in return for substantially
all of the assets of Brevard OB/GYN Specialists, P.A. As of the closing date,
the shares of Common Stock had a value of approximately $1,792,000.*
In July 1996, the Company sold and issued an aggregate of 190,762 shares of
its Common Stock to Southwest Healthcare Network, Inc. in return for
substantially all of the assets of Southwest Healthcare Network, Inc. As of the
closing date, the shares of Common Stock had a value of approximately
$4,030,000.*
In July 1996, the Company sold and issued an aggregate of 172,752 shares of
its Common Stock to Cleveland Ear, Nose, Throat and Facial Surgery Group, Inc.
in return for substantially all of the assets of Cleveland Ear, Nose, Throat and
Facial Surgery Group, Inc. As of the closing date, the shares of Common Stock
had a value of approximately $3,347,000.*
In July 1996, the Company sold and issued an aggregate of 164,085 shares of
its Common Stock to The Emergency Associates for Medicine, Inc. ("TEAM"), in
return for substantially all of the outstanding capital stock of TEAM. As of the
closing date, the shares of Common Stock had a value of approximately
$3,077,000.*
In August 1996, the Company sold and issued 51,417 shares of its Common
Stock to Bay Area Primary Care as a result of the Company's earn-out obligations
in accordance with the terms and conditions of the
II-2
<PAGE> 152
Company's purchase of substantially all of the assets of Bay Area Primary Care.
As of the closing date, the shares of Common Stock had a value of approximately
$1,016,000.*
In August 1996, the Company sold and issued an aggregate of 182,366 shares
of its Common Stock to Georgia Urology Management Associates, Inc. in return for
substantially all of the assets of Georgia Urology Management Associates, Inc.
As of the closing date, the shares of Common Stock had a value of approximately
$3,784,000.*
None of the transactions described above was underwritten and there were no
underwriting discounts or commissions. All of the above shares were taken for
investment by the entity or individuals to whom they were issued. The Company
believes that all securities issued in connection with the transactions
described above were exempt from registration under Section 4(2) of the
Securities Act as transactions not involving a public offering.
- ---------------
* Based on the closing price of Common Stock on the Nasdaq National Market
System or the New York Stock Exchange, as applicable, on the closing date of
such transaction, which is given solely for the purpose of calculating the
aggregate consideration for such transaction, pursuant to Item 701 of
Regulation S-K.
ITEM 16. FINANCIAL STATEMENTS AND EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<C> <S> <C>
(1) -- Form of Underwriting Agreement.
(2)-1 -- Plan and Agreement of Merger, dated as of August 14, 1995, among MedPartners,
Inc., Mullikin Medical Enterprises, L.P., MedPartners/Mullikin, Inc. and MPI
Merger Corporation, filed as Exhibit (2)-1 to the Company's Registration
Statement on Form S-4 (Registration No. 33-96978) is hereby incorporated
herein by reference.
(2)-2 -- Plan and Agreement of Merger and Reorganization, dated as December 11, 1995,
among MedPartners/Mullikin, Inc., PPS Merger Corporation and Pacific Physician
Services, Inc., filed as Exhibit (2)-1 to the Company's Registration Statement
on Form S-4 (Registration No. 333-00774) is hereby incorporated herein by
reference.
(2)-3 -- Amended and Restated Agreement to Purchase Assets, dated as of March 11, 1996, as
amended by Amendment No. 1 dated June 28, 1996, by and among
MedPartners/Mullikin, Inc., MedPartners, Inc. and New Management filed as
Exhibit (2)-2 to the Company's Registration Statement on Form S-4
(Registration No. 333-4348), is hereby incorporated herein by reference.
(2)-4 -- Plan and Agreement of Merger, dated as of May 13, 1996, among
MedPartners/Mullikin, Inc., PPM Merger Corporation and Caremark International
Inc., filed as Exhibit (2)-1 to the Company's Registration Statement on Form
S-4 (Registration No. 333-09767) is hereby incorporated herein by reference.
(3)-1 -- MedPartners, Inc. Second Amended and Restated Certificate of Incorporation, as
amended.
(3)-2 -- MedPartners, Inc. Second Amended and Restated By-laws.
(4) -- Form of Indenture dated as of , with respect to the Notes.
(5) -- Opinion of Haskell Slaughter & Young L.L.C., as to the legality of the Notes of
MedPartners, Inc.
(10)-1 -- Consulting Agreement, dated as of August 7, 1996, by and among Caremark
International Inc., MedPartners, Inc. and C. A. Lance Piccolo filed as Exhibit
(10)-1 to the Company's Registration Statement on Form S-4 (Registration No.
333-09767) is hereby incorporated herein by reference.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
II-3
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<C> <S> <C>
(10)-2 -- Consulting Agreement, dated as of August 7, 1996, by and among Caremark
International Inc., MedPartners, Inc. and Thomas W. Hodson filed as Exhibit
(10)-2 to the Company's Registration Statement on Form S-4 (Registration No.
333-09767) is hereby incorporated herein by reference.
(10)-3 -- Consulting Agreement, dated as of November 29, 1995, by and between MedPartners
and Walter T. Mullikin, M.D. filed as Exhibit (10)-1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-1130) is hereby
incorporated herein by reference.
(10)-4 -- Termination Agreement, dated as of November 29, 1995, by and between MedPartners/
Mullikin, Inc. and Walter T. Mullikin filed as Exhibit (10)-2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-1130) is hereby
incorporated herein by reference.
(10)-5 -- Consulting Agreement, dated as of November 29, 1995, by and between MedPartners/
Mullikin, Inc. and John S. McDonald filed as Exhibit (10)-3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-1130) is hereby
incorporated herein by reference.
(10)-6 -- Termination Agreement, dated as of November 29, 1995, by and between MedPartners/
Mullikin, Inc. and John S. McDonald filed as Exhibit (10)-4 to the Company's
Registration Statement on Form S-1 (Registration No. 333-1130) is hereby
incorporated herein by reference.
(10)-7 -- Employment Agreement, dated July 24, 1996, by and between MedPartners, Inc. and
Larry R. House.
(10)-8 -- Employment Agreement, dated July 24, 1996, by and between MedPartners, Inc. and
Mark L. Wagar.
(10)-9 -- Employment Agreement, dated July 24, 1996, by and between MedPartners, Inc. and
Harold O. Knight, Jr.
(10)-10 -- Employment Agreement, dated July 24, 1996, by and between MedPartners, Inc. and
Tracy P. Thrasher.
(10)-11 -- Registration Rights Agreement, dated as of November 29, 1995, among
MedPartners/Mullikin, Inc. and certain of its securityholders, filed as
Exhibit (4)-2 to the Company's Registration Statement on Form S-1
(Registration No. 333-1130) is hereby incorporated herein by reference.
(10)-12 -- MedPartners/Mullikin, Inc. 1993 Stock Option Plan, filed as Exhibit (4)-1 to the
Company's Registration Statement on Form S-8 (Registration No. 333-00234) is
hereby incorporated herein by reference.
(10)-13 -- MedPartners/Mullikin, Inc. 1995 Stock Option Plan, as amended, filed as Exhibit
(4)-2 to the Company's Registration Statement on Form S-4 (Registration No.
333-00774) is hereby incorporated herein by reference.
(10)-14 -- MedPartners, Inc., MedPartners Incentive Compensation Plan, filed as Exhibit
(4)-2 to the Company's Registration Statement on Form S-8 (Registration No.
333-11875) is hereby incorporated herein by reference.
(10)-15 -- Non-Competition and Severance Agreement by and between MedPartners, Inc. and
William R. Dexheimer, dated August 31, 1993, filed as Exhibit (10)-23 to
MedPartners' Registration Statement on Form S-1 (Registration Statement No.
33-86806) is hereby incorporated by reference.
(10)-16 -- Credit Agreement, dated September 5, 1996, by and among MedPartners, Inc.,
NationsBank, National Association (South), as administrative agent for the
Lenders, The First National Bank of Chicago, as Documentation Agent for the
Lenders, and the Lenders thereto.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
II-4
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- ---------------------------------------------------------------------------------
<C> <S> <C>
(10)-17 -- Amendment No. 1 to Credit Agreement and Consent, dated September 5, 1996, by and
among MedPartners, Inc., NationsBank, National Association (South), as
administrative agent for the Lenders, The First National Bank of Chicago, as
Documentation Agent for the Lenders, and the Lenders thereto.
+(12) -- Statement re: Computation of Ratios.
+(21) -- Subsidiaries of MedPartners, Inc.
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately following signature pages to
the Registration Statement.
(23)-2 -- Consent of Price Waterhouse LLP. See pages immediately following signature pages
to the Registration Statement.
(23)-3 -- Consent of Haskell Slaughter & Young L.L.C. (included in the opinion filed as
Exhibit (5)).
+(24) -- Powers of Attorney. See the signature page to original filing of this
Registration Statement on Form S-1.
(25) -- Statement of Eligibility of Trustee.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statements Schedule:
None are applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to Item 14 hereof, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE> 155
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama on October 3, 1996.
MEDPARTNERS, INC.
By /s/ LARRY R. HOUSE
------------------------------------
Larry R. House
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ------------------------------- ----------------
<C> <S> <C>
/s/ LARRY R. HOUSE Chairman of the Board, October 3, 1996
- --------------------------------------------- President and Chief Executive
Larry R. House Officer and Director
* Executive Vice President and October 3, 1996
- --------------------------------------------- Chief Financial Officer
Harold O. Knight, Jr. (Principal Financial and
Accounting Officer)
* Director October 3, 1996
- ---------------------------------------------
Richard M. Scrushy
* Director October 3, 1996
- ---------------------------------------------
Larry D. Striplin, Jr.
* Director October 3, 1996
- ---------------------------------------------
Charles W. Newhall III
* Director October 3, 1996
- ---------------------------------------------
Ted H. McCourtney, Jr.
* Director October 3, 1996
- ---------------------------------------------
Walter T. Mullikin, M.D.
* Director October 3, 1996
- ---------------------------------------------
John S. McDonald, J.D.
* Director October 3, 1996
- ---------------------------------------------
Richard J. Kramer
* Director October 3, 1996
- ---------------------------------------------
Rosalio J. Lopez, M.D.
* Director October 3, 1996
- ---------------------------------------------
C.A. Lance Piccolo
* Director October 3, 1996
- ---------------------------------------------
Thomas W. Hodson
</TABLE>
II-6
<PAGE> 156
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ------------------------------- ----------------
<C> <S> <C>
* Director October 3, 1996
- ---------------------------------------------
Roger L. Headrick
* Director October 3, 1996
- ---------------------------------------------
Harry M. Jansen Kraemer, Jr.
* /s/ LARRY R. HOUSE
- ---------------------------------------------
Larry R. House
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 157
EXHIBIT (23)-1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and to
the use of our reports on the entities and dated as listed below in the
Registration Statement (Form S-1, No. 333-12465) and the related Prospectus of
MedPartners, Inc. for the registration of its Senior Notes due 2006:
<TABLE>
<S> <C>
MedPartners/Mullikin, Inc. ....................................... February 22, 1996
New Management.................................................... July 26, 1996
</TABLE>
ERNST & YOUNG LLP
Birmingham, Alabama
October 2, 1996
<PAGE> 158
EXHIBIT (23)-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of MedPartners, Inc. of our report dated
January 24, 1996, except as to the third paragraph of Note 14, which is dated as
of March 19, 1996, relating to the financial statements of Caremark
International Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Chicago, Illinois
October 3, 1996
<PAGE> 159
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------- ------------
<C> <S> <C> <C>
(1) -- Form of Underwriting Agreement.
(2)-1 -- Plan and Agreement of Merger, dated as of August 14, 1995, among
MedPartners, Inc., Mullikin Medical Enterprises, L.P.,
MedPartners/Mullikin, Inc. and MPI Merger Corporation, filed as
Exhibit (2)-1 to the Company's Registration Statement on Form S-4
(Registration No. 33-96978) is hereby incorporated herein by
reference.
(2)-2 -- Plan and Agreement of Merger and Reorganization, dated as December 11,
1995, among MedPartners/Mullikin, Inc., PPS Merger Corporation and
Pacific Physician Services, Inc., filed as Exhibit (2)-1 to the
Company's Registration Statement on Form S-4 (Registration No.
333-00774) is hereby incorporated herein by reference.
(2)-3 -- Amended and Restated Agreement to Purchase Assets, dated as of March
11, 1996, as amended by Amendment No. 1 dated June 28, 1996, by and
among MedPartners/Mullikin, Inc., MedPartners, Inc. and New
Management filed as Exhibit (2)-2 to the Company's Registration
Statement on Form S-4 (Registration No. 333-4348), is hereby
incorporated herein by reference.
(2)-4 -- Plan and Agreement of Merger, dated as of May 13, 1996, among
MedPartners/Mullikin, Inc., PPM Merger Corporation and Caremark
International Inc., filed as Exhibit (2)-1 to the Company's
Registration Statement on Form S-4 (Registration No. 333-09767) is
hereby incorporated herein by reference.
(3)-1 -- MedPartners, Inc. Second Amended and Restated Certificate of
Incorporation, as amended.
(3)-2 -- MedPartners, Inc. Second Amended and Restated By-laws.
(4) -- Form of Indenture dated as of , with respect to the
Notes.
(5) -- Opinion of Haskell Slaughter & Young L.L.C., as to the legality of the
Notes of MedPartners, Inc.
(10)-1 -- Consulting Agreement, dated as of August 7, 1996, by and among Caremark
International Inc., MedPartners, Inc. and C. A. Lance Piccolo filed
as Exhibit (10)-1 to the Company's Registration Statement on Form
S-4 (Registration No. 333-09767) is hereby incorporated herein by
reference.
(10)-2 -- Consulting Agreement, dated as of August 7, 1996, by and among Caremark
International Inc., MedPartners, Inc. and Thomas W. Hodson filed as
Exhibit (10)-2 to the Company's Registration Statement on Form S-4
(Registration No. 333-09767) is hereby incorporated herein by
reference.
(10)-3 -- Consulting Agreement, dated as of November 29, 1995, by and between
MedPartners and Walter T. Mullikin, M.D. filed as Exhibit (10)-1 to
the Company's Registration Statement on Form S-1 (Registration No.
333-1130) is hereby incorporated herein by reference.
(10)-4 -- Termination Agreement, dated as of November 29, 1995, by and between
MedPartners/Mullikin, Inc. and Walter T. Mullikin filed as Exhibit
(10)-2 to the Company's Registration Statement on Form S-1
(Registration No. 333-1130) is hereby incorporated herein by
reference.
(10)-5 -- Consulting Agreement, dated as of November 29, 1995, by and between
MedPartners/Mullikin, Inc. and John S. McDonald filed as Exhibit
(10)-3 to the Company's Registration Statement on Form S-1
(Registration No. 333-1130) is hereby incorporated herein by
reference.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 160
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- -------- ----------------------------------------------------------------------- ------------
<C> <S> <C> <C>
(10)-6 -- Termination Agreement, dated as of November 29, 1995, by and between
MedPartners/Mullikin, Inc. and John S. McDonald filed as Exhibit
(10)-4 to the Company's Registration Statement on Form S-1
(Registration No. 333-1130) is hereby incorporated herein by
reference.
(10)-7 -- Employment Agreement, dated July 24, 1996, by and between MedPartners,
Inc. and Larry R. House.
(10)-8 -- Employment Agreement, dated July 24, 1996, by and between MedPartners,
Inc. and Mark L. Wagar.
(10)-9 -- Employment Agreement, dated July 24, 1996, by and between MedPartners,
Inc. and Harold O. Knight, Jr.
(10)-10 -- Employment Agreement, dated July 24, 1996, by and between MedPartners,
Inc. and Tracy P. Thrasher.
(10)-11 -- Registration Rights Agreement, dated as of November 29, 1995, among
MedPartners/Mullikin, Inc. and certain of its securityholders, filed
as Exhibit (4)-2 to the Company's Registration Statement on Form S-1
(Registration No. 333-1130) is hereby incorporated herein by
reference.
(10)-12 -- MedPartners/Mullikin, Inc. 1993 Stock Option Plan, filed as Exhibit
(4)-1 to the Company's Registration Statement on Form S-8
(Registration No. 333-00234) is hereby incorporated herein by
reference.
(10)-13 -- MedPartners/Mullikin, Inc. 1995 Stock Option Plan, as amended, filed as
Exhibit (4)-2 to the Company's Registration Statement on Form S-4
(Registration No. 333-00774) is hereby incorporated herein by
reference.
(10)-14 -- MedPartners, Inc., MedPartners Incentive Compensation Plan, filed as
Exhibit (4)-2 to the Company's Registration Statement on Form S-8
(Registration No. 333-11875) is hereby incorporated herein by
reference.
(10)-15 -- Non-Competition and Severance Agreement by and between MedPartners,
Inc. and William R. Dexheimer, dated August 31, 1993, filed as
Exhibit (10)-23 to MedPartners' Registration Statement on Form S-1
(Registration Statement No. 33-86806) is hereby incorporated by
reference.
(10)-16 -- Credit Agreement, dated September 5, 1996, by and among MedPartners,
Inc., NationsBank, National Association (South), as administrative
agent for the Lenders, The First National Bank of Chicago, as
Documentation Agent for the Lenders, and the Lenders thereto.
(10)-17 -- Amendment No. 1 to Credit Agreement and Consent, dated September 5,
1996, by and among MedPartners, Inc., NationsBank, National
Association (South), as administrative agent for the Lenders, The
First National Bank of Chicago, as Documentation Agent for the
Lenders, and the Lenders thereto.
(12) -- Statement re: Computation of Ratios.
(21) -- Subsidiaries of MedPartners, Inc.
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately following signature
pages to the Registration Statement.
(23)-2 -- Consent of Price Waterhouse LLP. See pages immediately following
signature pages to the Registration Statement.
(23)-3 -- Consent of Haskell Slaughter & Young L.L.C. (included in the opinion
filed as Exhibit (5)).
+(24) -- Powers of Attorney. See the signature page to original filing of this
Registration Statement on Form S-1.
(25) -- Statement of Eligibility of Trustee
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
DRAFT
OCTOBER 3, 1996
$450,000,000
MEDPARTNERS, INC.
___% SENIOR NOTES DUE 2006
UNDERWRITING AGREEMENT
October 3, 1996
SMITH BARNEY INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
MedPartners, Inc., a Delaware corporation (the "Company"), proposes,
upon the terms and conditions set forth herein, to issue and sell $450,000,000
aggregate principal amount of its ___% Senior Notes due 2006 (the "Notes") to
Smith Barney Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P.
Morgan Securities Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Capital Markets, Inc. (collectively, the "Underwriters"). The Notes will be
issued pursuant to the provisions of an Indenture to be dated as of October 8,
1996 (the "Indenture") between the Company and The First National Bank of
Chicago, as Trustee (the "Trustee").
<PAGE> 2
The Company wishes to confirm as follows its agreement with the
Underwriters, in connection with the several purchases by the Underwriters of
the Notes.
1. Registration Statement and Prospectus.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-1 (File No. 333-12465) under the Act (the "registration statement"),
including a prospectus subject to completion relating to the Notes. The term
"Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Notes may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. If an additional registration statement is prepared and filed with
the Commission in accordance with Rule 462(b) under the Act (an "Additional
Registration Statement"), the term "Registration Statement" as used in this
Agreement includes the Additional Registration Statement.
The term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement as supplemented by the addition of the
Rule 430A information contained in the prospectus filed with the Commission
pursuant to Rule 424(b). The term "Prepricing Prospectus" as used in this
Agreement means
2
<PAGE> 3
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to
time prior to the date of the Prospectus.
2. Agreements to Sell and Purchase. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
the Underwriters and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at a purchase price of ____% of the
principal amount thereof, the principal amount of the Notes set forth opposite
the name of such Underwriter in Schedule I hereto (or such principal amount of
Notes increased as set forth in Section 10 hereof).
3. Terms of Public Offering. The Company has been advised by the
Underwriters that the Underwriters propose to make a public offering of their
respective portions of the Notes as soon after the Registration Statement and
this Agreement have become effective as in their judgment is advisable and
initially to offer the Notes upon the terms set forth in the Prospectus.
4. Delivery of the Notes and Payment Therefor. Delivery to the
Underwriters of and payment for the Notes shall be made at the office of
Skadden, Arps, Slate Meagher & Flom, 919 Third Avenue, New York, NY 10022, at
10:00 A.M., New York City time, on October 8, 1996 (the "Closing Date"). The
place of closing for the Notes and the Closing Date may be varied by agreement
between the Underwriters and the Company.
The Notes will be delivered to the Underwriters against payment of the
purchase price therefor specified in Section 2 hereof by wire transfer to an
account previously designated to Smith Barney Inc. by the Company of Federal
(same day) funds and registered in such names and in such denominations as the
Underwriters shall request prior to 1:00 P.M., New York City time, on the
second business day preceding the Closing Date. The Notes to be delivered to
the Underwriters shall be made available to the Underwriters in New York City
for
3
<PAGE> 4
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date.
5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto or any Additional Registration Statement to be declared
effective before the offering of the Notes may commence, the Company will
endeavor to cause the Registration Statement or such post-effective amendment
to become effective as soon as possible and will advise the Underwriters
promptly and, if requested by the Underwriters, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective.
(b) The Company will advise the Underwriters promptly
and, if requested by the Underwriters, will confirm such advice in writing: (A)
of any request by the Commission for amendment of or a supplement to the
Registration Statement, any Prepricing Prospectus or the Prospectus or for
additional information; (B) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Notes for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (C) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, including the filing
of any information, documents or reports pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), that makes any statement of a
material fact made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue or which requires the making of any additions
to or changes in the Registration Statement or the Prospectus (as then amended
or
4
<PAGE> 5
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company will furnish to the Underwriters, without
charge (A) six signed copies of the registration statement as originally filed
with the Commission and of each amendment thereto, including financial
statements and all schedules and exhibits to the registration statement, (B)
such number of conformed copies of the registration statement as originally
filed and of each amendment thereto, but without exhibits, as the Underwriters
may request and (C) such number of copies of the Indenture as the Underwriters
may request.
(d) The Company will not (A) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which the Underwriters shall not previously have been advised or to which the
Underwriters shall reasonably object after being so advised or (B) so long as,
in the opinion of counsel for the Underwriters, a Prospectus is required to be
delivered in connection with sales by any Underwriter or dealer, file any
information, documents or reports pursuant to the Exchange Act, without
delivering a copy of such information, documents or reports to the
Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this
Agreement, the Company has delivered to the Underwriters, without charge, in
such quantities as the Underwriters have requested, copies of each form of the
Prepricing Prospectus. The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Notes are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the opinion of counsel for the Underwriters a prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or
5
<PAGE> 6
dealer, the Company will expeditiously deliver to each Underwriter and each
dealer, without charge, as many copies of the Prospectus (and of any amendment
or supplement thereto) as the Underwriters may request. The Company consents to
the use of the Prospectus (and of any amendment or supplement thereto) in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Notes are offered by the several
Underwriters and by all dealers to whom the Notes may be sold, both in
connection with the offering and sale of the Notes and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer. If during such period of
time any event shall occur that in the judgment of the Company or in the
opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and the Underwriters agree that
the Prospectus should be amended or supplemented, the Company, if requested by
the Underwriters, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with the Underwriters and
with counsel for the Underwriters in connection with the registration or
qualification of the Notes for offering and sale by the several Underwriters
and by dealers under the securities or Blue Sky laws of such jurisdictions as
the Underwriters may designate and will file such consents to service of
process or other documents necessary or appropriate in order to effect such
registration or qualification; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now
otherwise required to be so qualified or to take any action which would subject
it to service of process in
6
<PAGE> 7
suits, other than those arising out of the offering or sale of the Notes, in
any jurisdiction where it is not now so subject.
(h) The Company will make generally available to its
securityholders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section 11(a) of the Act.
(i) So long as any of the Notes are outstanding, the
Company will furnish to the Underwriters (A) as soon as available, a copy of
each report of the Company mailed to stockholders or Noteholders or filed with
the Commission or the New York Stock Exchange and (B) from time to time such
other information concerning the Company as the Underwriters may request.
(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 hereof or by notice given by the
Underwriters terminating this Agreement pursuant to Section 10 or Section 11
hereof) or if this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to
reimburse the Underwriters for all out-of-pocket expenses (including fees and
expenses of counsel for the Underwriters) incurred by the Underwriters in
connection herewith.
(k) The Company will apply the net proceeds from the sale
of the Notes in accordance with the description set forth in "Use of Proceeds"
in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will
advise the Underwriters of the time and manner of such filing.
(m) Except as stated in this Agreement and in the
Prepricing Prospectus and Prospectus, the Company has
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<PAGE> 8
not taken, nor will it take, directly or indirectly, any action designed to or
that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Notes to facilitate the sale or resale of the
Notes.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The execution and delivery of, and the performance by
the Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally, and by general equitable principles.
(b) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(c) The registration statement in the form in which it
became or becomes effective and also in such form as it may be when any
post-effective amendment thereto or any Additional Registration Statement shall
become effective, and the Prospectus and any supplement or amendment thereto
when filed with the Commission under Rule 424(b) under the Act, complied or
will comply in all material respects with the provisions of the Act and did not
or will not at any such times contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, except that this representation and
warranty does not apply to statements
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<PAGE> 9
in or omissions from the registration statement or the Prospectus made in
reliance upon and in conformity with (A) information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter expressly for use therein or (B) the Trustee's Statement of
Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939,
as amended (the "1939 Act").
(d) The Company has not distributed and, prior to the
later to occur of (A) the Closing Date and (B) completion of the distribution
of the Notes, will not distribute any offering material in connection with the
offering and sale of the Notes other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(e) The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as presently conducted and as disclosed in the
Registration Statement and the Prospectus, and is duly registered and qualified
to conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not and will not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries (as hereinafter defined) taken
as a whole (a "Material Adverse Effect").
(f) All the Company's subsidiaries (collectively, the
"Subsidiaries") are listed in Exhibit 21 to the Registration Statement. Each
Subsidiary that is a corporation is duly organized, validly existing and in
good standing in the jurisdiction of its incorporation, and each Subsidiary
that is a partnership, limited liability company, association or business
organization is legally formed and validly existing under the laws of the
jurisdiction of its organization. Each Subsidiary has full corporate or
organizational power and authority to own, lease and operate its properties and
to conduct its business as presently conducted. Each Subsidiary is duly
registered and qualified to conduct
9
<PAGE> 10
its business (and, if a corporation, is in good standing) in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not and will not have a Material Adverse Effect; all
the outstanding shares of capital stock of each Subsidiary that is a
corporation have been duly authorized and validly issued, are fully paid and
nonassessable, and all ownership interests in each Subsidiary that is not a
corporation have been validly created pursuant to the partnership or other
agreements or organizational documents of each such Subsidiary, and, except as
disclosed in the Prospectus, the shares or other interests owned by the Company
are owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any lien, adverse claim, security interest,
equity or other encumbrance.
(g) The Indenture has been duly and validly authorized
and, upon its execution and delivery by the Company and assuming due execution
and delivery by the Trustee, will be a valid and binding agreement of the
Company, enforceable in accordance with its terms, except to the extent that
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors' rights generally,
and by general equitable principles; and the Indenture has been duly qualified
under the 1939 Act and conforms to the description thereof in the Registration
Statement and the Prospectus.
(h) The Notes have been duly authorized and, when
executed by the Company and authenticated by the Trustee in accordance with the
Indenture and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will have been validly issued and delivered,
and will constitute valid and binding obligations of the Company entitled to
the benefits of the Indenture and enforceable in accordance with their terms,
except to the extent that enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally, and by general equitable principles; and the Notes will
conform to the description thereof in the Registration Statement and the
Prospectus.
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<PAGE> 11
(i) The authorized and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus
and all the outstanding shares of Common Stock, par value $.001 per share, of
the Company (A) have been duly authorized and validly issued, (B) are fully
paid and nonassessable, (C) are free of any preemptive or similar rights and
(D) have been issued and sold in compliance with all applicable federal and
state securities laws.
(j) Except as disclosed in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, nor
any commitment, plan or arrangement to issue, any shares of capital stock of
the Company or any security convertible into or exchangeable or exercisable for
capital stock of the Company.
(k) No holder of any security of the Company or any other
person has the right, contractual or otherwise, which right has not been fully
complied with or waived in writing by the holder thereof with evidence of such
waiver heretofore delivered to the Underwriters, (A) to cause the Company to
sell or otherwise issue to them, or to permit them to underwrite the sale of,
the Notes, (B) to have any securities of the Company included in the
registration statement or (C) as a result of the filing of the registration
statement or consummation of the transactions contemplated by this Agreement,
to require registration under the Act of any securities of the Company.
(l) There are no legal or governmental proceedings
pending or, to the knowledge of the Company, threatened, against the Company or
any of the Subsidiaries, or to which the Company or any of the Subsidiaries, or
to which any of their respective properties is subject, that are required to be
disclosed in the Registration Statement or the Prospectus but are not disclosed
as required, and there are no agreements, indentures, leases or other
instruments that are required to be disclosed in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not disclosed or filed as required by the Act.
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<PAGE> 12
(m) Neither the Company nor any of the Subsidiaries is
(A) in violation of its respective certificate or articles of incorporation or
by-laws, or other organizational documents; (B) in violation of any statute,
law, regulation, ordinance, administrative or governmental rule or regulation
applicable to the Company or any of the Subsidiaries or of any order, ruling,
judgment, injunction, order or decree of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries or any of
their respective properties; or (C) in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the Company or any of
the Subsidiaries is a party or by which any of them or any of their respective
properties may be bound, and no condition or state of facts exists, which with
the passage of time or the giving of notice or both, would constitute such a
default, except in the case of (B) and (C) above, for such violations or
defaults which, individually or in the aggregate, would not have a Material
Adverse Effect.
(n) None of the issuance, offer, sale or delivery of the
Notes, the execution, delivery or performance of this Agreement and the
Indenture by the Company, the compliance by the Company with the provisions
hereof and thereof or the consummation by the Company of the transactions
contemplated hereby and thereby (A) requires any consent, approval,
authorization or other order of, or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may be required for the registration of the Notes
under the Act, the qualification of the Indenture under the 1939 Act and
compliance with the securities or Blue Sky laws of various jurisdictions, all
of which have been or will be effected in accordance with this Agreement); (B)
conflicts or will conflict with or constitutes or will constitute a breach or
violation of, or a default under, the certificate or articles of incorporation
or by-laws, or other organizational documents, of the Company or any of the
Subsidiaries; (C) conflicts or will conflict with or constitutes or will
constitute a breach or violation of, or a default under, any agreement,
indenture, lease or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them or any of their respective
properties may be bound; (D) violates or will violate any statute, law,
regulation, ordinance, administrative or governmental rule or regulation
applicable to the Company or any of the Subsidiaries or of any order, ruling,
judgment, injunction, order or decree of any court or governmental agency or
body having jurisdiction over the Company or any of the
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<PAGE> 13
Subsidiaries or any of their respective properties; or (E) will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of them
may be bound or to which any of the property or assets of any of them is
subject.
(o) Except as disclosed under "Business--Legal
Proceedings" in the Prospectus, to the Company's knowledge, the conduct of the
business of the Company and each of the Subsidiaries as presently conducted
complies with all applicable laws, ordinances and administrative or
governmental rules or regulations applicable to the Company and each Subsidiary
and with all orders, rulings, judgments or decrees of any courts or
governmental agencies or bodies having jurisdiction over the Company and each
Subsidiary. To the Company's knowledge, each affiliated physician group,
affiliated medical group and independent practice association (as such terms
are used in the Prospectus and hereinafter referred to collectively, as the
"Affiliated Groups") is operating in material compliance with all applicable
health care laws, rules and regulations, including, without limitation, those
relating to reimbursement by government agencies and fraudulent or wrongful
billings, and no physician in an Affiliated Group is practicing in conflict
with or violation of any such laws, rules or regulations.
(p) Except as disclosed in the Prospectus, to the
Company's knowledge, none of the Company, any of the Subsidiaries, any employee
or agent of the Company or any Subsidiary or any physician in an Affiliated
Group has made any payment of funds or received or retained any funds in
violation of any law, rule or regulation, including laws and regulations
prohibiting fee-splitting or fees for the referral of patients.
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<PAGE> 14
(q) Except as disclosed in the Prospectus, to the
Company's knowledge there are no material Medicare, Medicaid, or any other
managed care recoupment or recoupments of any third-party payor being sought,
threatened, requested or claimed against the Company, any of the Subsidiaries
or to the Company's knowledge, any Affiliated Group or any physician in any
Affiliated Group.
(r) No labor dispute with the employees of the Company or
any of the Subsidiaries exists or, to the knowledge of the Company, is
imminent.
(s) All employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) established, maintained or contributed to by the Company or any of
the Subsidiaries (the "Plans") comply in all material respects with
requirements of ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"). With respect to the Plans, neither the Company nor any of the
Subsidiaries has any liability, contingent or otherwise, under ERISA or the
Code, nor does the Company expect that any such liability will be incurred,
that could, singly or in the aggregate, have a Material Adverse Effect and no
employee pension benefit plan (as defined in Section 3(2) of ERISA) has
incurred or assumed an "accumulated funding deficiency" within the meaning of
Section 302 of ERISA or has incurred or assumed any material liability (other
than for the payment of premiums) to the Pension Benefit Guaranty Corporation.
(t) The Company and each of the Subsidiaries has good and
marketable title to all property (real and personal) disclosed in the
Prospectus as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances, except such as are disclosed in the
Registration Statement and the Prospectus or in a document filed as an exhibit
to the Registration Statement and all the property disclosed in the Prospectus
as being held under lease by the Company and each of the Subsidiaries is held
by it under valid, subsisting and enforceable leases.
(u) The Company and each of the Subsidiaries, and to the
Company's knowledge, each Affiliated Group has such consents, approvals,
permits, licenses, franchises
14
<PAGE> 15
and authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its respective properties and to conduct its business as
presently conducted, subject to such qualifications as may be set forth in the
Prospectus; the Company and each of the Subsidiaries, and to the Company's
knowledge, each Affiliated Group has fulfilled and performed all of its
material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or result in any other material impairment of the rights of
the holder of any such permit, subject in each case to such qualification as
may be set forth in the Prospectus; and, except as disclosed in the Prospectus,
none of such permits contains any restriction that is materially burdensome to
the Company, any of the Subsidiaries or any Affiliated Group.
(v) The Company and the Subsidiaries own or possess all
patents, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, licenses, inventions, trade secrets and
rights disclosed in the Prospectus as being owned by them or any of them or
necessary for the conduct of their respective businesses, and the Company is
not aware of any claim to the contrary or any challenge by any other person to
the rights of the Company and the Subsidiaries with respect to the foregoing.
(w) The Company and each of the Subsidiaries, and to the
Company's knowledge, each of the Affiliated Groups is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses or professions in which they are
engaged; all policies of insurance insuring the Company and/or the Subsidiaries
or their respective businesses, assets, employees, officers and directors and
to the Company's knowledge, the Affiliated Groups are in full force and effect;
the Company and each of the Subsidiaries, and to the Company's knowledge, each
of the Affiliated Groups are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company or
any of the Subsidiaries, or to the Company's knowledge, any of the Affiliated
Groups under any such policy or instrument as to which any insurance company is
denying
15
<PAGE> 16
liability or defending under a reservation of rights clause.
(x) Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development having or which may reasonably be expected to have a Material
Adverse Effect.
(y) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific authorization; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(z) The Company and each of the Subsidiaries have duly
filed with appropriate governmental authorities all tax returns required to be
filed, which returns are complete and correct, and neither the Company nor any
Subsidiary is in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto and there is
no tax deficiency that has been asserted against the Company or any Subsidiary
that would, if adversely determined, have a Material Adverse Effect.
(aa) The financial statements, together with related
schedules and notes included in the Registration
16
<PAGE> 17
Statement and the Prospectus (and any amendment or supplement thereto), present
fairly the consolidated financial position, results of operations and changes
in financial position of the Company and the Subsidiaries on the basis stated
in the Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and notes
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; the pro forma financial statements and other pro forma financial
information included in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) present fairly the information shown therein,
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and have been properly compiled
on the pro forma bases described therein and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein; and the other financial and statistical information and data included
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company and the
Subsidiaries.
(ab) The financial statements together with related
schedules and notes included in the Registration Statement and the Prospectus
(and any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position of
Caremark International Inc., a Delaware corporation ("Caremark"), and New
Management, a California general partnership ("New Management"), on the basis
stated in the Registration Statement at the respective dates or for the
respective periods to which they apply; such statements and related schedules
and notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein.
(ac) The accountants Ernst & Young LLP who have certified
the consolidated financial statements of the
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<PAGE> 18
Company and the financial statements of New Management included in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(ad) The accountants Price Waterhouse LLP who have
certified the consolidated financial statements of Caremark included in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(ae) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of medical
wastes or hazardous substances by the Company or any of the Subsidiaries (or,
to the knowledge of the Company, any of its predecessors in interest) at, upon
or from any of the property now or previously owned or leased by the Company or
any of the Subsidiaries, in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would require remedial
action under any applicable law, ordi- nance, rule, regulation, order,
judgment, decree or permit, except for any violation or remedial action which
would not have, or could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a Material Adverse
Effect; there has been no material spill, discharge, leak, emission, injection,
escape, dumping or release of any kind onto such property or of any medical
wastes or hazardous substances due to or caused by the Company or any of the
Subsidiaries or with respect to which the Company or any of the Subsidiaries
had knowledge, except for any such spill, discharge, leak, emission, injection,
escapes, dumpings or releases which would not have or would not be reasonably
likely to have, singularly or in the aggregate with all such spills,
discharges, leaks, emissions, injections, escapes, dumpings or releases, a
Material Adverse Effect; and the terms "hazardous substances" and "medical
wastes" shall have the meanings specified in any applicable local, state,
federal and foreign laws or regulations with respect to environmental
protection.
(af) The Company is not now, and after sale of the Notes
to be sold by it hereunder and application of the net proceeds from such sale
as disclosed in the Prospectus under the caption "Use of Proceeds" will not
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<PAGE> 19
be, an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "1940 Act").
(ag) The Company has complied with all provisions of
Florida Statutes, Section 517.075, relating to issuers doing business with
Cuba.
(ah) The Company has filed all reports and other documents
required to be filed by it under the Exchange Act and each such report or
document when so filed complied in all material respects with the provisions of
the Exchange Act and the rules and regulations of the Commission thereunder.
(ai) Neither the Company nor any of the Subsidiaries (A)
employs any of the physicians in any Affiliated Group, (B) exercises any
influence or control over the practice of medicine by such physicians, or (C)
represents to the public that it offers medical services; and the Company and
each of the Subsidiaries contracts with the physicians or Affiliated Groups as
independent contractors to provide medical services and is not engaged in the
practice of medicine.
(aj) Each of the practice management agreements, currently
in effect, copies of which have been delivered to the Underwriters, has been
duly authorized, executed and delivered by the Company and each Subsidiary
which is a party to said agreement and is a valid, legal and binding agreement
of the Company and each such Subsidiary enforceable against the Company and
such Subsidiary in accordance with its terms; and the business of the Company
and the Subsidiaries as presently conducted, and the terms of each of the
Practice Management Agreements and the performance thereof by the Company and
the Subsidiaries which are party thereto, do not violate any statute,
administrative or governmental rule or regulation applicable to the Company or
such Subsidiaries or laws prohibiting the corporate practice of medicine,
fee-splitting or fees for the referral of patients, or any orders, rulings,
judgments or decrees of any courts or governmental agencies or bodies having
jurisdiction over the Company and/or the Subsidiaries.
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<PAGE> 20
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, and the agents, employees, officers and directors of each
Underwriter and each such controlling person, from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or
in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through the Underwriters expressly
for use in connection therewith; provided, however, that the indemnification
contained in this paragraph (a) with respect to any Prepricing Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter or any agent, employee, officer or director of
such Underwriter or such controlling person) on account of any such loss,
claim, damage, liability or expense arising from the sale of the Notes by such
Underwriter to any person if a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
regulations thereunder, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Prepricing
Prospectus was corrected in the Prospectus, provided that the Company has
delivered the Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
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<PAGE> 21
(b) If any action, suit or proceeding shall be brought
against any person (the "indemnified party") entitled to indemnification
pursuant to the preceding paragraph in respect of which indemnity may be sought
against the Company pursuant to the provisions of the preceding paragraph, such
indemnified party shall promptly notify the party or parties against whom
indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such indemnified party shall
have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (A)
the indemnifying parties have agreed in writing to pay such fees and expenses,
(B) the indemnifying parties have failed to assume the defense and employ
counsel, or (C) the named parties to any such action, suit or proceeding
(including any impleaded parties) include both such indemnified party and the
indemnifying parties and such indemnified party shall have been advised by its
counsel that representation of such indemnified party and any indemnifying
party by the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the indemnifying party shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such indemnified
party). It is understood, however, that the indemnifying parties shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
indemnified parties not having actual or potential differing interests with the
Underwriters or among themselves, which firm shall be designated in writing by
Smith Barney Inc., and that all such fees and expenses shall be reimbursed as
they are incurred. The indemnifying parties shall not be liable for any
settlement of any such action, suit or proceeding effected without their
written consent, but if settled
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<PAGE> 22
with such written consent, or if there be a final judgment for the plaintiff in
any such action, suit or proceeding, the indemnifying parties agree to
indemnify and hold harmless any indemnified party, to the extent provided in
the preceding paragraph, from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, and any person who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and
the agents and employees of the Company and each such controlling person, to
the same extent as the foregoing indemnity from the Company to each
Underwriter, but only with respect to information relating to such Underwriter
furnished in writing by or on behalf of such Underwriter through the
Underwriters expressly for use in the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto. If any
action, suit or proceeding shall be brought against the Company, any of its
directors, any such officer, or any such controlling person or any agent or
employee of the Company or any such controlling person, based on the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such Underwriter's
expense), and the Company, any of its directors, any such officer, and any such
controlling person, and any agents and employees of the Company and each such
controlling person, shall have the rights and duties given to the Underwriters
by paragraph (b) above.
(d) If the indemnification provided for in this Section 7
is unavailable to a party entitled to indemnification under paragraphs (a) or
(c) hereof in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then an indemnifying party,
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<PAGE> 23
in lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (A) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Notes, or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of the Company on
the one hand and the Underwriters on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company on
the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating
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any claim or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total principal amount of the
Notes underwritten by it and distributed to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective principal amounts of Notes set forth opposite their names in
Schedule I hereto (or such principal amounts of Notes increased as set forth in
Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (A) any
investigation made by or on behalf of any indemnified party, the Company, its
directors and officers, and any person who controls the Company, and the agents
and employees of the Company and each such controlling person, (B) acceptance
of any Notes and payment therefor hereunder, and (C) any termination of this
Agreement. A successor to any indemnified party, or to the Company, its
directors and officers, and any person who controls
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<PAGE> 25
the Company, and the agents and employees of the Company and each such
controlling person shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Notes hereunder are subject to
the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or an Additional Registration Statement to be declared
effective before the offering of the Notes may commence, the registration
statement or such post-effective amendment or Additional Registration Statement
shall have become effective not later than 5:30 P.M., New York City time, on
the date hereof, or at such later date and time as shall be consented to in
writing by the Underwriters, and all filings, if any, required by Rules 424 and
430A under the Act shall have been timely made; no stop order suspending the
effectiveness of the registration statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request
of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to the Underwriters satisfaction.
(b) Subsequent to the effective date of this Agreement,
there shall not have occurred (A) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company or the Subsidiaries not contemplated by the Prospectus, which in the
Underwriters' opinion would materially adversely affect the market for the
Notes, or (B) any event or development relating to or involving the Company or
any officer or director of the Company which makes any statement made in the
Prospectus untrue or which, in the opinion of the Company and its counsel or
the Underwriters and their counsel, requires the making of any addition to or
change in the Prospectus in order to state a material fact required by the Act
or any other law to be stated therein or necessary in order to make
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<PAGE> 26
the statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in the opinion of the
Underwriters materially adversely affect the market for the Notes.
(c) The Underwriters shall have received on the Closing
Date an opinion of Haskell Slaughter & Young, L.L.C., special counsel for the
Company, dated the Closing Date and addressed to the Underwriters to the effect
that:
(i) The Company is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of Delaware with full corporate power and authority to own, lease and operate
its properties and to conduct its business as presently conducted and as
disclosed in the Registration Statement and the Prospectus, and is duly
registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not and will not have a Material Adverse
Effect;
(ii) To the best knowledge of such counsel,
after reasonable inquiry, the Company has no subsidiaries other than the
Subsidiaries. Each Significant Subsidiary (as defined in Schedule II hereto) is
duly organized, validly existing and in good standing in the jurisdiction of
its incorporation, if a corporation, and is legally formed and validly existing
under the laws of the jurisdiction of its organization, if a partnership,
limited liability company, association or business organization, with full
corporate or organizational power and authority to own, lease and operate its
properties and to conduct its business as presently conducted. Each Significant
Subsidiary is duly registered and qualified to conduct its business (and, if a
corporation, is in good standing) in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not and will not have a Material Adverse Effect; all the
outstanding shares of capital stock of each Significant Subsidiary that is a
corporation have been duly authorized and validly issued, are fully paid
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<PAGE> 27
and nonassessable, and all ownership interests in each Significant Subsidiary
that is not a corporation have been validly created pursuant to the partnership
or other agreements or organizational documents of each such Significant
Subsidiary, and, except as disclosed in the Prospectus, the shares or other
interests owned by the Company are owned by the Company directly, or indirectly
through one of the other Subsidiaries, free and clear of any lien, adverse
claim, security interest, equity or other encumbrances;
(iii) The Indenture has been duly and validly
authorized, executed and delivered by the Company and assuming due execution
and delivery by the Trustee, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except to the extent that enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally, and by general
equitable principles; and the Indenture has been duly qualified under the 1939
Act and conforms in all material respects to the description thereof in the
Registration Statement and the Prospectus;
(iv) The Notes have been duly authorized and
executed by the Company and, assuming due authentication of the Notes by the
Trustee in accordance with the Indenture, upon delivery to the Underwriters
against payment therefor in accordance with the terms hereof, have been validly
issued and delivered, and will constitute valid and binding obligations of the
Company entitled to the benefits of the Indenture and enforceable in accordance
with their terms, except to the extent that enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights generally, and by general equitable principles;
and the Notes conform in all material respects to the description thereof in
the Registration Statement and the Prospectus;
(v) To the best knowledge of such counsel, no
holder of any security of the Company or any other person has the right,
contractual or otherwise, which right has not been fully complied with or
waived in writing by the holder thereof, (A) to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, the
Notes, (B) to have any
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<PAGE> 28
securities of the Company included in the registration statement or (C) as a
result of the filing of the registration statement, to require registration
under the Act of any securities of the Company;
(vi) The Company has full corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder, including to issue, sell and deliver the Notes to be sold by it to
the Underwriters as provided herein, and this Agreement has been duly and
validly authorized, executed and delivered by the Company and is a legal, valid
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforcement of rights to indemnity and
contribution hereunder may be limited by federal or state securities laws or
principles of public policy and subject to the qualification that the
enforceability of the Company's obligations hereunder may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights generally, and by general equitable principles;
(vii) No consent, approval, authorization or
other order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official is
required on the part of the Company (except as have been obtained under the
Act, the Exchange Act or the 1939 Act, and such as may be required under state
securities or Blue Sky laws governing the purchase and distribution of the
Notes) for the valid issuance and sale of the Notes to the Underwriters as
contemplated by this Agreement or the performance by the Company of its other
obligations hereunder;
(viii) None of the issuance, offer, sale or
delivery of the Notes, the execution, delivery or performance of this Agreement
or the Indenture by the Company, the compliance by the Company with the
provisions hereof and thereof or the consummation by the Company of the
transactions contemplated hereby and thereby (A) conflicts or will conflict
with, or constitutes or will constitute a breach or violation of, or a default
under, the certificate or articles of incorporation or by-laws, or other
organizational documents, of the Company or any of the Significant
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<PAGE> 29
Subsidiaries; (B) conflicts or will conflict with or constitutes or will
constitute a breach or violation of, or a default under, any agreement,
indenture, lease or other instrument to which the Company or any of the
Significant Subsidiaries is a party or by which any of them or any of their
respective properties is bound that is an exhibit to the Registration
Statement, or is known to such counsel after reasonable inquiry; (C) violates
or will violate any statute, law, regulation, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Significant Subsidiaries (assuming compliance with all applicable state
securities and Blue Sky laws) or of any order, ruling, judgment, injunction,
order or decree of any court or governmental agency or body having jurisdiction
over the Company or any of the Significant Subsidiaries or any of their
respective properties; or (D) will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
of the Significant Subsidiaries pursuant to the terms of any agreement or
instrument that is an exhibit to the Registration Statement, or is known to
such counsel after reasonable inquiry;
(ix) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the Significant Subsidiaries
is (A) in violation of its respective certificate or articles of incorporation
or by-laws, or other organizational documents; (B) except as disclosed under
"Business--Legal Proceedings" in the Prospectus, in violation of any statute,
law, regulation, ordinance, administrative or governmental rule or regulation
applicable to the Company or any of the Significant Subsidiaries or of any
order, ruling, judgment, injunction, order or decree of any court or
governmental agency or body having jurisdiction over the Company or any of the
Significant Subsidiaries or any of their respective properties; or (C) in
default in any material respect in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other instrument
to which the Company or any of the Significant Subsidiaries is a party or by
which any of them or any of their respective properties may be bound, and no
condition or state of facts exists, which with the passage of time or the
giving of notice or both, would
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<PAGE> 30
constitute such a default, except in the case of (B) and (C) above, for such
violations or defaults which, individually or in the aggregate, would not have
a Material Adverse Effect;
(x) (A) The business of the Company as
disclosed in the Prospectus, and the terms of each Practice Management
Agreement and the consummation thereof by the Company and the Significant
Subsidiaries who are parties thereto do not violate, and (B) to the best
knowledge of such counsel after reasonable inquiry, neither the Company nor the
Significant Subsidiaries is in violation of, any health care statute,
administrative or governmental rule or regulation of the United States of
America applicable to the Company or any of the Significant Subsidiaries,
including, but not limited to 42 U.S.C. Section 1395nn; 42 U.S.C. Section
1396b(s); 42 U.S.C. Section 1320a-7b(b), or any health care judgment,
injunction, order or decree of any court or government entity or
instrumentality of the United States of America having jurisdiction over the
Company or any of the Significant Subsidiaries;
(xi) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the Significant Subsidiaries
is in violation of any health care statute, law, ordinance, decree,
administrative or governmental rule or regulation applicable to the Company
or any of the Significant Subsidiaries, including, without limitation, those
relating to reimbursement by government agencies and fraudulent or wrongful
billings;
(xii) To the best knowledge of such counsel after
reasonable inquiry, except as disclosed in the Prospectus, neither the Company
nor any of the Significant Subsidiaries nor any employee or agent of the
Company or any Significant Subsidiary has made any payment of funds or received
or retained any funds in violation of any law, rule or regulation, including,
without limitation, any law, rule or regulation prohibiting fee-splitting or
fees for the referral of patients;
(xiii) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of the Significant Subsidiaries
(A) employs any of
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<PAGE> 31
the physicians in any Affiliated Group, (B) exercises any influence or control
over the practice of medicine by such physicians, or (C) represents to the
public that it offers medical services; and the Company and each of the
Significant Subsidiaries contracts with the physicians or Affiliated Groups as
independent contractors to provide medical services and is not engaged in the
practice of medicine;
(xiv) Each practice management agreement has been
duly authorized, executed and delivered by the Company and each Significant
Subsidiary which is a party thereto and is a valid, legal and binding agreement
of the Company and each such Significant Subsidiary, enforceable against the
Company and such Significant Subsidiary in accordance with its terms, subject
to the qualification that the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally and by general equitable principles;
and, except as described under "Business--Legal Proceedings" in the
Prospectus, to the best knowledge of such counsel, the business of the Company
and the Significant Subsidiaries as presently conducted, and the terms of each
Practice Management Agreement and the performance thereof by the Company and
the Significant Subsidiaries which are party thereto, do not violate any
statute, administrative or governmental rule or regulation applicable to the
Company or such Significant Subsidiaries or laws prohibiting the corporate
practice of medicine, fee-splitting or fees for the referral of patients, or
any ruling, judgment, injunction, order or decree of any court or government
entity or instrumentality having jurisdiction over the Company and/or the
Significant Subsidiaries;
(xv) To the best knowledge of such counsel,
there are no legal or governmental proceedings pending or threatened, against
the Company or any of the Significant Subsidiaries, or to which the Company or
any of the Significant Subsidiaries, or to which any of their respective
properties is subject, that are required to be disclosed in the Registration
Statement or the Prospectus but are not disclosed as required;
(xvi) To the best knowledge of such counsel, (A)
the Company and each of the Significant
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<PAGE> 32
Subsidiaries is duly licensed or authorized in each jurisdiction where it is
required to be so licensed or authorized to conduct its respective businesses;
the Company and each of the Significant Subsidiaries has all other necessary
consents, approvals, permits, licenses, franchises and authorizations of and
from all regulatory authorities to conduct its respective businesses as
presently conducted and to perform its respective obligations under each
Practice Management Agreement, and (B) neither the Company nor any of the
Significant Subsidiaries has received any notification from any regulatory
authority, including, without limitation, any health care regulatory authority,
to the effect that any additional approval is required to be obtained by the
Company or any of the Significant Subsidiaries;
(xvii) Except as disclosed in the Prospectus, to
the best knowledge of such counsel, the Company and the Significant
Subsidiaries own all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights disclosed in the Prospectus as being owned
by them or any of them or necessary for the conduct of their respective
businesses, and such counsel is not aware of any claim to the contrary or any
challenge by any other person to the rights of the Company and the Significant
Subsidiaries with respect to the foregoing;
(xviii) The statements in the Registration
Statement and Prospectus insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(xix) Such counsel does not know of any
agreements, indentures, leases or other instruments required to be disclosed in
the Registration Statement or the Prospectus (or any amendment or supplement
thereto) or to be filed as an exhibit to the Registration Statement that are
not so disclosed or filed as required by the Act, and such agreements,
indentures, leases or other instruments as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material respects;
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(xx) The Registration Statement and the
Prospectus and any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other financial and
statistical data included therein and the Statement of Eligibility on Form T-1,
as to which such counsel need not express any opinion) comply as to form in all
material respects with the requirements of the Act;
(xxi) The Registration Statement and all
post-effective amendments and Additional Registration Statements, if any, have
become effective under the Act and, to the best knowledge of such counsel after
reasonable inquiry, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose are
pending before or contemplated by the Commission; and any required filing of
the Prospectus pursuant to Rule 424(b) has been made in accordance with Rule
424(b);
(xxii) The Company has filed all reports and other
documents required to be filed by it under the Exchange Act and each such
report or document when so filed complied in all material respects with the
provisions of the Exchange Act and the rules and regulations of the Commission
thereunder; and
(xxiii) The Company is not, and after the sale of
the Notes and the application of the net proceeds therefrom as disclosed in the
Prospectus under the caption "Use of Proceeds" will not be, an "investment
company" within the meaning of the 1940 Act.
In addition, such counsel shall state that they have participated in
the preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof, and nothing has come to the
attention of such counsel that has caused them to believe that the Registration
Statement at the time the Registration Statement became or becomes effective
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or any
amendment or supplement to the Prospectus, as of their respective dates, and as
of the Closing Date contained or contains any untrue statement of a material
fact or omitted or omits to state a material
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fact necessary in order to make the statements therein, in the light of the
circumstances under which they were or are made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and the notes thereto and the schedules and other
financial and statistical data included in the Registration Statement or the
Prospectus or with respect to the Statement of Eligibility on Form T-1).
In rendering their opinion as aforesaid, such counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the United States
and the States of Delaware and Alabama, provided that (A) each such local
counsel is acceptable to the Underwriters, (B) such reliance is expressly
authorized by each opinion so relied upon and a copy of each such opinion is
delivered to the Underwriters and is in form and substance satisfactory to them
and their counsel, and (C) counsel shall state in their opinion that they
believe that they and the Underwriters are justified in relying thereon.
(d) The Underwriters shall have received on the Closing
Date an opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for the
Underwriters, dated the Closing Date and addressed to the Underwriters with
respect to certain of the matters referred to in clauses (v), (vi), (ix),
(xxiii) and (xxiv) of paragraph (c) of this Section 8 and the penultimate
paragraph of paragraph (c) of this Section 8 and such other related matters as
the Underwriters may request.
(e) The Underwriters shall have received letters
addressed to the Underwriters and dated the date hereof and the Closing Date
from Ernst & Young LLP and Price Waterhouse LLP, independent certified public
accountants, substantially in the forms heretofore approved by the
Underwriters.
(f)(A) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to
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<PAGE> 35
the Closing Date; (B) there shall not have been any change in the capital stock
of the Company or any material increase in the short-term or long-term debt of
the Company (other than in the ordinary course of business) from that set forth
or contemplated in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); (C) there shall not have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), any material adverse change in the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole; (D) the
Company and the Subsidiaries shall not have any liabilities or obligations,
direct or contingent (whether or not in the ordinary course of business), that
are material to the Company and the Subsidiaries, taken as a whole, other than
those reflected in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); and (E) all the representations and
warranties of the Company contained in this Agreement shall be true and correct
on and as of the date hereof and on and as of the Closing Date as if made on
and as of the Closing Date, and the Underwriters shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to the Underwriters), to the effect set forth in this Section 8(f)
and in Section 8(g) hereof.
(g) There shall not have been any announcement by any
"nationally recognized statistical rating organization", as defined for
purposes of Rule 436(g) under the Act, that (A) it is downgrading its rating
assigned to any class of securities of the Company, or (B) it is reviewing its
rating assigned to any class of securities of the Company with a view to
possible downgrading, or with negative implications, or direction not
determined.
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required
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<PAGE> 36
to be performed or complied with by it hereunder at or prior to the Closing
Date.
(i) The Company shall have furnished or caused to be
furnished to the Underwriters such further certificates and documents as the
Underwriters shall have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to the Underwriters and counsel to the Underwriters.
Any certificate or document signed by any officer of the Company and
delivered to the Underwriters, or to counsel for the Underwriters, shall be
deemed a representation and warranty by the Company to each Underwriter as to
the statements made therein.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (A) the preparation, printing (or reproduction), and
filing with the Commission of the registration statement (including the
financial statements and exhibits thereto), each Prepricing Prospectus, the
Prospectus, and each amendment or supplement to any of them, this Agreement,
the Indenture and the Statement of Eligibility and Qualification of the
Trustee; (B) the printing (or reproduction) and delivery (including postage,
air freight charges and charges for counting and packaging) of such copies of
the Registration Statement, each Prepricing Prospectus, the Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Notes; (C) the preparation,
printing, authentication, issuance and delivery of certificates for the Notes,
including any stamp taxes in connection with the original issuance and sale of
the Notes; (D) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Notes; (E) the registration or qualification of the Notes for offer and
sale under the securities or Blue Sky laws of the several
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<PAGE> 37
states as provided in Section 5(g) hereof (including the reasonable fees,
expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing (or reproduction), and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification); (F)
the filing fees and the fees and expenses of counsel for the Underwriters in
connection with any filings required to be made with the National Association
of Securities Dealers, Inc.; (G) the transportation and other expenses incurred
by or on behalf of representatives of the Company and its representatives in
connection with presentations to prospective purchasers of the Notes; (H) the
fees and expenses of the Trustee; (I) the fees and expenses associated with
obtaining ratings for the Notes from nationally recognized statistical rating
organizations; (J) the fees and expenses of the Company's accountants; and (K)
the fees and expenses of counsel (including local and special counsel) for the
Company.
10. Effective Date of Agreement. This Agreement shall become
effective: (A) upon the execution and delivery hereof by the parties hereto; or
(B) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Notes may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying the Underwriters, or by the Underwriters by notifying the
Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Notes which it or they have agreed to purchase hereunder, and the
aggregate principal amount of the Notes which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate principal amount of Notes, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the
aggregate principal amount of Notes set forth opposite its name in Schedule I
hereto bears to the aggregate principal amount of Notes set forth opposite the
names of all non-defaulting Underwriters or in such other proportion as the
Underwriters may specify in accordance
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<PAGE> 38
with Section 20 of the Master Agreement Among Underwriters of Smith Barney,
Harris Upham & Co. Incorporated (predecessor to Smith Barney Inc.), to purchase
the Notes which such defaulting Underwriter or Underwriters agreed, but failed
or refused, to purchase. If any Underwriter or Underwriters shall fail or
refuse to purchase Notes and the aggregate principal amount of Notes with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of Notes and arrangements satisfactory to the Underwriters and
the Company for the purchase of such Notes are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of
any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either the Underwriters or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in absolute discretion of the Underwriters, without liability on
the part of any Underwriter to the Company, by notice to the Company, if prior
to the Closing Date (A) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market shall have
been suspended or materially limited, (B) a general moratorium on commercial
banking activities in New York shall have been declared by either Federal or
state authorities, or (C) there shall have occurred any outbreak or escalation
of hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in the
Underwriters' judgment, impracticable or inadvisable to commence or continue
the offering of the Notes at the offering price to the public
38
<PAGE> 39
set forth on the cover page of the Prospectus or to enforce contracts for the
resale of the Notes by the Underwriters. Notice of such termination may be
given to the Company by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of any Underwriter
through the Underwriters as such information is referred to in Sections 6(b)
and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (A) if to the Company, at the office of
the Company at 3000 Galleria Tower, Suite 1000, Birmingham, AL 35244,
Attention: Larry R. House and J. Brooke Johnston, Jr., Esq., with a copy to
Haskell Slaughter & Young, LLC, 1200 AmSouth/Harbert Plaza, 1901 Sixth Avenue
North, Birmingham, AL 35203, Attention: Robert E. Lee Garner, Esq. and F.
Hampton McFadden, Jr., Esq. and (B) if to the Underwriters, care of Smith
Barney Inc., 388 Greenwich Street, New York, NY 10013, Attention: Manager,
Investment Banking Division, with a copy to Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, NY 10022, Attention: Phyllis G. Korff, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Underwriter of any of the Notes in
his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed
by and construed in accordance with the
39
<PAGE> 40
laws of the State of New York applicable to contracts made and to be performed
within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
40
<PAGE> 41
Please confirm that the foregoing correctly sets forth the agreement
among the Company and the several Underwriters.
Very truly yours,
MEDPARTNERS, INC.
By:
-----------------------
President and Chief
Executive Officer
Confirmed as of the date first
above mentioned.
SMITH BARNEY INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
J.P. MORGAN SECURITIES INC.
MORGAN STANLEY & CO. INCORPORATED
NATIONSBANC CAPITAL MARKETS, INC.
By SMITH BARNEY INC.
By:
------------------------
Managing Director
<PAGE> 42
SCHEDULE I
MEDPARTNERS, INC.
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Notes
----------------
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Morgan Stanley & Co. Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NationsBanc Capital Markets, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $450,000,000
============
</TABLE>
<PAGE> 43
SCHEDULE II
MEDPARTNERS, INC.
SIGNIFICANT SUBSIDIARIES
MP of Delaware, Inc.
MedPartners of Florida, Inc.
MedPartners Acquisition Corp. (MAC)
Pacific Physician Services, Inc.
Team Health, Inc.
Caremark International Inc.
Caremark Inc.
Caremark Physician Services Inc.
Friendly Hills Healthcare Network Inc.
KP-PSI of Texas L.P.
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MEDPARTNERS/MULLIKIN, INC.
MEDPARTNERS/MULLIKIN, INC., a corporation organized and existing under
and by virtue of the Delaware General Corporation Law ("DGCL"), does hereby
certify that:
The present name of the corporation is MedPartners/Mullikin, Inc. (the
"Corporation"), which is the name under which the Corporation was originally
incorporated;
The date of filing of the original Certificate of Incorporation of the
Corporation with the Delaware Secretary of State was August 14, 1995;
The date of filing of the Restated Certificate of Incorporation of the
Corporation with the Delaware Secretary of State was November 29, 1995; and
The date of filing of the Certificate of Correction of Restated
Certificate of Incorporation of the Corporation with the Delaware Secretary of
State was May 13, 1996.
The Restated Certificate of Incorporation of the Corporation is hereby
amended by striking out the first paragraph of Article IV thereof and by
substituting in lieu thereof a new first paragraph of Article IV, which is set
forth in the Second Amended and Restated Certificate of Incorporation
hereinafter provided for.
The provisions of the Certificate of Incorporation, as heretofore
amended and/or supplemented, and as herein amended, are hereby restated and
integrated into the single instrument which is hereinafter set forth, and which
is entitled Second Amended and Restated Certificate of Incorporation of
MedPartners/Mullikin, Inc. without any further amendment other than the
amendment herein certified and without any discrepancy between the provisions
of the Certificate of Incorporation as heretofore amended and supplemented and
the provisions of the said single instrument hereinafter set forth.
The Board of Directors of the Corporation adopted a resolution
proposing and declaring advisable an amendment to the Restated Certificate of
Incorporation in accordance with the provisions of Section 242 of the DGCL.
The amendment to the Restated Certificate of Incorporation was duly adopted by
the stockholders in accordance with the provisions of Section 242 of the DGCL.
The Board of Directors of the Corporation then duly adopted this Second Amended
and Restated Certificate of Incorporation pursuant to the provisions of Section
245 of the DGCL in the form set forth as follows:
ARTICLE I
The name of the Corporation is MedPartners/Mullikin, Inc.
<PAGE> 2
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is The Prentice-Hall Corporation System, Inc. at 1013 Centre Road, in
the City of Wilmington, County of New Castle. The Registered Agent in charge
thereof is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The purposes of the Corporation are to engage in any lawful act or
activity for which corporations may be organized under the DGCL, including but
not limited to the following:
SECTION 3.1 To engage in any lawful act or activity for which
corporations may be organized under the DGCL;
SECTION 3.2 To manufacture, purchase or otherwise acquire, invest
in, own, mortgage, pledge, sell, assign and transfer or otherwise dispose of,
trade, deal in and deal with goods, wares and merchandise and personal property
of every class and description;
SECTION 3.3 To acquire, and pay for in cash, stock or bonds of this
Corporation or otherwise, the goodwill, rights, assets and property, and to
undertake or assume the whole or any part of the obligations or liabilities of
any person, firm, association or corporation;
SECTION 3.4 To acquire, hold, use, sell, assign, lease, grant
licenses in respect of, mortgage or otherwise dispose of letters patent of the
United States or any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, copyrights, trademarks and trade names,
relating to or useful in connection with any business of this Corporation;
SECTION 3.5 To acquire by purchase, subscription or otherwise, and
to receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage,
pledge or otherwise dispose of or deal in and with any of the shares of the
capital stock, or any voting trust certificates in respect of the shares of
capital stock, scrip, warrants, rights, bonds, debentures, notes, trust
receipts, and other securities, obligations, choses in action and evidences of
indebtedness or interest issued or created by any corporations, joint stock
companies, syndicates, associations, firms, trusts or persons, public or
private, or by the government of the United States of America, or by any
foreign government, or by any state, territory, province, municipality or other
political subdivision or by any governmental agency, and as owner thereto to
possess and exercise all the rights, powers and privileges of ownership,
including the right to execute consents and vote thereon, and to do any and all
acts and things necessary or advisable for the preservation, protection,
improvement and enhancement in value thereof;
SECTION 3.6 To borrow or raise money for any of the purposes of the
Corporation and, from time to time without limit as to amount, to draw, make,
accept, endorse, execute and issue promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness, and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole
2
<PAGE> 3
or any part of the property of the Corporation, whether at the time owned or
thereafter acquired, and to sell, pledge or otherwise dispose of such bonds or
other obligations of the Corporation for its corporate purposes;
SECTION 3.7 To purchase, receive, take by grant, gift, devise,
bequest or otherwise, lease, or otherwise acquire, own, hold, improve, employ,
use and otherwise deal in and with real or personal property, or any interest
therein, wherever situated, and to sell, convey, lease, exchange, transfer or
otherwise dispose of, or mortgage or pledge, all or any of the Corporation's
property and assets, or any interest therein, wherever situated; and
SECTION 3.8 In general, to possess and exercise all the powers and
privileges granted by the DGCL or by any other law of Delaware or by this
Certificate of Incorporation together with any powers incidental thereto, so
far as such powers and privileges are necessary or convenient to the conduct,
promotion or attainment of the business or purposes of the Corporation.
SECTION 3.9 The business and purposes specified in the foregoing
clauses shall, except where otherwise expressed, be in nowise limited or
restricted by reference to, or inference from, the terms of any other clause in
this Certificate of Incorporation, but the business and purposes specified in
each of the foregoing clauses of this Article shall be regarded as an
independent business and purpose.
ARTICLE IV
SECTION 4.1 AUTHORIZATION OF CAPITAL. The total number of shares
of all classes of capital stock which the Corporation shall have authority to
issue is two hundred ten million (210,000,000) shares, comprised of (a) two
hundred million (200,000,000) shares of Common Stock, with a par value of $.001
per share; (b) five hundred thousand (500,000) shares of Series C Junior
Participating Preferred Stock (the "Series C Preferred Stock"), with a par
value of $.001 per share; and (c) nine million five hundred thousand
(9,500,000) shares of such other Preferred Stock, with a par value of $.001 per
share, as the Board of Directors may decide to issue pursuant to Section 4.3,
which constitutes a total authorized capital of all classes of capital stock of
Two Hundred Ten Thousand Dollars ($210,000.00).
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers, relative, participating, optional or
other special rights and privileges, and the qualifications, limitations and
restrictions of the Series C Preferred Stock, such other Preferred Stock as the
Board of Directors may by resolution or resolutions decide to issue, and the
Common Stock are as follows:
SECTION 4.2 SERIES C PREFERRED STOCK.
(a) Voting Rights. The holders of shares of Series C
Preferred Stock shall have the following voting rights:
3
<PAGE> 4
(1) Subject to the provisions for adjustment
hereinafter set forth, each share of Series C Preferred Stock shall entitle the
holder thereof to one hundred (100) votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (as defined in subsection 4.2(b)) (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series C Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(2) Except as otherwise provided herein or by law,
the holders of shares of Series C Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(3) (A) If at any time dividends on any Series
C Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series C
Preferred Stock then outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of Preferred Stock
(including holders of the Series C Preferred Stock) with dividends in arrears
in an amount equal to six (6) quarterly dividends thereon, voting as a class
irrespective of series, shall have the right to elect two (2) Directors.
(B) During any default period, such voting
right of the holders of Series C Preferred Stock may be exercised initially at
a special meeting called pursuant to subsection 4.2(a)(3)(C) or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders,
provided that such voting right shall not be exercised unless the holders of
ten percent (10%) in number of shares of Series C Preferred Stock outstanding
shall be present in person or by proxy. The absence of a quorum of the holders
of Common Stock shall not affect the exercise by the holders of Series C
Preferred Stock of such voting right. At any meeting at which the holders of
Series C Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as a class, to elect
Directors to fill such vacancies, if any, in the Board of Directors as may then
exist up to two (2) Directors or, if such right is exercised at an annual
meeting, to elect two (2) Directors. If the number which may be so elected at
any special meeting does not amount to the required number, the holders of the
Series C Preferred Stock shall have the right to make such increase in the
number of Directors as shall be necessary to permit the election by them of the
required number. After the holders of the Series C Preferred Stock shall have
exercised their right to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Series C Preferred Stock as herein
provided or pursuant to the rights of any equity securities ranking senior to
or pari passu with the Series C Preferred Stock.
4
<PAGE> 5
(C) Unless the holders of Series C
Preferred Stock shall, during an existing default period, have previously
exercised their right to elect Directors, the Board of Directors may order, or
any stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Series C Preferred Stock
outstanding, irrespective of series, may request, the calling of a special
meeting of the holders of Series C Preferred Stock, which meeting shall
thereupon be called by the President, a Vice President or the Secretary of the
Corporation. Notice of such meeting and of any special meeting at which
holders of Series C Preferred Stock are entitled to vote pursuant to this
subsection 4.2(a)(3)(C) shall be given to each holder of record of Series C
Preferred Stock by mailing a copy of such notice to him at his last address as
the same appears on the books of the Corporation. Such meeting shall be called
for a time not earlier than twenty (20) days and not later than sixty (60) days
after such order or request or, in default of the calling of such meeting
within sixty (60) days after such order or request, such meeting may be called
on similar notice by any stockholder or stockholders owning in the aggregate
not less than ten percent (10%) of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this subsection
4.2(a)(3)(C), no such special meeting shall be called during the period within
sixty (60) days immediately preceding the date fixed for the next annual
meeting of the stockholders.
(D) In any default period, the holders of
Common Stock, and other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of Directors until the
holders of Series C Preferred Stock shall have exercised their right to elect
two (2) Directors voting as a class, after the exercise of which right (x) the
Directors so elected by the holders of Series C Preferred Stock shall continue
in office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in subsection 4.2(a)(3)(B) hereof) be filled
by vote of a majority of the remaining Directors theretofore elected by the
holders of the class of stock which elected the Director whose office shall
have become vacant. References in this Section 4.2(a)(3)(D) to Directors
elected by the holders of a particular class of stock shall include Directors
elected by such Directors to fill vacancies as provided in clause (y) of the
foregoing sentence.
(E) Immediately upon the expiration of a
default period, (x) the right of the holders of Series C Preferred Stock as a
class to elect Directors shall cease, (y) the term of any Directors elected by
the holders of Series C Preferred Stock as a class shall terminate, and (z) the
number of Directors shall be such number as may be provided for in this
Certificate of Incorporation or the Bylaws of the Corporation, irrespective of
any increase made pursuant to the provisions of subsection 4.2(a)(3)(B) hereof
(such number being subject, however, to change thereafter in any manner
provided by law or in the Certificate of Incorporation or Bylaws). Any
vacancies in the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of the remaining
Directors.
(4) Except as set forth herein, holders of Series C
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
5
<PAGE> 6
(b) Dividends and Distribution.
(1) The holders of shares of Series C Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purposes, quarterly dividends
payable in cash on the last day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series C Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a)
$.001 or (b) subject to the provision for adjustment hereinafter set forth, one
hundred (100) times the aggregate per share amount of all cash dividends, and
one hundred (100) times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series C Preferred Stock. In the event the
Corporation shall, at any time after November 10, 1994 (the "Rights Declaration
Date"), (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series C Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(2) The Corporation shall declare a dividend or
distribution on the Series C Preferred Stock as provided in subsection
4.2(b)(1) hereof immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $.001 per share on the Series C Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date.
(3) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series C Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
C Preferred Stock, unless the date of issue of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is
a date after the record date for the determination of holders of shares of
Series C Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series C Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series C Preferred Stock entitled
6
<PAGE> 7
to receive payment of a dividend or distribution declared thereon, which
record date shall be no more than thirty (30) days prior to the date fixed for
the payment thereof.
(c) Restrictions.
(1) Whenever quarterly dividends or other dividends
or distributions payable on the Series C Preferred Stock as provided in
subsection 4.2(b) hereof are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of
Series C Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(A) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series C Preferred Stock;
(B) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series C
Preferred Stock, except dividends paid ratably on the Series C Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled;
(C) redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series C
Preferred Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series C Preferred Stock; or
(D) purchase or otherwise acquire for
consideration any shares of Series C Preferred Stock, or any shares of stock
ranking on a parity with the Series C Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(2) The Corporation shall not permit any subsidiary
of the Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
subsection 4.2(c)(1) hereof, purchase or otherwise acquire such shares at such
time and in such manner.
(d) Reacquired Shares. Any shares of Series C Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall, upon their cancellation, become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
7
<PAGE> 8
(e) Liquidation, Dissolution or Winding Up.
(1) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series C Preferred Stock unless,
prior thereto, the holders of shares of Series C Preferred Stock shall have
received an amount equal to one hundred (100) times the Exercise Price, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment (the "Series C Liquidation
Preference"). The term "Exercise Price" means the price established by the
Board of Directors for the purchase of one unit of Series C Preferred Stock
equal to one-one-hundredth of one share of Series C Preferred Stock. If no
shares of convertible Preferred Stock are outstanding at the time of
liquidation, then, following the payment of the full amount of the Series C
Liquidation Preference, no additional distributions shall be made to the
holders of shares of Series C Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per share (the
"Common Adjustment") equal to the quotient obtained by dividing (i) the Series
C Liquidation Preference by (ii) one hundred (100) (as approximately adjusted
as set forth in subparagraph (3) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series C Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series C Preferred Stock and Common Stock,
respectively, holders of Series C Preferred Stock and holders of shares of
Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to one
(1) with respect to such Series C Preferred Stock and Common Stock, on a per
share basis, respectively.
(2) In the event, however, that there are not
sufficient assets available to permit payment in full of the Series C
Liquidation Preference and the liquidation preferences of all other series of
Preferred Stock, if any, which rank on a parity with the Series C Preferred
Stock, then such remaining assets shall be distributed ratable to the holders
of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(3) In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then, in each such case, the Adjustment Number in effect immediately prior to
such event shall be adjusted by multiplying such Adjustment Number by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(f) Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then, in any such case, the
shares of Series C Preferred Stock shall at the same time be similarly
exchanged or
8
<PAGE> 9
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to one hundred (100) times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then, in each such
case, the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series C Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(g) No Redemption. The shares of Series C Preferred Stock
shall not be redeemable.
(h) Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series C
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of a majority or more of the outstanding shares of Series C
Preferred Stock, voting separately as a class.
(i) Fractional Shares. Series C Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, to receive
dividends, to participate in distributions and to have the benefit of all other
rights of holders of Series C Preferred Stock.
SECTION 4.3 OTHER PREFERRED STOCK. The Board of Directors of the
Corporation is authorized, subject to the limitations prescribed by law and the
provisions of this Section 4.3, to adopt one or more resolutions to provide for
the issuance from time to time in one or more series of any number of shares of
Preferred Stock, up to a maximum of nine million five hundred thousand
(9,500,000) shares, and to establish the number of shares to be included in
each such series, and to fix the designation, relative rights, preferences,
qualifications and limitations of the shares of each such series. The
authority of the Board of Directors with respect to each such series shall
include, but not be limited to, a determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative and, if so, from which date or dates, and whether
they should be payable in preference to, or in another relation to, the
dividends payable on any other class or classes or series of stock;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
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(d) Whether that series shall have conversion or exchange
privileges and, if so, the terms and conditions of such conversion or exchange,
including provision for adjustments for the conversion or exchange rate in such
events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable and, if so, the terms and conditions of such redemption, including
the manner of selecting shares for redemption if less than all shares are to be
redeemed, the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(f) Whether that series shall be entitled to the benefit of
a sinking fund to be applied to the purchase or redemption of shares of that
series and, if so, the terms and amounts of such sinking funds;
(g) The rights of the shares of that series to the benefit
of conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issuance of any additional stock
(including additional shares of such series or of any other series) and upon
the payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Corporation or any subsidiary
of, any outstanding stock of the Corporation;
(h) The right of the shares of that series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and whether such rights shall be in preference to, or in other
relation to, the comparable rights of any other class or classes or series of
stock; and
(i) Any other relative, participating, optional or other
special rights, qualifications, limitations or restrictions of that series.
SECTION 4.4 COMMON STOCK.
(a) Voting Rights. Except as otherwise required by law or
this Certificate of Incorporation, each holder of Common Stock shall have one
vote in respect of each share of stock held by him of record on the books of
the Corporation for the election of Directors and on all matters submitted to a
vote of stockholders of the Corporation.
(b) Dividends. Except as otherwise provided by the
resolution or resolutions of the Board of Directors providing for the issuance
of any series of Preferred Stock pursuant to Section 4.3, the holders of shares
of Common Stock shall be entitled to receive, when and if declared by the Board
of Directors, out of the assets of the Corporation which are by law available
therefor, dividends payable either in cash, in property or in shares of capital
stock.
(c) Dissolution, Liquidation or Winding Up. Except as
otherwise provided by the resolution or resolutions of the Board of Directors
providing for the issuance of any series of Preferred Stock pursuant to Section
4.3, in the event of any dissolution, liquidation or winding up of the affairs
of the Corporation, after distribution in full of the preferential amounts, if
any, to be
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distributed to the holders of the Series C Preferred Stock, the rights of the
holders of Common Stock to receive any remaining assets of the Corporation
shall be as provided in subsection 4.2(e).
ARTICLE V
SECTION 5.1 GENERAL PROVISIONS. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
The exact number of Directors shall be fixed from time to time by, or in the
manner provided in, the Bylaws of the Corporation, and may be increased or
decreased as therein provided. Directors of the Corporation need not be
elected by ballot unless required by the Bylaws.
SECTION 5.2 CLASSIFICATION OF BOARD OF DIRECTORS. The Directors
shall be divided into three (3) classes. Each such class shall consist, as
nearly as may be possible, of one-third of the total number of Directors, and
any remaining Directors shall be included within such groups as the Board of
Directors shall designate. The first class of Directors will be elected for a
term which expires in 1996. The second class will be elected for a term which
expires in 1997. The third class will be elected to a term which expires in
1998. At each annual meeting of stockholders, beginning in 1996, successors to
the class of Directors whose term expires at the annual meeting shall be
elected for a three-year term. If the number of Directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of Directors in each class as nearly equal as possible, but in no
case shall a decrease in the number of Directors shorten the term of any
incumbent Director. A Director may be removed from office for cause only and,
subject to such removal, death, resignation, retirement or disqualification,
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and qualify. No alteration,
amendment or repeal of this Article V or the Bylaws of the Corporation shall be
effective to shorten the term of any Director holding office at the time of
such alteration, amendment or repeal, to permit any such Director to be removed
without cause, or to increase the number of Directors in any class or in the
aggregate from that existing at the time of such alteration, amendment or
repeal until the expiration of the terms of office of all Directors then
holding office, unless (i) in the case of this Article V, such alteration,
amendment or repeal has been approved by the holders of all shares of stock
entitled to vote thereon, or (ii) in the case of the Bylaws, such alteration,
amendment or repeal has been approved by either the holders of all shares
entitled to vote thereon or by a vote of a majority of the entire Board of
Directors.
SECTION 5.3 DIRECTORS APPOINTED BY A SPECIFIC CLASS OF
STOCKHOLDERS. To the extent that any holders of any class or series of stock
other than Common Stock issued by the Corporation shall have the separate
right, voting as a class or series, to elect Directors, the Directors elected
by such class or series shall be deemed to constitute an additional class of
Directors and shall have a term of office for one year or such other period as
may be designated by the provisions of such class or series providing such
separate voting right to the holders of such class or series of stock, and any
such class of Directors shall be in addition to the classes designated above.
SECTION 5.4 NOMINATIONS. Advance notice of nominations for the
election of Directors shall be given in the manner and to the extent provided
in the Bylaws of the Corporation.
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SECTION 5.5 VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Board of Directors, and any vacancies on the Board of
Directors resulting from death, resignation, removal or other cause shall only
be filled by the affirmative vote of a majority of the remaining Directors then
in office, even though less than a quorum of the Board of Directors, or by a
sole remaining Director. Any Director elected in accordance with the preceding
sentence of this Section 5.5 shall hold office for the remainder of the full
term of the Directors whose vacancy is so filled and until such Director's
successor shall have been elected and qualified.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
In furtherance and not in limitation of the powers conferred upon it by
law, the Board of Directors is expressly authorized:
SECTION 7.1 To adopt, repeal, alter or amend the Bylaws of the
Corporation by a vote of a majority of the entire Board of Directors.
SECTION 7.2 To authorize and cause to be executed mortgages and
liens upon the real and personal property of the Corporation.
SECTION 7.3 To set apart, out of any of the funds of the
Corporation available for dividends, a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which it was created.
SECTION 7.4 By a majority of the whole Board of Directors, to
designate one or more committees, each committee to consist of one or more of
the Directors of the Corporation. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. The Bylaws may
provide that, in the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors, or in the Bylaws of the
Corporation, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting
an agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amending the Bylaws of the
Corporation; and, unless
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the resolution or Bylaws expressly so provide, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
SECTION 7.5 When and as authorized by the stockholders in
accordance with statute, to sell, lease or exchange all or substantially all of
the property and assets of the Corporation, including its goodwill and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property,
including shares of stock in and/or other securities of any other corporation
or corporations, as the Board of Directors shall deem expedient and for the
best interests of the Corporation.
ARTICLE VIII
SECTION 8.1 Except as provided in Section 8.2 of this Article VIII,
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of the
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Advance notice of items of business to be
considered at any meeting of the stockholders shall be given in the manner and
to the extent provided in the Bylaws of the Corporation.
SECTION 8.2 Notwithstanding the foregoing, this Article VIII shall
not apply to the Corporation if it does not have a class of voting stock that
is either (i) listed on a national securities exchange, (ii) authorized for
quotation on an inter dealer quotation system of the registered national
securities association, or (iii) held of record by more than two thousand
(2,000) stockholders.
ARTICLE IX
SECTION 9.1 Limitation of Liability of Directors. A Director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except for liability (i) for any breach of the Director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
Director derived an improper personal benefit.
If the DGCL is amended after the date hereof to
authorized action by corporations organized pursuant to the DGCL to further
eliminate or limit the personal liability of directors, then the liability of a
Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as amended.
SECTION 9.2 INDEMNIFICATION OF DIRECTORS.
(a) Each person who was or is made a party to, or is
threatened to be made a party to, or is involved in, any threatened, pending or
completed action, suit or proceeding, whether formal or informal, whether of a
civil, criminal, administrative or investigative nature (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal
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representative, is or was a Director of the Corporation, whether the basis of
such proceeding is an alleged action or inaction in an official capacity or in
any other capacity while serving as a Director, shall be indemnified and held
harmless by the Corporation to the fullest extent permissible under Delaware
law, as the same exists or may hereafter exist in the future (but, in the case
of any future change, only to the extent that such change permits the
Corporation to provide broader indemnification rights than the law permitted
prior to such change), against all costs, charges, expenses, liabilities and
losses (including, without limitation, attorneys' fees, judgments, fines,
Employee Retirement Income Security Act of 1974 ("ERISA") excise taxes, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a Director and shall inure to the
benefit of his or her heirs, executors and administrators.
(b) The Corporation shall pay expenses actually incurred in
connection with any proceeding in advance of its final disposition; provided,
however, that if Delaware law then requires, the payment of such expenses
incurred in advance of the final disposition of a proceeding shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
Director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such Director or officer is not entitled to be indemnified.
(c) If a claim under subsection 9.2(a) hereof is not paid
in full by the Corporation within thirty (30) days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination that indemnification of the claimant
is permissible in the circumstances because the claimant has met the applicable
standard of conduct, if any, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met the standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
standard of conduct.
SECTION 9.3 INDEMNIFICATION OF OFFICERS, EMPLOYEES AND AGENTS. The
Corporation may provide indemnification to employees and agents of the
Corporation to the fullest extent permissible under Delaware law.
SECTION 9.4 EXPENSES AS A WITNESS. To the extent that any
Director, officer, employee or agent of the Corporation is, by reason of such
position, or position with another entity at the request of the Corporation, a
witness in any action, suit or proceeding, he or she shall be indemnified
against all costs and expenses actually and reasonably incurred by him or her
on his or her behalf in connection therewith.
SECTION 9.5 INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any Director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under Delaware law.
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SECTION 9.6 INDEMNITY AGREEMENTS. The Corporation may enter into
agreements with any Director, officer, employee or agent of the Corporation
providing for indemnification to the fullest extent permissible under Delaware
law.
SECTION 9.7 SEPARABILITY. Each and every paragraph, sentence, term
and provision of this Article IX is separate and distinct, so that if any
paragraph, sentence, term or provision hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of any other paragraph, sentence, term or
provision hereof. To the extent required, any paragraph, sentence, term or
provision of this Article IX may be modified by a court of competent
jurisdiction to preserve its validity and to provide the claimant with, subject
to the limitations set forth in this Article IX and any agreement between the
Corporation and claimant, the broadest possible indemnification permitted under
applicable law.
SECTION 9.8 CONTRACT RIGHT. Each of the rights conferred on
Directors of the Corporation by Sections 9.1, 9.2 and 9.4 of this Article IX,
and on officers, employees or agents of the Corporation by Section 9.4 of this
Article, shall be a contract right, and any repeal or amendment of the
provisions of this Article shall not adversely affect any right hereunder of
any person existing at the time of such repeal or amendment with respect to any
act or omission occurring prior to the time of such repeal or amendment, and,
further, shall not apply to any proceeding, irrespective of when the proceeding
is initiated, arising from the service of such person prior to such repeal or
amendment.
SECTION 9.9 NONEXCLUSIVITY. The rights conferred in this Article
shall not be exclusive of any other rights that any person may have or
hereafter acquire under any statute, Bylaw, agreement, vote of stockholders or
disinterested Directors or otherwise.
ARTICLE X
The Corporation reserves the right to amend, alter or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are subject to this reservation.
IN WITNESS WHEREOF, said MedPartners/Mullikin, Inc. has caused this
Certificate to be signed by Harold O. Knight, Jr., its Executive Vice
President, and attested to by Tracy P. Thrasher, its Secretary, this 13th day
of May, 1996.
MEDPARTNERS/MULLIKIN, INC.
By:
-------------------------------
Harold O. Knight, Jr.
Executive Vice President
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[SEAL] Attest:
---------------------------
Tracy P. Thrasher
Secretary
<PAGE> 17
CERTIFICATE OF AMENDMENT TO
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
MEDPARTNERS/MULLIKIN, INC.
MedPartners/Mullikin, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware
("Corporation"), does hereby certify that:
1. The Second Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by changing Article I thereof so that, as
amended, said Article I shall be and read as follows:
"The name of the Corporation is MedPartners, Inc."
2. The amendment to the Second Amended and Restated Certificate of
Incorporation herein certified has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said MedPartners/Mullikin, Inc. has caused this
Certificate to be executed by Harold O. Knight, Jr., its Executive Vice
President, and attested to by Tracy P. Thrasher, its Corporate Secretary, this
5th day of September, 1996.
MEDPARTNERS/MULLIKIN, INC.
By: /s/ Harold O. Knight, Jr.
-----------------------------
Harold O. Knight, Jr.
Executive Vice President
Attest: /s/ Tracy P. Thrasher
----------------------------
Tracy P. Thrasher
Corporate Secretary
<PAGE> 1
EXHIBIT (3)-2
SECONDED AMENDED AND RESTATED BYLAWS
OF
MEDPARTNERS, INC.
*************
ARTICLE I
OFFICES
The registered office shall be in the City of Wilmington, County of New
Castle, State of Delaware. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Stockholder Meetings. All meetings of the stockholders
for the election of Directors shall be held in the City of Birmingham, State of
Alabama, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of the stockholders
shall be held during the month in which the Corporation's fiscal year ends or
at such time designated by the stockholders, if not a legal holiday, and if a
legal holiday, then on the next secular day following, or at such other date as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting, at which they shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
fifty days before the date of the meeting.
Section 4. Voting List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which
<PAGE> 2
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof,
and may be inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the President
and shall be called by the President or Secretary at the request in writing of
a majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Notice of Special Meeting. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than fifty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 7. Transaction of Business. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, then the presiding officer of
said meeting or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, until a quorum shall be present or represented, and the Corporation may
transact at any adjourned meeting any business which might have been transacted
at the original meeting. Notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken, unless (a) any adjournment or series of adjournments
caused the original meeting to be adjourned for more than thirty days after the
date originally fixed therefor, or (b) a new record date is fixed for the
adjourned meeting. If notice of an adjourned meeting is given, such notice
shall be given to each stockholder of record entitled to vote at the adjourned
meeting in the manner prescribed in Section 3 or Section 6 of this Article II,
as the case may be, for the giving of notice of annual meetings and special
meetings, respectively, of stockholders.
Section 9. Voting of Shares. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides
for a longer period.
Section 10. Written Consent. Unless otherwise provided in the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders
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of the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if there is a consent in writing, setting forth the
action so taken, bearing the signature and date of signature of the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 11. Proposals at Annual Meetings. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or otherwise properly brought before the meeting by a stockholder.
In addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation, not less than sixty days
nor more than ninety days prior to the meeting; provided, however, that in the
event that less than seventy days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting, (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by the stockholder, (iv) a description of all arrangements or
understandings between the stockholder and any other person or persons
(including their names) in connection with the proposal of such business by the
stockholder and any material interest of the stockholder in such business, and
(v) a representation that the stockholder intends to appear in person or by
proxy at the annual meeting to bring such business before the meeting.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article II, Section 11, provided, however, that
nothing in this Article II, Section 11 shall be deemed to preclude discussion
by any stockholder of any business properly brought before the annual meeting
in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Article II,
Section 11, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
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Section 12. Nominations of Persons for Election to the Board of
Directors. In addition to any other applicable requirements, only persons who
are nominated in accordance with the following procedures shall be eligible for
election as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Article II, Section 12. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation
not less than sixty days nor more than ninety days prior to the meeting;
provided, however, that in the event that less than seventy days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholders to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of the Corporation which are beneficially owned by the person and (iv)
any other information relating to the person that is required to be disclosed
in solicitations for proxies for election of Directors pursuant to Section 14
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder; and (b) as to the stockholder
giving the notice, (i) the name and record address of the stockholder, (ii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by the stockholder, (iii) a description of
all arrangements or understandings between the stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nominations(s) are to be made by the stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in such notice and (v) any other
information relating to the stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for the election of Directors pursuant to Section 14
of the Exchange Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed nominee being
named as a nominee and to serve as a Director if elected. The Corporation may
require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a Director of the Corporation. No person shall be
eligible for election as a Director of the Corporation unless nominated in
accordance with the procedures set forth herein. The provisions of this
Article II, Section 12 shall not apply to Directors governed by Section 14 of
Article III.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
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ARTICLE III
DIRECTORS
Section 1. General Powers. The business of the Corporation shall
be managed by or under the direction of its Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 2. Number and Term of Office; Removal. The number of
Directors of the Corporation shall be fixed from time to time by these Bylaws
but in no event shall be less than three. Until these Bylaws are further
amended, the number of Directors shall be thirteen. The Directors shall be
divided into three classes. Each such class shall consist, as nearly as may be
possible, of one-third of the total number of Directors, and any remaining
Directors shall be included within such group or groups as the Board of
Directors shall designate. The first class will be elected for a term which
expires in 1996. The second class will be elected for a term which expires in
1997. The third class will be elected for a term which expires in 1998. At
each annual meeting of stockholders, successors to the class of Directors whose
term expires at that annual meeting shall be elected for a three-year term. If
the number of Directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of Directors in each
class as nearly equal as possible, but in no case shall a decrease in the
number of Directors shorten the term of any incumbent Director. A Director may
be removed from office for cause only and, subject to such removal, death,
resignation, retirement or disqualification, shall hold office until the annual
meeting of stockholders for the year in which his term expires and until his
successor shall be elected and qualify. No alteration, amendment or repeal of
these Bylaws shall be effective to shorten the term of any Director holding
office at the time of such alteration, amendment or repeal, to permit any such
Director to be removed without cause, or to increase the number of Directors in
any class or in the aggregate from that existing at the time of such
alteration, amendment or repeal until the expiration of the terms of office of
all Directors then holding office, unless such alteration, amendment or repeal
has been approved by either the holders of all shares of stock entitled to vote
thereon or by a vote of a majority of the entire Board of Directors. The
provisions of this Section 2 shall not apply to Directors governed by Section
14 of this Article III.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Directors then in office, though less than a quorum, or by
a sole remaining Director, in accordance with the provisions of the Certificate
of Incorporation, and the Directors so chosen shall hold office until the next
annual election and until their successors are duty elected and shall qualify,
unless sooner displaced. If there are no Directors in office, then an election
of Directors may be held in the manner provided by law. If, at the time of
filling any vacancy or any newly created directorship, the Directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery of the State of
Delaware may, upon application of any stockholder or stockholders holding at
least ten percent
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of the total number of the shares at the time outstanding having the right to
vote for such Directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the Directors
chosen by the Directors then in office.
Section 4. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
Section 5. Initial Meeting. The first meeting of each newly
elected Board of Directors shall be held at such time and place as shall be
fixed by the vote of the stockholders at the annual meeting of stockholders and
no notice of such meeting shall be necessary to the newly elected Directors in
order legally to constitute the meeting, provided a quorum shall be present.
In the event of the failure of the stockholders to fix the time or place of
such first meeting of the newly elected Board of Directors, or in the event
such meeting is not held at the time and place so fixed by the stockholders,
the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver signed by all of the
Directors.
Section 6. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the President on two days' notice to each Director,
either personally or by mail telegram or facsimile transmission; special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of two Directors unless the Board of
Directors consists of only one Director, in which case special meetings shall
be called by the President or Secretary in like manner and on like notice on
the written request of the sole Director.
Section 8. Quorum and Meetings. At all meetings of the Board of
Directors, a majority of the Directors shall constitute a quorum for the
transaction of business, and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation. The Chairman of the Board, or his designee,
shall preside at all meetings of the Board of Directors and, whether or not a
quorum is present, may adjourn the meeting from time to time without notice
other than by announcement at the meeting.
Section 9. Unanimous Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
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Section 10. Telephonic Meetings. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
amending the Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the Board of Directors as provided in Section
151(a) of the General Corporation Law of the State of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
the Bylaws; and, unless the resolution or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock or to adopt a
certificate of ownership and merger. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors.
Section 12. Minutes. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
Section 13. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of Directors. The Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as Director. No such payment shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
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Section 14. Directors Elected by Special Class or Series. To the
extent that any holders of any class or series of stock other than the Common
Stock issued by the Corporation shall have the separate right, voting as a
class or series, to elect Directors, the Directors elected by such class or
series shall be deemed to constitute an additional class of Directors and shall
have a term of office for one year or such other period as may be designated by
the provisions of such class or series providing such separate voting right to
the holders of such class or series of stock, and any such class of Directors
shall be in addition to the classes referred to in Section 2 of this Article
III. Any Directors so elected shall be subject to removal in such manner as
may be provided by law or by the Certificate of Incorporation. The provisions
of Section 12 of Article II and Sections 2 and 3 of this Article III do not
apply to Directors governed by this Article III, Section 14.
ARTICLE IV
NOTICES
Section 1. Giving Notice. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, notice is
required to be given to any Director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such Director or stockholder, at his address as it appears on the
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to Directors may also be given by telegram or by
facsimile transmission.
Section 2. Waiver of Notice. Whenever any notice is required to
be given by law or of the Certificate of Incorporation or of these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. Principal Officers. The principal officers of the
Corporation shall be elected by the Board of Directors and shall include a
Chairman of the Board, a President, a Secretary and a Treasurer and may, at the
discretion of the Board of Directors, also include one or more Vice Presidents
and a Controller (as well as a Vice Chairman who shall, however, not be a
formal officer of the Corporation). Except as otherwise provided in the
Certificate of Incorporation or these Bylaws, one person may hold the offices
and perform the duties of any two or more principal offices except the offices
and duties of President and Vice President or of Chairman of the Board or
President and Secretary. None of the principal officers need be Directors of
the Corporation.
Section 2. Election and Term of Office. The officers of the
Corporation shall be elected annually by the Board of Directors at its first
meeting after each annual meeting of stockholders. Such officers shall hold
office at the pleasure of the Board of Directors and until
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their successors are elected and qualified. In its discretion, the Board of
Directors by a vote of a majority thereof may leave unfilled for such period as
it may fix by resolution any offices except those of President and Secretary.
Section 3. Vacancies and Removal. Vacancies in any office arising
from any cause may be filled by the Board of Directors at any regular or
special meeting. The Board of Directors may remove any officer, with or
without cause, at any time by an affirmative vote of a majority of the Board of
Directors.
Section 4. President. The President shall be the principal
executive officer of the Corporation and shall have in his charge the general
direction and promotion of the Corporation's affairs with authority to do such
acts and to make such contracts as are necessary or proper to carry on the
business of the Corporation. He shall preside over all official meetings of
the Corporation, provided no one has been specifically elected to the office of
Chairman of the Board, and shall also perform those duties which usually
devolve upon a president of a Corporation under the laws of the State of
Delaware. The President may, during the absence of any officer, delegate said
officer's duties to any other officer or Director.
Section 5. Vice-President. The Vice-President, in the absence or
disability of the President, shall perform the duties of the President and
shall perform such other duties as may be delegated to him from time to time by
the Board of Directors or by the President.
Section 6. Secretary. The Secretary shall issue notices of all
meetings of stockholders and all meetings of the Board of Directors, shall keep
the minutes of all such meetings, shall have charge of the seal of the
Corporation, shall serve as custodian for all corporate records, and shall make
such reports and perform such duties as are incident to his office or which may
be delegated to him by the President or Board of Directors.
Section 7. Treasurer. The Treasurer shall render to the President
and the Board of Directors at such times as may be requested an account of all
his transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall perform such other duties as are incident to
the office or as may be delegated to that office by the President or by the
Board
Section 8. Salaries. The salaries of the officers may be fixed
from time to time by the Board of Directors, and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a Director or
stockholder of the Corporation.
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ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall from
time to time be determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates. Ownership of the capital shares of the
Corporation shall be represented by certificates, in such form as shall be
determined by the Board of Directors. Each certificate shall be signed by two
of the officers of the Corporation and may be sealed with the seal of the
Corporation or a facsimile thereof. A record of such certificates shall be
kept.
Section 2. Cancellation. All certificates transferred on the
books of the Corporation shall be surrendered and canceled. No new
certificates shall be issued until the former certificate, or certificates, for
the same number of shares have been surrendered and canceled, except in case of
lost or destroyed certificates, when new certificates therefor may be issued
under such conditions as the Board of Directors may prescribe.
Section 3. Transfer of Shares. Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation
by the holder of record thereof or by his legal representatives, who shall
furnish proper evidence of their authority in writing, upon the surrender for
cancellation of the certificate for such shares.
Section 4. Fixing Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
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exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VIII
DIVIDENDS
Section 1. Paying Dividends. The Board of Directors may from time
to time declare, and the Corporation may pay, dividends on the outstanding
shares of the Corporation in the manner and upon the terms and conditions
provided by law and by the Certificate of Incorporation of the Corporation or
any amendments thereto. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Setting Aside Funds. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Directors shall
think conducive to the interest of the Corporation, and the Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE IX
INDEMNIFICATION
Section 1. Indemnification of Directors.
(a) Each person who was or is made a party or is threatened to be
made a party or is involved in any threatened, pending or completed action,
suit or proceeding, whether formal or informal, whether of a civil, criminal,
administrative or investigative nature (hereinafter a "proceeding"), by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a Director of the Corporation, whether the basis of
such proceeding is an alleged action or inaction in an official capacity or in
any other capacity while serving as a Director, shall be indemnified and held
harmless by the Corporation to the fullest extent permissible under Delaware
law, as the same exists or may hereafter exist in the future (but, in the case
of any future change, only to the extent that such change permits the
Corporation to provide broader indemnification rights than the law permitted
prior to such charge), against all costs, charges, expenses, liabilities and
losses (including, without limitation, attorneys' fees, judgments, fines,
Employee Retirement Income Security Act of 1974 ("ERISA") excise taxes, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a Director and shall inure to the
benefit of his or her heirs, executors and administrators.
(b) The Corporation shall pay expenses actually incurred in
connection with any proceeding in advance of its final disposition; provided,
however, that if Delaware law then requires, the payment of such expenses
incurred in advance of the final disposition of a proceeding shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
Director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such Director or officer is not entitled to be indemnified.
(c) If a claim under subsection 9.2(a) hereof is not paid in full
by the Corporation within thirty days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination that indemnification of the claimant is permissible in the
circumstances because the claimant has met the applicable standard of conduct,
if any, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met the standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the standard of conduct.
Section 2. Indemnification of Officers, Employees and Agents. The
Corporation may provide indemnification to employees and agents of the
Corporation to the fullest extent permissible under Delaware law.
Section 3. Expenses as a Witness. To the extent that any
Director, officer, employee or agent of the Corporation is by reason of such
position, or position with another entity at the
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request of the Corporation, a witness in any action, suit or proceeding, he or
she shall be indemnified against all costs and expenses actually and reasonably
incurred by him or her on his or her behalf in connection therewith.
Section 4. Insurance. The Corporation may maintain insurance, at
its expense, to protect itself and any Director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability or loss under Delaware law.
Section 5. Indemnity Agreements. The Corporation may enter into
agreements with any Director, officer, employee or agent of the Corporation
providing for indemnification to the fullest extent permissible under Delaware
law.
Section 6. Separability. Each and every paragraph, sentence, term
and provision of this Article IX is separate and distinct, so that if any
paragraph, sentence, term or provision hereof shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or unenforceability of any other paragraph, sentence, term
or provision hereof. To the extent required, any paragraph, sentence, term or
provision of this Article IX may be modified by a court of competent
jurisdiction to preserve its validity and to provide the claimant with, subject
to the limitations set forth in this Article IX and any agreement between the
Corporation and claimant, the broadest possible indemnification permitted under
applicable law.
Section 7. Contract Right. Each of the rights conferred on
Directors of the Corporation by Sections 9.1, 9.2 and 9.4 of this Article IX
and on officers, employees or agents of the Corporation by Section 9.4 of this
Article shall be a contract right and any repeal or amendment of the provisions
of this Article shall not adversely affect any right hereunder of any person
existing at the time of such repeal or amendment with respect to any act or
omission occurring prior to the time of such repeal or amendment, and, further,
shall not apply to any proceeding, irrespective of when the proceeding is
initiated, arising from the service of such person prior to such repeal or
amendment.
Section 8. Nonexclusivity. The rights conferred in this Article
shall not be exclusive of any other rights that any person may have or
hereafter acquire under any statute, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
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ARTICLE X
AMENDMENTS
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the Certificate of Incorporation, at
any regular meeting of the stockholders or Board of Directors, or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new Bylaws be contained in
the notice of such special meeting. If the power to adopt, amend or repeal
Bylaws is conferred upon the Board of Directors by the Certificate of
Incorporation, it shall not divest or limit the power of the stockholders to
adopt, amend or repeal these Bylaws.
ARTICLE XI
MISCELLANEOUS
Section 1. Fiscal Year. The initial taxable year of the
Corporation shall commence on the date the Certificate of Incorporation is
filed, and end on such date as the Board of Directors may determine, in
accordance with all applicable provisions of the Internal Revenue Code of 1986,
as amended.
Section 2. Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
The above Second Amended and Restated Bylaws were approved by
resolution of the Board of Directors of the Corporation on
the 4th day of September, 1996, with certain revisions
effective as of September 5, 1996.
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DRAFT
OCTOBER 3, 1996
================================================================================
MEDPARTNERS, INC., as Issuer
and
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee
-----------------------------
INDENTURE
Dated as of October 8, 1996
-----------------------------
$450,000,000
[____]% Senior Notes due 2006
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . . . . . . . . 1
SECTION 101. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 102. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 106. Notice to Holders; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 107. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 108. Effect of Headings and Table of Contents. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 109. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 110. Separability Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 111. Benefits of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 112. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 113. Legal Holidays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 114. No Security Interest Created. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 115. Limitation on Individual Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II SECURITY FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 201. Forms Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 202. Form of Face of Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 203. Form of Reverse of Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 204. Form of Trustee's Certificate of Authentication. . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 205. Global Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE III THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 301. Title and Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 302. Denominations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 303. Execution, Authentication, Delivery and Dating. . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 304. Temporary Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 305. Registration, Registration of Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 307. Payment of Interest; Interest Rights Preserved. . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 308. Persons Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 309. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 310. Computation of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IV SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 401. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 402. Application of Trust Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 501. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 502. Acceleration of Maturity; Rescission and Annulment. . . . . . . . . . . . . . . . . . . . . . 38
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. . . . . . . . . . . . . . . . 39
SECTION 504. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 505. Trustee May Enforce Claims Without Possession of Securities. . . . . . . . . . . . . . . . . . 41
SECTION 506. Application of Money Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 507. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest. . . . . . . . . . . . . . . 43
SECTION 509. Restoration of Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 510. Rights and Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 511. Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 512. Control by Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 513. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 514. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 515. Waiver of Stay or Extension Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
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ARTICLE VI THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 601. Certain Duties and Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 602. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 603. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 604. Not Responsible for Recitals or Issuance of Securities. . . . . . . . . . . . . . . . . . . . 48
SECTION 605. May Hold Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 606. Money Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 607. Compensation and Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 608. Disqualification; Conflicting Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 609. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 610. Resignation and Removal; Appointment of Successor. . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 611. Acceptance of Appointment by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 612. Merger, Conversion, Consolidation or Succession to Business. . . . . . . . . . . . . . . . . . 53
SECTION 613. Preferential Collection of Claims Against Company. . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 614. Appointment of Authenticating Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. . . . . . . . . . . . . . . . . . 57
SECTION 702. Preservation of Information; Communications to Holders. . . . . . . . . . . . . . . . . . . . 57
SECTION 703. Reports by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 704. Reports by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE VIII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE . . . . . . . . . . . . . . . . . . . . . 58
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. . . . . . . . . . . . . . . . . . . . . 58
SECTION 802. Successor Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
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ARTICLE IX SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 901. Supplemental Indentures Without Consent of Holders. . . . . . . . . . . . . . . . . . . . . . 60
SECTION 902. Supplemental Indentures with Consent of Holders. . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 903. Execution of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 904. Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 905. Conformity with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 906. Reference in Securities to Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . 63
SECTION 907. Notice of Supplemental Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE X COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 1001. Payment of Principal and Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 1002. Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 1003. Money for Security Payments to Be Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 1004. Statement by Officers as to Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 1005. Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 1006. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 1007. Payment of Taxes and Other Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 1008. Maintenance of Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 1009. Restrictions on Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 1010. Restrictions on Sale and Leaseback Transactions. . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 1011. Restrictions on Subsidiary Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 1012. Waiver of Certain Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
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ARTICLE XI DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 1101. Company's Option to Effect Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . 74
SECTION 1102. Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 1103. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 1104. Conditions to Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 1105. Deposited Money and U.S. Government Obligations to Be Held in Trust; Miscella-
neous Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 1106. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
</TABLE>
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<PAGE> 7
MEDPARTNERS, INC.
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- ---------------- -----------
<S> <C> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . 608, 610
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . . . . . . 613
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . 701, 702(1)
(b) . . . . . . . . . . . . . . . . . . . . . . . . 702(2)
(c) . . . . . . . . . . . . . . . . . . . . . . . . 702(3)
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . 703
(b) . . . . . . . . . . . . . . . . . . . . . . . . 703
(c) . . . . . . . . . . . . . . . . . . . . . . . . 703
(d) . . . . . . . . . . . . . . . . . . . . . . . . 703
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . 704
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . 1004
(b) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . . . . . 102
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . . . . . . . 602
(c) . . . . . . . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . . . . . . . 514
316 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . 502, 512
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . 513
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . . . . . . 104(3)
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . . . . . 1003
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . 107
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
<PAGE> 8
INDENTURE, dated as of October 8, 1996, between MEDPARTNERS,
INC., a corporation duly organized and existing under the laws of the State of
Delaware (the "Company"), having its principal office at 3000 Galleria Tower,
Suite 1000, Birmingham, AL 35244 and The First National Bank of Chicago, a
national banking association, as Trustee, having its principal office at One
First National Plaza, Suite 0126, Chicago, IL 60670-0126 (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
its [___]% Senior Notes due 2006 (the "Securities") of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
<PAGE> 9
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP; and
(4) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act" when used with respect to any Holder, has the meaning
specified in Section 104.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" in respect of a Sale and Leaseback
Transaction means, at the time of determination, the then present value
(discounted at the actual rate of interest of such transaction) of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such Sale and Leaseback Transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).
"Authenticating Agent" means any Person authorized by the
Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
"Average Life" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of
2
<PAGE> 10
such Indebtedness multiplied by the amount of such principal payment by (ii)
the sum of all such principal payments.
"Bank Credit Agreement" means the Credit Agreement, dated as
of September 5, 1996, by and among MedPartners, Inc. and Nationsbank, National
Association (South), as administrative agent for a group of lenders, as such
agreement may be amended, renewed, extended, substituted, refinanced,
restructured, replaced or supplemented or otherwise modified from time to time
(including without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements or supplementations
or other modifications of the foregoing).
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board to which the powers
of that board have been lawfully delegated.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York or the State of Alabama are authorized or obligated by law, regulation or
executive order to close.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time including
the provisions of FAS No. 13 and any successor thereof.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
3
<PAGE> 11
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
Vice Chairman of the Board, its President or a Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary.
"Consolidated Net Worth" means the excess of (i) the
consolidated net book value of the assets of the Company and its subsidiaries
after all appropriate deductions in accordance with GAAP as in effect on the
date of the Indenture (including without limitation, reserves for doubtful
receivables, obsolescence, depreciation and amortization) less (ii) the
consolidated liabilities (including tax and other proper accruals, but
excluding, if applicable, the accumulated postretirement benefit obligation
resulting from the application of the provisions of FAS No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions") of the Company and
its Subsidiaries, in each case computed and consolidated in accordance with
GAAP in effect on the date of the Indenture.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee at which, at any particular time, its corporate trust
business shall be administered, which office, at the date hereof is located at
One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126, Attention:
Corporate Trust Services Division, except that for purposes of Section 1002,
such term shall mean the office or agency of the Trustee in the Borough of
Manhattan, the City of New York, which office at the date hereof is located at
14 Wall Street, Eighth Floor, New York, New York 10005.
"Corporation" means a corporation, association, company,
joint-stock company, limited liability company or business trust.
"Covenant Defeasance" has the meaning specified in Section
1103.
4
<PAGE> 12
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1102.
"Depositary" means, with respect to Securities issuable or
issued in whole or in part in the form of one or more Global Securities, a
clearing agency registered under the Exchange Act that is designated to act as
Depositary for such Securities, which Depositary initially shall be The
Depository Trust Company, a limited-purpose trust company organized under the
Banking Law of the State of New York ("DTC").
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
"Funded Debt" means Indebtedness of the Company and its
Subsidiaries, whether incurred, assumed or guaranteed, which by its terms
matures more than one year from the date of creation thereof, or which is
extendable or renewable at the sole option of the obligor so that it may become
payable more than one year from such date.
"GAAP" means, unless otherwise specified in this Indenture,
such accounting principles as are generally accepted in the United States as of
the date of the relevant calculation.
"Global Security" means a Security that evidences all or part
of the Securities, is registered in the name of the Depositary or its nominee
and bears the legend set forth in Section 205.
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission, board,
bureau, court, agency or instrumentality or political subdivision thereof or
any entity or officer exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to any government or any court, in
each case
5
<PAGE> 13
whether associated with a state of the United States, the United States, or a
foreign governmental entity.
"Holder" means a Person in whose name a Security is registered
in the Security Register.
"Indebtedness" with respect to any Person means, at any time,
without duplication, (i) any debt (a) for money borrowed, or (b) evidenced by a
bond, note, debenture, or similar instrument for the payment of which such
Person is responsible or liable, or (c) which is a direct or indirect
obligation which arises as a result of banker's acceptances; (ii) any
Off-Balance Sheet Liability; (iii) any debt of others described in the
preceding clause (i) which such Person has guaranteed or for which it is
otherwise directly liable; (iv) the obligation of such Person as lessee under
any lease of property which is reflected on such Person's balance sheet as a
capitalized lease; (v) to the extent not otherwise included in this definition,
net obligations under any Rate Hedging Obligations; and (vi) any deferral,
amendment, renewal, extension, supplement or refunding of any liability of the
kind described in any of the preceding clauses (i) through (v); provided,
however, that, in computing the Indebtedness of any Person, there shall be
excluded any particular Indebtedness if, upon or prior to the maturity thereof,
there shall have been deposited with a depository in trust money (or evidence
of Indebtedness if permitted by the instrument creating such Indebtedness) in
the necessary amount to pay, redeem or satisfy such Indebtedness as it becomes
due, and the amount so deposited shall not be included in any computation of
the assets of such Person.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the terms of the Securities and the provisions of the Trust
Indenture Act that are deemed to be a part of and govern this instrument and
any such supplemental indenture, respectively.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
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<PAGE> 14
"Lien" means any mortgage, pledge, hypothecation, charge,
assignment, deposit arrangement, encumbrance, security interest, lien
(statutory or other), or preference, priority, or other security or similar
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any agreement to give or grant a Lien or any
lease, conditional sale or other title retention agreement having substantially
the same economic effect as any of the foregoing).
"Maturity," when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, or otherwise.
"Off-Balance Sheet Liabilities" means, with respect to any
Person, (i) any repurchase obligation or liability of such Person with respect
to accounts or notes receivable sold by such Person, (ii) the face amount of
accounts receivable pursuant to a Permitted Receivables Securitization, (iii)
any repurchase obligation or liability of such Person with respect to property
leased by such Person as lessee, (iv) obligations arising with respect to any
other transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheets of such Person excluding therefrom operating leases which do not require
payment by or due from such Person: (a) at the scheduled termination of such
operating lease, (b) pursuant to a required purchase by such Person of the
leased property, or (c) under any guarantee by such person of the value of the
leased property, or (v) net liabilities under any Rate Hedging Obligations.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of the Company. One of the officers signing an Officers'
Certificate given pursuant to Section 1004 shall be the principal executive,
financial or accounting officer of the Company.
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<PAGE> 15
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, and who shall be acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(a) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation:
(b) Securities for whose payment money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders of
such Securities;
(c) Securities as to which Defeasance has been effected
pursuant to Section 1102; and
(d) Securities which have been paid pursuant to Section
306 or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Secu-
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<PAGE> 16
rities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to
pay the principal of or interest on any Securities on behalf of the Company.
"Permitted Receivables Securitization" means limited recourse
or non-recourse sales and assignments of accounts receivable of a Person to one
or more entities, the proceeds of which shall be made available to such Person;
provided, however, that the maximum face amount of accounts receivable which
may be sold is $100,000,000 and the minimum price which shall be paid for
receivables is 70% of the face amount thereof; provided, further that
notwithstanding the immediately preceding proviso the maximum face amount of
accounts receivable which may be sold and the minimum price which shall be paid
for receivables shall be increased or decreased to such amount and percentage
as is permissible under the Bank Credit Agreement.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Purchase Money Indebtedness" means Indebtedness incurred to
finance all or any part of the purchase price or cost of construction of
improvements in respect of property or assets acquired by a Person after the
date of the Indenture and incurred prior to, at the time of, or within 90 days
after, the acquisition of any such property or assets or the completion of any
such construction or improvements.
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<PAGE> 17
"Rate Hedging Obligations" means any and all obligations of
any Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, Dollar-denominated or
cross-currency agreements, forward currency exchange agreements, interest rate
cap or collar protection agreements, forward rate currency or interest rate
options, puts, warrants and those commonly known as interest rate "swap"
agreements; and (ii) any and all cancellations, buybacks, reversals,
terminations or assignments of any of the foregoing.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the March 15 or September 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Responsible Officer" when used with respect to the Trustee,
means any officer of the Trustee with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Sale and Leaseback Transaction" has the meaning specified in
Section 1010.
"Securities" means the [__]% Senior Notes due 2006 of the
Company authenticated and delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Senior Funded Debt" means all Funded Debt, including the
Securities, except Funded Debt, the payment of which is subordinated to the
payment of the Securities.
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<PAGE> 18
"Significant Subsidiary" has the meaning ascribed to it under
Regulation C promulgated under the Securities Act of 1933, as amended.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security or such installment
of interest is due and payable.
"Subsidiary" means any corporation, partnership, association
or other business entity of which more than 50% of the outstanding voting stock
is owned, directly or indirectly, by the Company or by one or more other
Subsidiaries, or by the Company and one or more other Subsidiaries. For the
purposes of this definition, "voting stock" means stock (or a similar interest)
which ordinarily has voting power for the election of directors, managers or
trustees, whether at all times or only so long as no senior class of stock (or
similar interest) has such voting power by reason of any contingency.
"Trustee" means the Person named as such in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"U.S. Government Obligation" has the meaning specified in
Section 1104.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
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<PAGE> 19
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee such certificates and opinions as may be required under
the Trust Indenture Act. Each such certificate or opinion shall be given in
the form of an Officers' Certificate, if to be given by an officer of the
Company, or an Opinion of Counsel, if to be given by counsel, and shall comply
with the requirements of the Trust Indenture Act and any other requirement set
forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may
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<PAGE> 20
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company
stating that the information with respect to such factual matters is in the
possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(1) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Section 601)
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<PAGE> 21
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.
(2) The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
be proved in any manner which the Trustee deems sufficient.
(3) The Company may, in the circumstances permitted by
the Trust Indenture Act, fix any day as the record date for the purpose of
determining the Holders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other Act, or to vote on
any Act, authorized or permitted to be given or taken by Holders. If not set by
the Company prior to the first solicitation of a Holder made by any Person in
respect of any such action, or, in the case of any such vote, prior to such
vote, the record date for any such action or vote shall be the 30th day (or, if
later, the date of the most recent list of Holders required to be provided
pursuant to Section 701) prior to such first solicitation or vote, as the case
may be. With regard to any record date, only the Holders on such date (or their
duly designated proxies) shall be entitled to give or take, or vote on, the
relevant action.
(4) The ownership of Securities shall be proved by the
Security Register.
(5) Any request, demand, authorization, direction,
notice, consent, waiver or other Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or other Act of Holders or other document provided or permitted
by this Indenture to be made upon, given or furnished to, or filed with,
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<PAGE> 22
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Trustee
addressed to it at the address of its principal office specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Holders and the Company by the Trustee, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
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SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under the Trust Indenture
Act to be a part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders of Securities, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
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<PAGE> 24
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of laws as applied in such state.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date or Stated Maturity
of any Security shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Securities) payment of interest or
principal need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date or at the Stated Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date or Stated Maturity, as the
case may be.
SECTION 114. No Security Interest Created.
Except as provided in Section 607, nothing in this Indenture
or in the Securities, express or implied, shall be construed to create or
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect in any jurisdiction
where property of the Company or its Subsidiaries is or may be located.
SECTION 115. Limitation on Individual Liability.
No recourse under or upon any obligation, covenant or
agreement contained in this Indenture or in any Security, or for any claim
based thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or any successor Person, either directly or through the
Company, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall
attach to, or is or shall be incurred by, the incorporators, stockholders,
officers or directors, as
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<PAGE> 25
such, of the Company or any successor Person, or any of them, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any
Security or implied therefrom; and that any and all such personal liability of
every name and nature, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, stockholder, officer or director, as such, because of the
creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or in any
Security or implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issuance of such Security.
ARTICLE II
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of any
securities exchange on which the Securities may be listed, all as determined by
the officers executing such Securities, as evidenced by their execution of such
Securities. Unless required by the Depositary, any securities exchange on
which the Securities may be listed or any rule, regulation or law, Securities
issued in the form of Global Securities need not be printed, litho-
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<PAGE> 26
graphed or engraved on steel engraved borders, but shall be in such form as is
acceptable to the Depositary.
SECTION 202. Form of Face of Security.
The form of the face of the Global Securities shall be as set
forth below and include the legend(s) set forth in Section 205 (if a Security
is issued in definitive form, the form of such definitive security will be in
substantially the form of the face of the Global Security, except that the
legend(s) set forth in Section 205 shall be omitted):
MEDPARTNERS, INC.
[___]% Senior Notes due 2006
No. R- $
CUSIP No. 58503XAA5
MEDPARTNERS, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which
term includes any successor Person under the Indenture hereinafter referred
to), for value received, hereby promises to pay to ___________, or registered
assigns, the principal sum of __________________ Dollars ($___________) on
October 1, 2006 and to pay interest thereon from the date of original issuance
of Securities pursuant to the Indenture or from the most recent Interest
Payment Date to which interest has been paid or duly provided for,
semi-annually on April 1 and October 1 in each year, commencing April 1, 1997,
at the rate of [___]% per annum, until the principal hereof is paid or made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the March 15 or September 15 (whether or not
a Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of
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<PAGE> 27
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, all as more fully provided in the
Indenture.
Payment of the principal of and interest on this Security will
be made (i) in respect of Securities held of record by the Depositary or its
nominee in same day funds and (ii) in respect of Securities held of record by
Holders other than the Depositary or its nominee at the Corporate Trust Office
or at such other office or agency of the Company maintained for that purpose
pursuant to the Indenture, in each case, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the Company
payment of interest in respect of Securities held of record by Holders other
than the Depositary or its nominee may be made by check mailed to the address
of the Person entitled thereto as such address shall appear in the Security
Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
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<PAGE> 28
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated:
MEDPARTNERS, INC.
By:
----------------------
Attest:
- ---------------------------------
SECTION 203. Form of Reverse of Security.
The form of the reverse of the Securities shall be as set
forth below:
This Security is one of a duly authorized issue of securities
of the Company designated as its [___]% Senior Notes due 2006 (herein called
the "Securities"), limited in aggregate principal amount to $450,000,000,
issued and to be issued under an Indenture, dated as of October 8, 1996 (herein
called the "Indenture"), between the Company and The First National Bank of
Chicago, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Company,
the Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
This Security is not redeemable in whole or in part at any
time prior to the Stated Maturity of its principal amount.
The Indenture contains provisions for defeasance of (i) the
entire indebtedness of this Security or (ii) certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
by the Company with certain conditions set forth in the Indenture.
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<PAGE> 29
The Indenture contains certain covenants with respect to,
among other things, the following matters: (i) restrictions on additional
indebtedness secured by liens, (ii) restrictions on sale and leaseback
transactions, (iii) restrictions on additional subsidiary indebtedness, and
(iv) restrictions on consolidations, mergers and sales of all or substantially
all of the assets of the Company. These covenants are subject to important
exceptions and qualifications.
If an Event of Default shall occur and be continuing, the
principal of all the Securities may be declared due and payable in the manner
and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of at least 50% in aggregate principal amount of the Securities
at the time Outstanding, and, under certain limited circumstances, by the
Company and the Trustee without the consent of the Holders. The Indenture also
contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Securities at the time Outstanding, on behalf
of the Holders of all the Securities, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of
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<PAGE> 30
this Security is registrable in the Security Register, upon surrender of this
Security for registration of transfer at the Corporate Trust Office or at such
other office or agency of the Company maintained for that purpose pursuant to
the Indenture duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture. The
Company will furnish to any Holder upon written request and without charge a
copy of the Indenture.
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SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities referred to in the
within-mentioned Indenture.
THE FIRST NATIONAL BANK
OF CHICAGO, as Trustee
By:________________________
Authorized Officer
SECTION 205. Global Securities.
Except as provided in Section 305, the Securities shall be
issued in the form of one or more Global Securities. Every Global Security
authenticated and delivered hereunder shall bear a legend in substantially the
following form, in capital letters and bold-face type:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART
FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
If the Depositary is the Depository Trust Company, the Global
Security authenticated and delivered hereunder shall also bear a legend in
substantially the following form, in capital letters and bold-face type:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
SIGNATORY OF THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO
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SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
ARTICLE III
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $450,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section
304, 305, 306 or 906.
The Securities shall be known and designated as the "[____]%
Senior Notes due 2006" of the Company. Their Stated Maturity shall be October
1, 2006 and they shall bear interest at the rate of [___]% per annum, from the
date of original issuance of Securities pursuant to this Indenture or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, payable semi-annually on April 1 and October
1, commencing April 1, 1997, to the Person in whose name the Security or any
Predecessor Security is registered at the close of business on the March 15 or
the September 15 next preceding such Interest Payment Date, until the principal
thereof is paid or made available for payment.
The principal of and interest on the Securities shall be
payable (i) in respect of Securities held of record by the Depositary or its
nominee in same day funds and (ii) in respect of Securities held of record by
Holders other than the Depositary or its nominee at the Corporate Trust Office
or at such other office or agency maintained by the Company for such purpose
pursuant to this Indenture; provided, however, that at the option of the
Company, payment of interest to Holders of record other than the Depositary or
its nominee may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
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The Securities, in whole or any specified part, shall be
defeasible pursuant to Section 1102 or Section 1103 or both such Sections.
Except as may be otherwise provided for by Section 305, the
Securities shall be issuable in the form of one or more Global Securities,
shall bear the legend specified in Section 205 and shall be registered in the
name of The Depository Trust Company or its nominee, as Depositary.
SECTION 302. Denominations.
The Securities shall be issuable only in fully registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by
its Chairman of the Board, one of its Vice Chairmen, its President or one of
its Vice Presidents, under its corporate seal reproduced thereon attested by
its Secretary or one of its Assistant Secretaries. The signature of any of
these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Securities; and the Trustee in
accordance with such Company Order shall authenticate and deliver such
Securities as provided in this Indenture and not otherwise. The aggregate
principal amount of Securities Outstanding at any time may not exceed
$450,000,000 except for Securities authenticated and delivered upon
registration of transfer of, or in ex-
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change for, or in lieu of, other Securities pursuant to Section 304, 305, 306
or 906.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder. The Trustee may appoint an Authenticating Agent pursuant to the
terms of Section 614.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company
may execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities. Every such temporary Security shall be executed
by the Company and shall be authenticated and delivered by the Trustee upon the
same conditions and in substantially the same manner, and with the same effect,
as the definitive Security in lieu of which it is issued.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities may be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to
Section 1002, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
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temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Securities and of transfers of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at
an office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate
principal amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations and of a like aggregate
principal amount and of a like Stated Maturity and with like terms and
conditions, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so
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required by the Company or the Trustee) be duly endorsed, or be accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed, by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304 or 906 not involving
any transfer.
The provisions of clauses (1), (2), (3) and (4) below shall
apply only to Global Securities:
(1) Each Global Security authenticated under this
Indenture shall be registered in the name of the Depositary designated for such
Global Security or a nominee thereof and delivered to such Depositary or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this
Indenture, no Global Security may be exchanged in whole or in part for
Securities registered, and no transfer of a Global Security in whole or in part
may be registered, in the name of any Person other than the Depositary for such
Global Security or a nominee thereof unless (A) such Depositary (i) has
notified the Company that it is unwilling or unable to continue as Depositary
for such Global Security and is not replaced by a successor Depositary approved
by the Trustee within 90 days or (ii) at any time has ceased to be a clearing
agency registered under the Exchange Act, or (B) the Company in its sole
discretion determines not to have all of the Securities represented by a Global
Security and notifies the Trustee thereof.
(3) Subject to clause (2) above, any exchange of a Global
Security for other Securities may be made in whole or in part, and all
Securities issued in exchange for a Global Security or any portion thereof
shall be registered in such names as the Depositary for such Global Security
shall direct.
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(4) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global
Security or any portion thereof, whether pursuant to this Section, Section 304,
306 or 906 or otherwise, shall be authenticated and delivered in the form of,
and shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depositary for such Global Security or a nominee
thereof.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a new Security of like tenor and principal amount and bearing
a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any
Security and (ii) such security or indemnity as may be required by them to save
each of them and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual
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obligation of the Company, whether or not the destroyed, lost or stolen
Security shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest. Payment of interest will be made (i) in respect of Securities held
by the Depositary or its nominee in same day funds and (ii) in respect of
Securities held of record by Holders other than the Depositary or its nominee
at the Corporate Trust Office or at such other office or agency of the Company
as it shall maintain for that purpose pursuant to Section 1002, provided,
however, that, at the option of the Company, interest on any Security held of
record by Holders other than the Depositary or its nominee may be paid by
mailing checks to the addresses of the Holders thereof as such addresses appear
in the Securities Register.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest,
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which shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid on
each Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit prior to
the date of the proposed payment, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder at his
address as it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the Securities
(or their respective Predecessor Securities) are registered at the close of
business on such Special Record Date and shall no longer be payable pursuant to
the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
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SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of and (subject
to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
SECTION 309. Cancellation.
All Securities surrendered for payment, registration of
transfer or exchange shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section, except as expressly permitted by this Indenture. All
cancelled Securities held by the Trustee shall be destroyed by the Trustee and
a certificate of such destruction delivered to the Company unless the Trustee
is otherwise directed by a Company Order.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as
to any surviving rights of registration of transfer or exchange of Securities
herein expressly provided for), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, and the Company, in the case of (i) or (ii), has
deposited or caused to be deposited with the Trustee as trust funds in trust
for the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee for
cancellation, for principal and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the Stated
Maturity, as the case may be;
(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
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(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 607, the
obligations of the Company to any Authenticating Agent under Section 614 and,
if money shall have been deposited with the Trustee pursuant to subclause (B)
of clause (1) of this Section or if money or U.S. Government Obligations have
been deposited with the Trustee pursuant to Section 1104, the obligations of
the Trustee under Section 402 and the last paragraph of Section 1003 shall
survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401, all money
and U.S. Government Obligations deposited with the Trustee pursuant to Section
1102 or 1103 and all money received by the Trustee in respect of U.S.
Government Obligations deposited with the Trustee pursuant to Section 1102 or
1103, shall be held in trust and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money has been deposited with
or received by the Trustee.
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ARTICLE V
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of the principal of any
Security at its Stated Maturity; or
(2) default in the payment of any interest upon any
Security when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(3) default in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in this
Section specifically dealt with), and continuance of such default or breach for
a period of 60 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Securities a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder; or
(4) a default in the payment of principal at maturity
(subject to any applicable grace period) of any Indebtedness for money borrowed
by the Company or any Subsidiary in an aggregate principal amount of
$25,000,000 or the acceleration of such Indebtedness without such acceleration
having been rescinded or annulled within a period of 30 days after there shall
have been given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying such default
and requiring the Company to cause such accelera-
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tion to be rescinded or annulled and stating that such notice is a "Notice of
Default" hereunder; provided, however, that, subject to the provisions of
Sections 601 and 602, the Trustee shall not be deemed to have knowledge of such
default unless either (A) a Responsible Officer of the Trustee shall have
actual knowledge of such default or (B) the Trustee shall have received written
notice thereof from the Company, from any Holder, from the holder of any such
indebtedness or from the trustee under any such mortgage, indenture or other
instrument; or
(5) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Company or any
Significant Subsidiary in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company or any Significant Subsidiary under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect for a
period of 90 consecutive days; or
(6) the commencement by the Company or any Significant
Subsidiary of a voluntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree or order for relief in respect of the
Company or any Significant Subsidiary in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any applicable federal or state
law, or the consent by it to the filing of such petition or to the appoint-
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ment of or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any
Significant Subsidiary or of any substantial part of its property, or the
making by it of an assignment for the benefit of creditors, or the admission by
it in writing of its inability to pay its debts generally as they become due,
or the taking of corporate action by the Company or any Significant Subsidiary
in furtherance of any such action.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(5) or 501(6)) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Securities may declare the principal of all
the Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal plus any interest accrued on the Securities to the date of
declaration shall become immediately due and payable. If an Event of Default
specified in Section 501(5) or 501(6) occurs, the principal amount of all the
Securities shall automatically, and without any declaration or other action
on the part of the Trustee or any Holder, become immediately due and payable.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
at least 50% in principal amount of the Outstanding Securities, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(1) the Company has paid or deposited with the Trustee a
sum sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of any Securities which have become due
otherwise than by such declaration of
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acceleration and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel and all other amounts due the Trustee
under Section 607;
and
(2) all Events of Default, other than the non-payment of
the principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or
impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default continues
for a period of 30 days, or
(2) default is made in the payment of the principal of
any Security at the Stated Maturity thereof, the Company will, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such Securities, the
whole amount then due and payable on such Securities for principal and
interest, and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal and on any overdue interest, at
the rate borne by the Securities, and, in addition thereto, such further amount
as shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
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If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid and may prosecute any such proceeding to judgment or final decree, and
may enforce the same against the Company (or any other obligor upon the
Securities) and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company (or any other obligor
upon the Securities), wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or
any other obligor upon the Securities), its property or its creditors, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or
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accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights
of any Holder thereof or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding; provided, however, that the Trustee
may, on behalf of the Holders, vote for the election of a trustee in bankruptcy
or similar official and may be a member of the Creditors' Committee.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and all other amounts due the Trustee under Section 607, be for the ratable
benefit of the Holders of the Securities in respect of which such judgment has
been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
or interest, upon presentation of the Securities and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607; and
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest on the Securities in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such
Securities for principal and interest, respectively; and
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THIRD: The balance, if any, to the Company or any other Person
or Persons determined to be entitled thereto.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount
of the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders of 50%
or more in principal amount of the Outstanding Securities; it being understood
and intended that no one or more Holders shall have any right in any manner
whatever by virtue of, or by availing of, any provision of this Indenture to
affect, disturb or prejudice the rights of any other Holders, or to obtain or
to seek to obtain priority or preference over any other Holders or to enforce
any right under this Indenture, except in the manner herein provided and for
the equal and ratable benefit of all the Holders.
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SECTION 508. Unconditional Right of Holders to Receive
Principal and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of and (subject to Section
307) interest on such Security on the respective Stated Maturities expressed in
such Security and to institute suit for the enforcement of any such payment on
or after such Stated Maturities, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 306, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
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SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
SECTION 512. Control by Holders.
The Holders of 50% or more in principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; provided that
(1) such direction shall not be in conflict with any rule
of law or with this Indenture, and
(2) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of at least 50% in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of or interest on any
Security, or
(2) in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
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subsequent or other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, a court may require any party litigant in
such suit to file an undertaking to pay the costs of such suit, and may assess
costs against any such party litigant, in the manner and to the extent provided
in the Trust Indenture Act; provided, that neither this Section nor the Trust
Indenture Act shall be deemed to authorize any court to require such an
undertaking or to make such an assessment in any suit instituted by the
Company; and provided, further, that the provisions of this Section shall not
apply to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in
principal amount of the Outstanding Securities, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of or interest
on any Security on or after the Stated Maturities expressed in such Security.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and
permit the execution of every such power as though no such law had been
enacted.
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ARTICLE VI
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the foregoing, no
provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. Whether or not herein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default
hereunder as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(3), no such notice to Holders shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would
become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(1) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
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(2) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(6) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(7) The Trustee shall not be liable for errors of
judgment made in good faith unless it was negligent in ascertaining the
pertinent facts;
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(8) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of at least 50% in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
(9) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by
it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee or any Authenticating Agent assumes no
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. The
Trustee or any Authenticating Agent shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 608 and 613, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
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SECTION 606. Money Held in Trust.
Money held by the Trustee or any Paying Agent in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee or any Paying Agent shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed in
writing with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder as may be mutually
agreed upon in writing by the Company and the Trustee (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
the performance of its duties under this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense (other than any income or franchise tax
attributable to compensation payable to the Trustee hereunder) incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The Trustee shall
notify the Company promptly of any action, suit or proceeding for which it may
seek indemnity. The Company shall defend such action, suit or proceeding and
the Trustee may have separate counsel, and, if the Company has failed to assume
the defense and employ counsel, or if the named parties to any such action,
suit or proceeding (including any impleaded parties) include both the Trustee
and the
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Company and the Trustee shall have been advised by its counsel that
representation of the Trustee and the Company by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
or potential differing interests between them, the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which shall not be unreasonably withheld.
The indemnity provided for in this Section 607 shall survive
the resignation or removal of any Trustee under this Indenture.
As security for the performance of the obligations of the
Company under this Section the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the payment of principal of or interest on
particular Securities.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(5) or (6), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any bankruptcy law.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
a Person that is eligible pursuant to the Trust Indenture Act to act as such
and has a combined capital and surplus of at least $50,000,000. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this
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Section, the combined capital and surplus of such Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of
Successor.
(1) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 611.
(2) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(3) The Trustee may be removed at any time by Act of the
Holders of 50% or more in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(4) If at any time:
(A) the Trustee shall fail to comply with Section 608
after written request therefor by the Company or by any Holder who has
been a bona fide Holder of a Security for at least six months, or
(B) the Trustee shall cease to be eligible under Section
609 and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(C) the Trustee shall become incapable of acting or shall
be adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property
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or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, (i) the Company by a Board
Resolution may remove the Trustee, or (ii) subject to Section 514, any
Holder who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee and shall comply with the applicable requirements of Section
611. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee shall be appointed by Act
of the Holders of at least 50% in principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment
in accordance with the applicable requirements of Section 611, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee.
(6) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of
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the retiring Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; provided, however, on
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such retiring Trustee hereunder. Upon request
of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
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SECTION 613. Preferential Collection of Claims Against
Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Securities), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection
of claims against the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents
which shall be authorized to act on behalf of the Trustee to authenticate
Securities issued upon original issue and upon exchange, registration of
transfer or pursuant to Section 306, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory
for all purposes as if authenticated by the Trustee hereunder. Wherever
reference is made in this Indenture to the authentication and delivery of
Securities by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery on behalf of
the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all times
be a corporation organized and doing business under the laws of the United
States of America, any state thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by federal or state authority. If such Authenticating Agent publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
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Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder,
with like effect as if originally named as an Authenticating Agent. No
successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
Any Authenticating Agent by the acceptance of its appointment
shall be deemed to have represented to the Trustee that it is eligible for
appointment as Authenticating Agent under this Section and to have agreed with
the Trustee that it will (i) perform and carry out the duties of an
Authenticating Agent as herein set forth, including among other things the
duties to authenticate Securities when presented to it in connection with the
original issuance and with exchanges, registrations of transfer or pursuant to
Section 306; (ii) keep and maintain, and furnish to the Trustee from time to
time as requested by the Trustee, appropriate records of all transactions
carried out by it as Authenticating Agent; (iii) furnish the Trustee such other
information and re-
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ports as the Trustee may reasonably require; and (iv) notify the Trustee
promptly if it shall cease to be eligible to act as Authenticating Agent in
accordance with the provisions of this Section. Any Authenticating Agent by
the acceptance of its appointment shall be deemed to have agreed with the
Trustee to indemnify the Trustee against any loss, liability or expense
incurred by the Trustee and to defend any claim asserted against the Trustee by
reason of any acts or failures to act of such Authenticating Agent, but such
Authenticating Agent shall have no liability for any action taken by it in
accordance with the specific written direction of the Trustee.
The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section.
If an appointment is made pursuant to this Section, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the
following form:
This is one of the Securities described in the
within-mentioned Indenture
The First National Bank of Chicago,
As Trustee
By:________________________________________
As Authenticating Agent
By:________________________________________
By Authorized Signatory
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ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders.
The Company will furnish or cause to be furnished to the Trustee
(1) semi-annually, not more than 15 days after each
Regular Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders as of such Regular Record
Date, and
(2) at such other times as the Trustee may request in
writing, within 30 days (15 days with respect to any Special Record Date) after
the receipt by the Company of any such request, a list of similar form and
content as of a date not more than 15 days prior to the time such list is
furnished.
Notwithstanding the foregoing, so long as the Trustee shall be the Security
Registrar for the Securities, no such list need be furnished.
SECTION 702. Preservation of Information; Communications to
Holders.
(1) The Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(2) The rights of Holders to communicate with other
Holders with respect to their rights under this Indenture or under the
Securities, and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
(3) Every Holder of Securities, by receiving and holding
the same, agrees with the Company and the Trustee that neither the Company nor
the Trustee nor any
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agent of either of them shall be held accountable by reason of any disclosure
of information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
SECTION 703. Reports by Trustee.
Within 60 days following each May 15, the Trustee shall
transmit to Holders such reports concerning the Trustee and its actions under
this Indenture as may be required pursuant to the Trust Indenture Act, if any,
at the times and in the manner provided pursuant thereto. A copy of each such
report shall, at the time of such transmission to Holders, be filed by the
Trustee with each stock exchange upon which the Securities are listed, with the
Commission and with the Company. The Company will notify the Trustee when the
Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other reports, and
such summaries thereof, as may be required pursuant to the Trust Indenture Act
at the times and in the manner provided pursuant to the Trust Indenture Act;
provided that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms.
The Company shall not consolidate with or merge into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey,
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transfer or lease its properties and assets substantially as an entirety to the
Company, unless:
(1) in case the Company shall consolidate with or merge
into another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety shall be a corporation, partnership or
trust, shall be organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee, the due and punctual
payment of the principal of and interest on all the Securities and the
performance or observance of every covenant of this Indenture on the part of
the Company to be performed or observed;
(2) immediately after giving effect to such transaction,
no Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger
or such conveyance, transfer or lease, properties or assets of the Company
would become subject to a mortgage, pledge, lien, security interest or other
encumbrance which would not be permitted by Section 1009, the Company or such
successor Person, as the case may be, shall take such steps as shall be
necessary effectively to secure the Securities equally and ratably with (or
prior to) all Indebtedness secured thereby; and
(4) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture
comply with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
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SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety in accordance
with Section 801, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of
Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company for the
benefit of the Holders or an additional Event of Default, or to surrender any
right or power herein conferred upon the Company; or
(3) to secure the Securities; or
(4) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the Securities; or
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(5) to cause the Indenture and the Securities to comply
with applicable law, including the Trust Indenture Act; or
(6) to cure any defect or ambiguity, to correct or
supplement any provision herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions with respect to matters
or questions arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture; provided, however, that such action pursuant
to this clause (6) shall not adversely affect the interests of the Holders in
any material respect.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of at least 50% in principal
amount of the Outstanding Securities, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or
any installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon, or change the place of payment where,
or the coin or currency in which, any Security or interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof, or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture, or
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(3) modify any of the provisions of this Section, Section
513 or Section 1012, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, in addition to the Officer's Certificate and Opinion of Counsel required
by Section 102, an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
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SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.
SECTION 906. Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
SECTION 907. Notice of Supplemental Indenture.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to Section 902, the Company shall transmit
to the Holders a notice setting forth the substance of such supplemental
indenture.
ARTICLE X
COVENANTS
SECTION 1001. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
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SECTION 1002. Maintenance of Office or Agency.
The Company will maintain an office or agency (which may be
the Corporate Trust Office of the Trustee and which in any event shall not be
located outside the contiguous United States of America) where Securities may
be presented or surrendered for payment, where Securities may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company hereby appoints the Corporate Trust Office as its
agent where Securities may be presented or surrendered for payment, whereby
Securities may be surrendered for registration of transfer or exchange and the
Corporate Trust Office as its agent where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served. The
Company may also from time to time designate one or more other offices or
agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of or interest on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided
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and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it
will, prior to each due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be
held as provided by the Trust Indenture Act, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will (i) comply with the provisions of the
Trust Indenture Act applicable to it as a Paying Agent and (ii) during the
continuance of any default by the Company (or any other obligor upon the
Securities) in the making of any payment in respect of the Securities, upon the
written request of the Trustee, forthwith pay to the Trustee all sums held in
trust by such Paying Agent for payment in respect of the Securities.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of or
interest on any Security and remaining unclaimed for two years after such
principal or interest has become due and payable shall be paid to the Company
on Company Request, or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Security shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such
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Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in the City of New York, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate complying with the requirements of Section 314(a)(4) of
the Trust Indenture Act and stating whether or not to the best knowledge of the
signers thereof the Company is in default in the performance and observance of
any of the terms, provisions and conditions of this Indenture (without regard
to any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge.
The Company shall promptly, and in any event within 10 days of
the occurrence thereof, give notice to the Trustee of any default or Event of
Default hereunder.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
existence, rights (charter and statutory) and franchises and the existence,
rights (charter and statutory) and franchises of each Subsidiary; provided,
however, that the Company shall not be required to preserve any such right or
franchise, whether relating to the Company or any Subsidiary, if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the
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business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties used or useful in the
conduct of its business or the business of any Subsidiary to be maintained and
kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
SECTION 1007. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon the Company or any Subsidiary
or upon the income, profits or property of the Company or any Subsidiary, and
(ii) all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 1008. Maintenance of Insurance.
The Company will maintain, and will cause each of its
Subsidiaries to maintain, with insurers the Company reasonably believes to be
financially sound and reputable, insurance deemed adequate by the Company with
respect to its properties and business and the properties and business of its
Subsidiaries against loss or damage
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of the kinds customarily insured against by corporations in the same or similar
business. Such insurance may be subject to co-insurance, deductibility or
similar clauses which, in effect, result in self-insurance of certain losses,
provided that such self-insurance is in accord with the practices of
corporations in the same or similar business and adequate insurance reserves
are maintained in connection with such self-insurance.
SECTION 1009. Restrictions on Liens.
So long as any of the Securities are outstanding, the Company
will not, and will not permit any Subsidiary to, issue, assume, incur or
guarantee any Indebtedness secured by a Lien on or with respect to any property
or assets of the Company or any Subsidiary, or upon any shares of capital
stock, Indebtedness or other obligations of any Subsidiary, whether now owned
or leased or hereafter acquired, without in any such case effectively providing
that the Securities shall be secured equally and ratably with (or prior to)
such Indebtedness for so long as such Indebtedness shall be so secured, except
that the foregoing restrictions shall not apply to:
(1) Liens existing as of the date of the Indenture;
(2) Liens created solely to secure the payment of Purchase
Money Indebtedness incurred by the Company or a Subsidiary, provided that any
such Lien shall not secure Indebtedness in excess of the amount expended in the
acquisition of, or construction of improvements on, the property or assets and
shall not extend to or cover any property or assets other than the property or
assets so acquired or the improvements thereon;
(3) Liens upon any property or assets owned or leased by any
Subsidiary when it becomes a Subsidiary and not incurred as a result of, or in
connection with or in anticipation of, such Subsidiary becoming a Subsidiary
(except to the extent otherwise permitted by (2) above);
(4) Liens existing on any property or assets at the time of
its acquisition by the Company or a Subsidiary (including acquisition through
merger or consolidation) and not incurred as a result of, or in connection
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with or in anticipation of, such acquisition (except to the extent otherwise
permitted by (2) above);
(5) Liens securing Indebtedness of a Subsidiary to the
Company or to another Subsidiary;
(6) Liens imposed by law for taxes, assessments or
charges of any Governmental Authority for claims not yet delinquent or which
are being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP and which liens are not
yet enforceable against other creditors;
(7) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law or created
in the ordinary course of business and in existence less than 90 days from the
date of creation thereof for amounts not yet due or which are being contested
in good faith by appropriate proceedings diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being maintained
in accordance with GAAP and which Liens are not yet enforceable against other
creditors;
(8) Liens incurred or deposits made in the ordinary
course of business (including, without limitation, surety bonds and appeal
bonds) in connection with workers' compensation, unemployment insurance and
other types of social security benefits or to secure the performance of
tenders, bids, leases, contracts (other than for the repayment of
Indebtedness), statutory obligations and other similar obligations or arising
as a result of progress payments under government contracts;
(9) easements (including reciprocal easement agreements
and utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not recorded), which do not interfere materially with
the ordinary conduct of the business of the Company or any Subsidiary and which
do not materially detract from the value of the business of the Company or any
Subsidiary and which do not materially detract from the value of the property
to which they attach or materi-
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ally impair the use thereof to the Company or any Subsidiary;
(10) Liens arising in connection with Capital Leases
otherwise permitted or not prohibited by the terms of the Indenture; provided
that no such Lien shall extend to any property other than the assets subject to
such Capital Leases;
(11) Liens securing Off-Balance Sheet Liabilities
otherwise permitted or not prohibited by the terms of the Indenture;
(12) Permitted Receivables Securitizations; and
(13) the extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any Lien
referred to in the foregoing clauses (1) through (12), or of any Indebtedness
secured thereby, provided, however, that (i) such extension, renewal, refunding
or replacement Lien shall be limited to all or a part of the same property,
shares of stock or Indebtedness that were encumbered by the Lien extended,
renewed, refunded or replaced (plus improvements on such property) and (ii) the
Indebtedness secured by such Lien at such time is not increased.
Notwithstanding the foregoing, the Company or any Subsidiary may issue, assume,
incur or guarantee Indebtedness secured by Liens which otherwise would be
subject to the foregoing restrictions in an aggregate amount which, together
with (i) all other such Indebtedness of the Company and its Subsidiaries
outstanding which would otherwise be subject to the foregoing restrictions (not
including Indebtedness permitted to be secured under clauses (1) through (13)
above), (ii) all Indebtedness of the Subsidiaries (not including Indebtedness
permitted to be issued, assumed, incurred or guaranteed under clauses (1)
through (10) under "Restrictions on Subsidiary Indebtedness" below) and (iii)
all Attributable Debt in respect of Sale and Leaseback Transactions permitted
under "Restrictions on Sale and Leaseback Transactions" below, does not exceed
15% of Consolidated Net Worth of the Company.
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SECTION 1010. Restrictions on Sale and Leaseback Transactions.
So long as any of the Securities are outstanding, the Company
will not, nor will it permit any Subsidiary to, enter into any arrangement with
any Person (other than the Company or a Subsidiary) providing for the leasing by
the Company or any Subsidiary of any property or assets, whether now owned or
hereafter acquired, which has been or is to be sold or transferred by the
Company or such Subsidiary to such Person with the intention of taking back a
lease on such property or assets and which arrangement would be characterized or
qualified as either a Capital Lease or Off-Balance Sheet Liability (a "Sale and
Leaseback Transaction"), if, at the time of entering into such Sale and
Leaseback Transaction, and after giving effect thereto, the amount of
Attributable Debt in respect of such Sale and Leaseback Transaction, together
with all such other Attributable Debt outstanding exceeds the greater of (i)
$25,000,000 or (ii) together with (A) all Indebtedness outstanding secured by
Liens (not including Indebtedness permitted to be secured under clauses (1)
through (13) under "Restrictions on Liens" above) and (B) all Indebtedness of
Subsidiaries (not including Indebtedness permitted to be issued, assumed,
incurred or guaranteed under clauses (1) through (10) under "Restrictions on
Subsidiary Indebtedness" below), 15% of Consolidated Net Worth of the Company.
SECTION 1011. Restrictions on Subsidiary Indebtedness.
So long as any of the Securities are outstanding, the Company
will not permit any of its Subsidiaries to issue, assume, incur or guarantee
any Indebtedness, except that the foregoing restrictions shall not apply to:
(1) Indebtedness existing as of the date of the
Indenture, including all existing or available borrowings under the Bank Credit
Agreement;
(2) Indebtedness of a corporation or other entity
existing at the time it becomes a Subsidiary and not incurred as a result of,
or in connection with or in anticipation of, such Subsidiary becoming a
Subsidiary;
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(3) Indebtedness of a corporation or other entity assumed
at the time of its acquisition by a Subsidiary (including acquisition through
merger or consolidation) and not incurred as a result of, or in connection with
or in anticipation of, such acquisition;
(4) unsecured intercompany Indebtedness of a Subsidiary
for loans or advances made to such Subsidiary by the Company or another
Subsidiary; provided that upon either (i) the transfer or other disposition by
the Company or a Subsidiary of any Indebtedness so permitted to a Person other
than the Company or another Subsidiary or (ii) the issuance, sale, transfer or
other disposition (other than a pledge of the shares of such Subsidiary
permitted under "Restrictions on Liens" above) of shares of capital stock
(including acquisition through merger or consolidation) of such Subsidiary to a
Person other than the Company or another Subsidiary which, after giving effect
thereto, results in such Subsidiary ceasing to be a Subsidiary of the Company,
the provisions of this clause (4) shall no longer be applicable to such
Indebtedness and such indebtedness shall be deemed to have been issued,
assumed, incurred or guaranteed at the time of such transfer or other
disposition;
(5) the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business;
(6) Purchase Money Indebtedness and Capital Leases
incurred or entered into by a Subsidiary not to exceed an aggregate outstanding
principal amount at any time of $25,000,000; provided, however, that the
aggregate outstanding principal amount of Purchase Money Indebtedness and
Capital Leases permissible under this clause (6) shall be increased or
decreased to such amount as is permissible under the Bank Credit Agreement;
(7) Permitted Receivables Securitizations;
(8) Off-Balance Sheet Liabilities (other than Permitted
Receivables Securitizations) and other secured Indebtedness of a Subsidiary not
to exceed an aggregate outstanding principal amount of $25,000,000; provided,
however, that the aggregate outstanding principal amount of Off-Balance Sheet
Liabilities and other secured Indebtedness permissible under this clause (8)
shall be
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increased or decreased to such amount as is permissible under the Bank Credit
Agreement;
(9) Indebtedness arising from Rate Hedging Obligations
incurred to limit risks of currency or interest rate fluctuations to which a
Subsidiary is otherwise subject by virtue of the operations of its business,
and not for speculative purposes; provided, however, that the aggregate
notional amount of all such Rate Hedging Obligations shall not exceed at any
time $500,000,000; and provided, further, that the aggregate outstanding
principal amount of Indebtedness arising from Rate Hedging Obligations under
this clause (9) shall be increased or decreased to such amount as is
permissible under the Bank Credit Agreement;
(10) the extension, renewal, refinancing or replacement
(or successive extensions, renewals, refinancings or replacements), in whole or
in part, of any Indebtedness referred to in the foregoing clauses (1) through
(9); provided, however, (i) that the Indebtedness so issued has (A) a principal
amount not in excess of the principal amount of the Indebtedness being
extended, renewed, refinanced or replaced (which amount shall be deemed to
include the amount of any undrawn or available amounts under any committed
credit or lease facility to be so extended, renewed, refinanced or replaced),
(B) a final redemption date later than the final stated maturity or final
redemption date, if any, of the Indebtedness being extended, renewed,
refinanced or replaced and (C) an Average Life at the time of issuance of such
Indebtedness that is greater than the Average Life of the Indebtedness being
extended, renewed, refinanced or replaced; (ii) the group of direct or
contingent obligors on such Indebtedness shall not be expanded as a result of
any such action; and (iii) immediately prior to and immediately after giving
effect to any such extension, renewal or replacement, no Event of Default shall
have occurred and be continuing.
Notwithstanding the foregoing, any Subsidiary may issue, assume, incur or
guarantee Indebtedness which otherwise would be subject to the foregoing
restrictions in an aggregate amount, that together with all other such
Indebtedness of any Subsidiaries outstanding which would otherwise be subject
to the foregoing restrictions (not including Indebtedness permitted to be
issued, assumed,
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incurred or guaranteed under clauses (1) through (10) above), that does not
exceed 15% of Consolidated Net Worth of the Company.
SECTION 1012. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any covenant or condition set forth in Sections 1009, 1010 and 1011, if before
the time for such compliance the Holders of at least 50% in principal amount of
the Outstanding Securities shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such covenant or condition shall remain in full force
and effect.
ARTICLE XI
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1101. Company's Option to Effect Defeasance or
Covenant Defeasance.
The Company may elect, at its option at any time, to have
Section 1102 or Section 1103 applied to any Securities designated pursuant to
Section 301 as being defeasible pursuant to such Section 1102 or 1103, in
accordance with any applicable requirements provided pursuant to Section 301
and upon compliance with the conditions set forth below in this Article. Any
such election shall be evidenced by a Board Resolution or in another manner
specified as contemplated by Section 301 for such Securities.
SECTION 1102. Defeasance and Discharge.
Upon the Company's exercise of its option (if any) to have
this Section applied to any Securities the Company shall be deemed to have been
discharged from its obligations with respect to such Securities as provided in
this Section on and after the date the conditions set forth in Section 1104 are
satisfied (hereinafter called
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"Defeasance"). For this purpose, such Defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by
such Securities and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), subject to the following which shall survive until
otherwise terminated or discharged hereunder: (1) the rights of Holders of such
Securities to receive, solely from the trust fund described in Section 1104 and
as more fully set forth in such Section, payments in respect of the principal
and interest on such Securities when payments are due, (2) the Company's
obligations with respect to such Securities under Sections 304, 305, 306, 1002
and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (4) this Article. Subject to compliance with this Article, the
Company may exercise its option (if any) to have this Section applied to any
Securities notwithstanding the prior exercise of its option (if any) to have
Section 1103 applied to such Securities.
SECTION 1103. Covenant Defeasance.
Upon the Company's exercise of its option (if any) to have
this Section applied to any Securities (1) the Company shall be released from
its obligations under Section 801(3), Sections 1006 through 1011, inclusive,
and any covenant provided pursuant to Section 901(2) for the benefit of the
Holders of such Securities and (2) the occurrence of any event specified in
Sections 501(3) (with respect to any of Section 801(3), Sections 1006 through
1011, inclusive, and any such covenants provided pursuant to Section 901(2) and
501(4) shall be deemed not to be or result in an Event of Default, in each case
with respect to such Securities as provided in this Section on and after the
date the conditions set forth in Section 1104 are satisfied (hereinafter called
"Covenant Defeasance"). For this purpose, such Covenant Defeasance means that,
with respect to such Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such specified Section (to the extent so specified in the case of Section
501(3)), whether directly or indirectly by reason of any reference elsewhere
herein to any such Section or by reason of any reference in any such
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Section to any other provision herein or in any other document, but the
remainder of this Indenture and such Securities shall be unaffected thereby.
SECTION 1104. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to the application of
Section 1102 or Section 1103 to any Securities:
(1) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee which satisfies the
requirements contemplated by Section 609 and agrees to comply with the
provisions of this Article applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms will provide, not later than one day before the due date of
any payment, money in an amount, or (C) a combination thereof, in each case
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the Trustee
(or any such other qualifying trustee) to pay and discharge, the principal and
interest on such Securities on the respective Stated Maturities, in accordance
with the terms of this Indenture and such Securities. As used herein, "U.S.
Government Obligation" means (x) any security which is (i) a direct obligation
of the United States of America for the payment of which the full faith and
credit of the United States of America is pledged or (ii) an obligation of a
Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case (i) or (ii), is not callable or redeemable at
the option of the issuer thereof, and (y) any depositary receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended)
as custodian with respect to any U.S. Government Obligation which is specified
in clause (x)
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above and held by such bank for the account of the holder of such depositary
receipt, or with respect to any specific payment of principal of or interest on
any U.S. Government Obligation which is so specified and held; provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest evidenced by such
depositary receipt.
(2) In the event of an election to have Section 1102
apply to any Securities the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of this instrument, there has been a change in the applicable federal income
tax law, in either case (A) or (B) to the effect that, and based thereon such
opinion shall confirm that, the Holders of such Securities will not recognize
gain or loss for federal income tax purposes as a result of the deposit,
Defeasance and discharge to be effected with respect to such Securities and
will be subject to federal income tax on the same amount, in the same manner
and at the same times as would be the case if such deposit, Defeasance and
discharge were not to occur.
(3) In the event of an election to have Section 1103
apply to any Securities the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of such Securities will not
recognize gain or loss for federal income tax purposes as a result of the
deposit and Covenant Defeasance to be effected with respect to such Securities
and will be subject to federal income tax on the same amount, in the same
manner and at the same times as would be the case if such deposit and Covenant
Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an
Officers' Certificate to the effect that such Securities, if then listed on any
securities exchange, will not be delisted as a result of such deposit.
(5) No event which is, or after notice or lapse of time
or both would become, an Event of Default with respect to such Securities or
any other Securities
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shall have occurred and be continuing at the time of such deposit or, with
regard to any such event specified in Sections 501(5) and (6), at any time on
or prior to the 90th day after the date of such deposit (it being understood
that this condition shall not be deemed satisfied until after such 90th day).
(6) Such Defeasance or Covenant Defeasance shall not
cause the Trustee to have a conflicting interest within the meaning of the
Trust Indenture Act (assuming all Securities are in default within the meaning
of the Trust Indenture Act).
(7) Such Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company is a party or by which it is
bound.
(8) Such Defeasance or Covenant Defeasance shall not
result in the trust arising from such deposit constituting an investment
company within the meaning of the Investment Company Act unless such trust
shall be registered under such Act or exempt from registration thereunder.
(9) The Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent with respect to such Defeasance or Covenant Defeasance
have been complied with.
SECTION 1105. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee or other qualifying trustee (solely for
purposes of this Section and Section 1106, the Trustee and any such other
trustee are referred to collectively as the "Trustee") pursuant to Section 1104
in respect of any Securities shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any such Paying Agent (including the
Company acting as its own Paying Agent) as the Trustee may
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determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal and interest, but money so held in trust need
not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 1104 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1104 with respect to any Securities which, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount which would then be required to be deposited to effect the Defeasance or
Covenant Defeasance, as the case may be, with respect to such Securities.
SECTION 1106. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any
money in accordance with this Article with respect to any Securities by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the obligations
under this Indenture and such Securities from which the Company has been
discharged or released pursuant to Section 1102 or 1103 shall be revived and
reinstated as though no deposit had occurred pursuant to this Article with
respect to such Securities, until such time as the Trustee or Paying Agent is
permitted to apply all money held in trust pursuant to Section 1105 with
respect to such Securities in accordance with this Article; provided, however,
that if the Company makes any payment of principal of or interest on any such
Security following such reinstatement of its obligations, the Company shall be
subrogated to the rights (if any) of the Holders of such Securities to receive
such payment from the money so held in trust.
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* * *
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
MEDPARTNERS, INC.
By:
----------------------------
Name: Harold O. Knight, Jr.
Title: Executive Vice
President Finance
Attest:
By:
------------------------
Name: Tracy P. Thrasher
Title: Secretary
THE FIRST NATIONAL BANK
OF CHICAGO, as Trustee
By:
----------------------------
Name:
Title:
Attest:
By:
------------------------
Name:
Title:
81
<PAGE> 1
[LETTERHEAD] HASKELL SLAUGHTER & YOUNG, L.L.C.
October 3, 1996
MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
RE: REGISTRATION STATEMENT ON FORM S-1
OUR FILE NO. 48367-062
Gentlemen:
We have served as counsel for MedPartners, Inc., a Delaware
corporation (the "Company" or "MedPartners"), in connection with the
registration under the Securities Act of 1933, as amended, pursuant to the
Company's Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on September 20, 1996 (the "Registration Statement"), of
$450,000,000 principal amount of its __% Senior Notes due 2006 (the "Notes").
This opinion is furnished to you pursuant to the requirements of Form S-1.
In connection with this opinion, we have examined and are familiar
with originals or copies (certified or otherwise identified to our
satisfaction) of such documents, corporate records and other instruments
relating to the formation of the Company and to the authorization and issuance
of the Notes as we have deemed necessary and appropriate.
Based upon the foregoing, and having regard for such legal
considerations as we have deemed relevant, it is our opinion that:
1. The Notes have been duly authorized; and
2. Upon issuance, sale and delivery of the Notes as contemplated
in the Registration Statement, the Notes will be legally issued, fully paid and
nonassessable and will constitute the valid and binding obligations of the
Company.
<PAGE> 2
MedPartners, Inc.
October 3, 1996
Page 2
We do hereby consent to the reference to our Firm under the heading
"Legal Matters" in the Prospectus which forms a part of the Registration
Statement, and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By Robert E. Lee Garner
--------------------------------------
Robert E. Lee Garner
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 24, 1996,
between MEDPARTNERS/MULLIKIN, INC., a Delaware corporation (together with any
successor corporation, "MedPartners"), and LARRY R. HOUSE, a resident of
Birmingham, Alabama ("Executive").
WITNESSETH:
WHEREAS, MedPartners and its subsidiaries and affiliates are engaged
in providing medical practice management services throughout the United States;
and
WHEREAS, MedPartners desires to avail itself of Executive's talents
and expertise in the management of the medical practice management business of
MedPartners, and to employ him as the Chairman of the Board, President and
Chief Executive Officer of MedPartners and certain of its subsidiaries and
affiliates, and Executive is willing to accept such employment.
NOW THEREFORE, in consideration of the premises, and other mutual
promises and covenants hereinafter contained, MedPartners and Executive do
hereby agree, for their mutual benefit, as follows:
SECTION 1. EMPLOYMENT.
Executive shall be employed by MedPartners under this Agreement,
effective July 24, 1996, and Executive accepts such employment upon the terms
and conditions hereinafter set forth.
SECTION 2. TERM.
The term of employment provided for in this Agreement shall commence
on July 24, 1996, and shall remain in full force and effect for a period of
five years thereafter. Such term shall be automatically extended for an
additional year on each anniversary of the term commencement date, unless
written notice of non-extension is provided by MedPartners to Executive at
least 30 days prior to such anniversary.
SECTION 3. POWERS AND DUTIES.
Executive shall be employed by MedPartners during the term of
employment under this Agreement as the Chairman of the Board, President and
Chief Executive Officer of MedPartners, and shall also hold similar offices
with MedPartners ' subsidiaries and affiliates and/or their successors. In
addition, MedPartners shall use its best efforts to cause Executive to be
nominated and elected as a Director of MedPartners and its subsidiaries and
affiliates or their successors during the term of this Agreement. In addition,
Executive shall perform such duties as may be assigned to him from time to time
by and shall report to the Board of Directors of MedPartners ("Board of
Directors").
In carrying out his duties under this Agreement, Executive shall have
such powers and duties usually incident to the office of Chairman of the Board,
President and Chief Executive Officer and shall have general responsibility for
the overall development, expansion and operations of MedPartners and its
subsidiaries and affiliates. The performance by Executive of any duties
assigned to him which are not of the type provided for
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herein shall not constitute a waiver of his rights hereunder or an abrogation,
abandonment or termination of this Agreement.
Executive shall devote all of his working time and best efforts in the
best interest of and on behalf of MedPartners throughout the term of this
Agreement in a manner appropriate for an executive having Executive's position,
duties, responsibilities and status. Executive shall not be restricted from
engaging in a business which is non-competitive with MedPartners and its
subsidiaries and affiliates after normal working hours or on weekends or from
investing his assets in such form or manner as will not require any services on
his part in the operation of the affairs of the companies in which such
investments are made.
SECTION 4. PLACE OF PERFORMANCE.
The headquarters for the performance of Executive's duties shall be
located in Birmingham, Alabama, but from time to time Executive shall be
required to travel to MedPartners' other locations in the proper conduct of his
responsibilities under this Agreement. Due to the national scope of
MedPartners' business, MedPartners may require Executive to spend a reasonable
amount of time traveling, as his duties and the business of MedPartners and its
subsidiaries and affiliates may require.
SECTION 5. COMPENSATION.
For all services rendered by Executive pursuant to this Agreement,
MedPartners shall pay Executive the following compensation:
(a) A base salary at the annual rate of $935,700 for the period
July 24, 1996 through December 31, 1996, such salary to be paid semi-monthly.
Such salary shall be reviewed annually by the Board of Directors.
(b) In addition to the above base salary, Executive shall be paid
an incentive bonus in the total amount of $776,700 per annum, payable only if
MedPartners meets the performance standard (the "Performance Standard")
established by the Compensation Committee of the Board of Directors of
MedPartners, as established for each calendar year during the term of this
Agreement by the Compensation Committee. For purposes of this Agreement, the
Performance Standard shall be earnings per share reported by MedPartners based
upon the consensus estimate for earnings per share as published by Nelson
Publications. In the event the consensus estimate for earnings per share
published by Nelson Publications shall be changed during any calendar year
during the term of this Agreement, the Compensation Committee may, in its
discretion, so change the Performance Standard for the purposes of this
paragraph. If, during the term of this Agreement, the Compensation Committee
shall determine that the Performance Standard to be followed for the next
succeeding contract year or years under this Agreement shall be changed to a
different performance measure, i.e., gross operating margin, return on assets,
return on equity, total shareholder return, etc., the Performance Standard may
be changed for each year or years, with the consent of Executive. The $776,700
incentive bonus shall be payable on a quarterly basis (1/4 with respect to each
quarter of the calendar year) and shall be payable in equal quarterly
increments within five days of the date the Compensation Committee reviews the
quarterly estimate of earnings per share of MedPartners announced to the public
by MedPartners. In the event that any quarterly payment hereunder shall not be
paid during the course of a calendar year because the Performance Standard is
not met, such amount shall be due and payable at the time MedPartners' annual
earnings per share results are announced to the public if MedPartners attains
the Performance Standard set forth hereinabove for the calendar year involved.
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(c) Executive shall be entitled to participate in any other bonus
plan approved by the Board of Directors for MedPartners' management and shall
be eligible for other discretionary bonuses approved by the Board of Directors.
(d) For purposes of administration, the terms of this Agreement
shall be given effect on a pro-rata basis for partial calendar years and
otherwise administered on a calendar year basis.
SECTION 6. EMPLOYEE BENEFITS.
Subject to eligibility requirements, Executive will be entitled to
participate in any employee retirement, benefit or welfare plans provided by
MedPartners to its employees and/or to its senior executives, such as life
insurance, health and dental, retirement, savings and disability plans which
MedPartners has in effect or may adopt from time to time. Without limiting the
generality of the foregoing, MedPartners shall provide Executive the following
during the term of this Agreement:
(a) reasonable vacation during each year of this Agreement;
(b) a reasonable car allowance for an automobile owned or leased
by Executive for use by Executive in connection with the performance of his
duties under this Agreement;
(c) disability insurance coverage paying benefits equal to at
least 90% of Executive's base salary, either through a corporate group
disability insurance plan or otherwise;
(d) payment of dues for such professional societies and
associations of which Executive is a member in furtherance of his duties
hereunder;
(e) a split-dollar arrangement with Executive, or a third party
designated by Executive as the owner of life insurance provided under such
arrangement, providing for the payment of premiums on a policy of life
insurance insuring the life of Executive, or insuring the joint lives of
Executive and his spouse;
(f) payment directly to Executive's counsel and/or accountant not
to exceed $5,000 per annum for estate and tax planning services for the benefit
of Executive; and
(g) consideration, at least annually, by the Board of Directors
for the grant to Executive of options to purchase Common Stock of MedPartners.
SECTION 7. EXPENSES.
Executive is authorized to incur reasonable expenses in promoting the
business of MedPartners and its subsidiaries and affiliates, including
expenses, to the extent used for business purposes, for entertainment, travel
and similar items. MedPartners will reimburse Executive for all such expenses,
upon the presentation by him of an itemized account of such expenditures in
accordance with the MedPartners expense reimbursement procedures.
SECTION 8. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
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(a) "CAUSE" shall mean (i) repeated violations by Executive of
Executive's obligations under Section 3 of this Agreement (other than as a
result of incapacity due to physical or mental illness) which violations (A)
are demonstrably willful and deliberate on Executive's part, (B) are committed
in bad faith or without reasonable belief that such violations are in the best
interests of MedPartners, and (C) are not remedied in a reasonable period of
time after receipt of written notice from MedPartners specifying such
violations, or (ii) the conviction of Executive of a felony involving moral
turpitude.
(b) "CHANGE IN CONTROL" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of Common
Stock of MedPartners (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of MedPartners entitled
to vote generally in the election of directors ("the
Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a
Change in Control: (1) any acquisition directly from
MedPartners, (2) any acquisition by MedPartners, (3)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by MedPartners
or any corporation controlled by MedPartners, or (4)
any acquisition by any corporation pursuant to a
transaction which complies with clauses (1), (2) and
(3) of subsection (iii) below;
(ii) Individuals who, as of the date of this Agreement,
constitute the Board of Directors (the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided,
however, that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by MedPartners' stockholders,
was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall
be considered as though such individual were a member
of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption
of office occurs as a result of an actual or
threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of MedPartners (a
"Business Combination"), in each case, unless,
following such Business Combination, (1) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result
of such transaction owns MedPartners or all or
substantially all of MedPartners' assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the
case may be, (2) no party (excluding any corporation
resulting
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from such Business Combination or any employee
benefit plan (or related trust) of the Company or
such corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination and (3) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members
of the Board of Directors of MedPartners at the time
of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such
Business Combination; or
(iv) Approval by the stockholders of MedPartners of a
complete liquidation or dissolution of MedPartners.
(c) "CODE" shall mean the Internal Revenue Code of 1986 and all
regulations promulgated thereunder, as the same may be amended from time to
time.
(d) "DISABILITY" shall be deemed to have occurred if Executive
makes application for or is otherwise eligible for disability benefits under
any MedPartners-sponsored long-term disability program covering Executive, and
Executive qualifies for such benefits. In the absence of a
MedPartners-sponsored long-term disability program covering Executive,
Executive shall be presumed totally and permanently disabled if so determined
by the Board of Directors following reasonable review of a medical opinion
certifying that Executive will be unable to perform his duties under this
Agreement for at least 90 days due to a physical or mental condition.
(e) "GOOD REASON" shall mean:
(i) The assignment to Executive, without Executive's
prior written consent, of any duties inconsistent
with Executive's position, duties, responsibilities
and status with MedPartners as described in this
Agreement or an adverse change in Executive's titles
or offices or any removal of Executive from, or any
failure to reelect Executive to, any of such
positions, except in connection with the termination
of this Agreement under Sections 9(c), 9(d) or 9(e);
(ii) A reduction in Executive's base salary, as the same
may be increased from time to time;
(iii) A termination by MedPartners of any compensation,
retirement, benefit or welfare plan in which
Executive is participating, without substituting
plans providing Executive with substantially similar
benefits, or the taking of any action by MedPartners
which would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any of such plans or deprive Executive
of any material fringe benefit enjoyed by Executive;
(iv) A material reduction in Executive's title or
responsibilities unless replaced with a new title or
new responsibilities of comparable stature or value
to MedPartners within 30 days;
(v) A material breach of this Agreement by MedPartners
that is not remedied within 30 days after receiving
notice from Executive of such failure;
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(vi) Any purported termination for Cause or Disability
without reasonable grounds therefor;
(vii) The relocation of Executive's primary work location
to a location that is more than 40 miles from
Executive's primary work location without Executive's
prior consent;
(viii) Executive ceases to be a member of the Board of
Directors of MedPartners or any successor company; or
(ix) Following the occurrence of a Change in Control, any
decision by Executive to terminate his employment
during the period from the Change in Control through
the first anniversary of the Change in Control.
(f) "RETIREMENT DATE" shall mean the date Executive reaches age 70
1/2, or the date Executive retires in accordance with MedPartners' retirement
arrangements established for Executive with Executive's consent.
SECTION 9. TERMINATION.
This Agreement shall terminate upon the occurrence of any of the
following termination events:
(a) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
any reason other than Good Reason not less than 180 days after such notice is
given, such termination to be effective on the date specified in such notice;
(b) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason not less than 90 days after such notice is given, such termination
to be effective on the date specified in such notice;
(c) MedPartners gives notice to Executive that MedPartners wishes
to terminate this Agreement for Cause, such termination to be effective upon
receipt by Executive of such notice;
(d) Executive dies or Executive ceases to be able to perform his
duties hereunder due to death or Disability, such termination to be effective
immediately upon such death or Disability;
(e) Executive reaches his Retirement Date, such termination to be
effective upon such Retirement Date;
(f) MedPartners gives notice to Executive following the occurrence
of a Change in Control that MedPartners wishes to terminate this Agreement for
any reason other than for Cause or due to Executive's death, Disability or
Retirement Date, such termination to be effective upon receipt by Executive of
such notice; or
(g) Executive gives notice to MedPartners following the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason, such termination to be effective upon receipt by MedPartners of
such notice.
SECTION 10. TERMINATION BENEFITS.
(a) Upon the occurrence of an event of termination described in
Section 9(a) or 9(c), Executive shall be entitled to receive the following as
severance compensation:
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(i) payment of any previously unpaid base salary through
the date of termination;
(ii) payment of an amount equal to one year of Executive's
annual base salary at the time of termination,
payable in a lump sum at the time of termination; and
(iii) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans.
(b) Upon the occurrence of an event of termination described in
Section 9(d) or 9(e), Executive (or Executive's estate in the event of
Executive's death) shall be entitled to receive the following as severance
compensation:
(i) payment of any previously unpaid base salary through
the date of termination;
(ii) payment of an amount equal to one year of Executive's
annual base salary at the time of termination,
payable in a lump sum at the time of termination;
(iii) payment of Executive's incentive bonus under Section
5(b) through the date of termination, calculated on
the basis of a pro-rata portion of the preceding
quarterly increment paid pursuant to Section 5(b);
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans; and
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof.
(c) Upon the occurrence of an event of termination described in
Sections 9(b), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid base salary through
the date of termination;
(ii) continued payment of Executive's annual base salary
at the time of termination (or, if greater, of
Executive's annual base salary in effect immediately
prior to the current annual base salary rate) for the
remaining term of this Agreement, but in no event for
a period of less than three years;
(iii) continued payment of Executive's incentive bonus
under Section 5(b) at the time of termination (or, if
greater, of Executive's incentive bonus in effect for
the fiscal year most recently ended) for the
remaining term of this Agreement, but in no event for
a period of less than three years;
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans;
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(v) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (v) will terminate with respect to any plan
on the date Executive first becomes eligible for the
same type of coverage under another employer's plan,
and (C) to the extent applicable, upon termination of
coverage under any MedPartners plan pursuant to this
paragraph (v), Executive shall have the option to
have assigned to him at no cost and with no
apportionment for prepaid premiums, any assignable
insurance policy owned by MedPartners and relating
specifically to Executive;
(vi) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
(vii) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(viii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
(d) Upon the occurrence of an event of termination described in
Section 9(f) or 9(g), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid base salary through
the date of termination;
(ii) payment of an amount equal to three times Executive's
annual base salary at the time of termination (or, if
greater, three times Executive's annual base salary
in effect immediately prior to the current annual
base salary rate), payable in a lump sum at the time
of termination;
(iii) payment of an amount equal to three times Executive's
incentive bonus under Section 5(b) for the current
fiscal year (or, if greater, three times Executive's
incentive bonus in effect for the fiscal year most
recently ended), payable in a lump sum at the time of
termination;
(iv) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (iv) will terminate with respect to any
plan on the date Executive first becomes eligible for
the same type of coverage under another employer's
plan, and (C) to the extent applicable, upon
termination of coverage under any MedPartners plan
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pursuant to this paragraph (iv), Executive shall have
the option to have assigned to him at no cost and
with no apportionment for prepaid premiums, any
assignable insurance policy owned by MedPartners and
relating specifically to Executive;
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
(vi) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(vii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
SECTION 11. CERTAIN ADDITIONAL PAYMENTS BY MEDPARTNERS.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, if it shall be determined that any payment or
distribution by MedPartners to or for Executive's benefit (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 11) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 11,
if it shall be determined that Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount that could be paid
to Executive such that the receipt of Payments would not give rise to any
Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to MedPartners and Executive within 15 business
days of the receipt of notice from Executive that there has been a Payment, or
such earlier time as is requested by MedPartners. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
by MedPartners. Any Gross-Up Payment, as determined pursuant to this Section
11, shall be paid by MedPartners to Executive within five days of the receipt
of the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon MedPartners and Executive. As a result of the
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uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by MedPartners should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that MedPartners exhausts its remedies pursuant to
Section 11(b) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by
MedPartners to or for Executive's benefit.
(b) Executive shall notify MedPartners in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
MedPartners of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later then ten business days after Executive is informed
in writing of such claim and shall apprise MedPartners of the nature of such
claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to MedPartners (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If MedPartners notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
(i) give MedPartners any information reasonably requested
by MedPartners relating to such claim,
(ii) take such action in connection with contesting such
claim as MedPartners shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by MedPartners,
(iii) cooperate with MedPartners in good faith in order
effectively to contest such claim, and
(iv) permit MedPartners to participate in any proceeding
relating to such claim;
provided, however, that MedPartners shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing provisions
of this Section 11, MedPartners shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as MedPartners shall
determine; provided, however, that if MedPartners directs Executive to pay such
claim and sue for a refund, MedPartners shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for Executive's taxable year with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, MedPartners' control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
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(c) If, after Executive's receipt of an amount advanced by
MedPartners pursuant to Section 11(b), Executive becomes entitled to receive
any refund with respect to such claim, Executive shall (subject to MedPartners'
complying with the requirements of this Section 11(b)) promptly pay to
MedPartners the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after Executive's
receipt of an amount advanced by MedPartners pursuant to Section 11(b), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and MedPartners does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 12. NON-COMPETITION.
(a) In the event that Executive's employment under this Agreement
shall terminate during its term, for the period of time with respect to which
Executive is entitled to receive compensation hereunder after such termination,
Executive shall not, directly or indirectly, own, operate, be employed by, be a
director of, act as a consultant for, be associated with, or be a partner or
have a proprietary interest in, any enterprise, partnership, association,
corporation, joint venture or other entity, which is competitive with the
medical practice management services business of MedPartners, or any subsidiary
or affiliate thereof, in any county in a state where MedPartners or its
subsidiaries or affiliates are conducting such business at the time of such
termination; provided, however, that if such termination shall occur as a
result of a Change in Control, this Section 12 shall be void and shall be of no
further force and effect.
(b) The parties have entered into this Section 12 of this
Agreement in good faith and for the reasons set forth in the recitals hereto
and assume that this Agreement is legally binding. If, for any reason, this
Section 12 is not binding because of its geographical scope or because of its
term, then the parties agree that this Agreement shall be deemed effective to
the widest geographical area and/or the longest period of time (but not in
excess of one year) as may be legally enforceable.
(c) Executive acknowledges that the rights and privileges granted
to MedPartners in this Section 12 are of special and unique character, which
gives them a peculiar value, the loss of which may not be reasonably or
adequately compensated for by damages in an action of law, and that a breach
thereof by Executive of this Section 12 will cause MedPartners great and
irreparable injury and damage. Accordingly, Executive hereby agrees that
MedPartners shall be entitled to remedies of injunction, specific performance
or other equitable relief to prevent a breach of this Section 12 of this
Agreement by Executive. This provision shall not be construed as a waiver of
any other rights or remedies MedPartners may have for damages or otherwise.
SECTION 13. NON-ASSIGNABILITY.
Executive shall not have the right to assign, transfer, pledge,
hypothecate or dispose of any right to receive payments hereunder or any
rights, privileges or interest hereunder, all of which are hereby expressly
declared to be non-assignable and non-transferable, except after termination of
his employment hereunder. In the event of a violation of the provisions of
this Section 13, no further sums shall hereafter become due or payable by
MedPartners or its subsidiaries and affiliates to Executive or his assignee,
transferee, pledgee or to any other person whatsoever, and MedPartners shall
have no further liability under this Agreement to Executive.
SECTION 14. CLAIMS; ARBITRATION.
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(a) All claims by Executive for compensation and benefits under
this Agreement shall be directed to and determined by the Board of Directors
and shall be in writing. Any denial by the Board of Directors of a claim for
benefits under this Agreement shall be delivered to Executive in writing and
shall set forth the specific reasons for the denial and specific provisions of
this Agreement relied upon. The Board of Directors shall afford a reasonable
opportunity to Executive for a review of a decision denying a claim and shall
further allow Executive to appeal to the Board of Directors a decision of the
Board of Directors within 60 days after notification by the Board of Directors
that Executive's claim has been denied.
(b) To the extent permitted by applicable law, any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Birmingham, Alabama, in accordance with
the rules of the American Arbitration Association then in effect. The
agreement set forth herein to arbitrate shall be specifically enforceable under
the prevailing arbitration law.
(c) By initialing below, the parties hereto (i) acknowledge that
they have read and understood the provisions of this Section regarding
arbitration and (ii) that performance of this Agreement will be an interstate
commerce as that term is used in the Federal Arbitration Act, 9 U.S.C. Section
1 et seq., and the parties contemplated substantial interstate activity in the
performance of this Agreement including, but not limited to, interstate travel,
the use of interstate phone lines, the use of the U.S. mail services and other
interstate courier services.
Larry R. House For MedPartners:
------------------- ----------------------
(d) Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no
event shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.
(e) The award rendered by the arbitrator shall be final and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
(f) Unless otherwise agreed in writing, MedPartners shall continue
to make payments and provide benefits in accordance with this Agreement, and
Executive shall continue to perform his obligations hereunder during any
arbitration proceedings.
(g) In the event Executive incurs legal fees and other expenses in
seeking to obtain or to enforce any rights or benefits provided by this
Agreement and is successful, in whole or in part, in obtaining or enforcing any
such rights or benefits through settlement, arbitration, or otherwise,
MedPartners shall promptly pay Executive's reasonable legal fees and expenses
incurred in enforcing this Agreement and the fees of the arbitrator or
arbitrators. Except to the extent provided in the preceding sentence, each
party shall pay its own legal fees and other expenses associated with any
dispute.
SECTION 15. EMPLOYMENT TAXES.
All compensation paid pursuant to this Agreement, including
compensation paid pursuant to Section 5 and Section 10 of this Agreement, shall
be subject to reduction by all applicable withholding, social security and
other federal, state and local taxes and deductions.
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SECTION 16. BINDING EFFECT.
The rights and obligations of MedPartners and its subsidiaries under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of MedPartners. Executive shall not assign or alienate
any interest of his in this Agreement, except as provided in Section 11 hereof.
SECTION 17. WAIVER OF BREACH.
The waiver by either party to this Agreement of a breach of any
provision thereof by the other party shall not operate or be construed as a
waiver of any subsequent breach of such party.
SECTION 18. NOTICES.
Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified or registered mail
to Executive's residence (if such notice is addressed to Executive), or to the
principal executive offices of MedPartners in Birmingham, Alabama (if such
notice is addressed to MedPartners).
SECTION 19. ENTIRE AGREEMENT.
This instrument shall be governed by the laws of the State of Delaware
and contains the entire agreement of the parties with respect to the subject
matter hereof and supersedes any other agreements, whether written or oral,
between the parties. Without limiting the generality of the foregoing, this
Agreement supersedes and replaces Non-Competition and Severance Agreement dated
August 31, 1993 between Executive and MedPartners.
This Agreement may not be changed orally, but only by an instrument in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall for all purposes be deemed to be an original, but each of which,
when so executed, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MEDPARTNERS/MULLIKIN, INC.
By: /s/ Harold O. Knight, Jr. /s/ Larry R. House
------------------------------------ ---------------------------------
Harold O. Knight, Jr. Larry R. House
Executive Vice President and
Chief Financial Officer
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 24, 1996,
between MEDPARTNERS/MULLIKIN, INC., a Delaware corporation (together with any
successor corporation, "MedPartners"), and MARK L. WAGAR, a resident of Agoura
Hills, California ("Executive").
WITNESSETH:
WHEREAS, MedPartners and its subsidiaries and affiliates are engaged
in providing medical practice management services throughout the United States;
and
WHEREAS, MedPartners desires to avail itself of Executive's talents
and expertise in the management of the medical practice management business of
MedPartners, and to employ him as the President and Chief Operating Officer -
Western Operations of MedPartners, and Executive is willing to accept such
employment.
NOW THEREFORE, in consideration of the premises, and other mutual
promises and covenants hereinafter contained, MedPartners and Executive do
hereby agree, for their mutual benefit, as follows:
SECTION 1. EMPLOYMENT.
Executive shall be employed by MedPartners under this Agreement,
effective July 24, 1996, and Executive accepts such employment upon the terms
and conditions hereinafter set forth.
SECTION 2. TERM.
The term of employment provided for in this Agreement shall commence
on July 24, 1996, and shall remain in full force and effect for a period of
three years thereafter. Such term shall be automatically extended for an
additional year on each anniversary of the term commencement date, unless
written notice of non-extension is provided by MedPartners to Executive at
least 30 days prior to such anniversary.
SECTION 3. POWERS AND DUTIES.
Executive shall be employed by MedPartners during the term of
employment under this Agreement as the President and Chief Operating Officer -
Western Operations of MedPartners. In addition, Executive shall also hold
similar offices with MedPartners' subsidiaries and affiliates and/or their
successors, and shall perform such duties, as may be assigned to him from time
to time by the Chief Executive Officer of MedPartners ("Chief Executive
Officer").
In carrying out his duties under this Agreement, Executive shall have
such powers and duties usually incident to the office of President and Chief
Operating Officer - Western Operations. The performance by Executive of any
duties assigned to him which are not of the type provided for herein shall not
constitute a waiver of his rights hereunder or an abrogation, abandonment or
termination of this Agreement.
Executive shall devote all of his working time and best efforts in the
best interest of and on behalf of MedPartners throughout the term of this
Agreement in a manner appropriate for an executive having Executive's position,
duties, responsibilities and status. Executive shall not be restricted from
engaging in a business which is non- competitive with MedPartners and its
subsidiaries and affiliates after normal working hours or on week-
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ends or from investing his assets in such form or manner as will not require
any services on his part in the operation of the affairs of the companies in
which such investments are made.
SECTION 4. PLACE OF PERFORMANCE.
The headquarters for the performance of Executive's duties shall be
located in Long Beach, California, but from time to time Executive shall be
required to travel to MedPartners' other locations in the proper conduct of his
responsibilities under this Agreement. Due to the national scope of
MedPartners' business, MedPartners may require Executive to spend a reasonable
amount of time traveling, as his duties and the business of MedPartners and its
subsidiaries and affiliates may require.
SECTION 5. COMPENSATION.
For all services rendered by Executive pursuant to this Agreement,
MedPartners shall pay Executive the following compensation:
(a) Executive shall be paid a Base Salary of $350,000 per year,
payable in accordance with MedPartners' standard payroll practices for
executive employees. Executive's Base Salary shall be reviewed annually during
the term of this Agreement by the Chief Executive Officer.
(b) Executive shall be eligible to receive an annual Incentive
Bonus of up to 50% of his Base Salary at the discretion of the Chief Executive
Officer, which shall not be unreasonably withheld. In addition, Executive
shall be eligible to receive an annual Performance Bonus of up to 25% of his
Base Salary based on Executive's accomplishment of certain financial and
non-financial objectives during each year. The initial criteria for awarding
the Performance Bonus shall be developed jointly by MedPartners and Executive
within 60 days of the date this Agreement is signed by the parties and shall be
subject to adjustment annually during the first 60 days of each calendar year.
All bonus payments shall be made after January 1 of the year following the year
for which such bonus payments are earned.
(c) Executive shall be eligible for other discretionary bonuses
approved by the Board of Directors of MedPartners ("Board of Directors").
(d) For purposes of administration, the terms of this Agreement
shall be given effect on a pro-rata basis for partial calendar years and
otherwise administered on a calendar year basis.
SECTION 6. EMPLOYEE BENEFITS.
Subject to eligibility requirements, Executive will be entitled to
participate in any employee retirement, benefit or welfare plans provided by
MedPartners to its employees and/or to its senior executives, such as life
insurance, health and dental, retirement, savings and disability plans which
MedPartners has in effect or may adopt from time to time. Without limiting the
generality of the foregoing, MedPartners shall provide Executive the following
during the term of this Agreement:
(a) reasonable vacation during each year of this Agreement;
(b) a reasonable car allowance for an automobile owned or leased
by Executive for use by Executive in connection with the performance of his
duties under this Agreement;
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(c) disability insurance coverage paying benefits equal to at
least 80% of Executive's Base Salary, either through a corporate group
disability insurance plan or otherwise;
(d) payment of dues for such professional societies and
associations of which Executive is a member in furtherance of his duties
hereunder;
(e) a split-dollar arrangement with Executive, or a third party
designated by Executive as the owner of life insurance provided under such
arrangement, providing for the payment of premiums on a policy of life
insurance insuring the life of Executive, or insuring the joint lives of
Executive and his spouse;
(f) payment directly to Executive's counsel and/or accountant not
to exceed $5,000 per annum for estate and tax planning services for the benefit
of Executive; and
(g) consideration, at least annually, by the Board of Directors
for the grant to Executive of options to purchase Common Stock of MedPartners.
SECTION 7. EXPENSES.
Executive is authorized to incur reasonable expenses in promoting the
business of MedPartners and its subsidiaries and affiliates, including
expenses, to the extent used for business purposes, for entertainment, travel
and similar items. MedPartners will reimburse Executive for all such expenses,
upon the presentation by him of an itemized account of such expenditures in
accordance with the MedPartners expense reimbursement procedures.
SECTION 8. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
(a) "CAUSE" shall mean (i) repeated violations by Executive of
Executive's obligations under Section 3 of this Agreement (other than as a
result of incapacity due to physical or mental illness) which violations (A)
are demonstrably willful and deliberate on Executive's part, (B) are committed
in bad faith or without reasonable belief that such violations are in the best
interests of MedPartners, and (C) are not remedied in a reasonable period of
time after receipt of written notice from MedPartners specifying such
violations, or (ii) the conviction of Executive of a felony involving moral
turpitude.
(b) "CHANGE IN CONTROL" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of Common
Stock of MedPartners (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of MedPartners entitled
to vote generally in the election of directors ("the
Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a
Change in Control: (1) any acquisition directly from
MedPartners, (2) any acquisition by MedPartners, (3)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by MedPartners
or any corporation controlled by MedPartners, or (4)
any acquisition by
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any corporation pursuant to a transaction which
complies with clauses (1), (2) and (3) of subsection
(iii) below;
(ii) Individuals who, as of the date of this Agreement,
constitute the Board of Directors of MedPartners (the
"Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors;
provided, however, that any individual becoming a
director subsequent to the date hereof whose
election, or nomination for election by MedPartners'
stockholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of MedPartners (a
"Business Combination"), in each case, unless,
following such Business Combination, (1) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result
of such transaction owns MedPartners or all or
substantially all of MedPartners' assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the
case may be, (2) no party (excluding any corporation
resulting from such Business Combination or any
employee benefit plan (or related trust) of the
Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and (3) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members
of the Board of Directors of MedPartners at the time
of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such
Business Combination;
(iv) Approval by the stockholders of MedPartners of a
complete liquidation or dissolution of MedPartners;
or
(v) Larry R. House ceases to be Chairman of the Board and
Chief Executive Officer of MedPartners or any
successor corporation.
(c) "CODE" shall mean the Internal Revenue Code of 1986 and all
regulations promulgated thereunder, as the same may be amended from time to
time.
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(d) "DISABILITY" shall be deemed to have occurred if Executive
makes application for or is otherwise eligible for disability benefits under
any MedPartners-sponsored long-term disability program covering Executive, and
Executive qualifies for such benefits. In the absence of a
MedPartners-sponsored long- term disability program covering Executive,
Executive shall be presumed totally and permanently disabled if so determined
by the Chief Executive Officer following reasonable review of a medical opinion
certifying that Executive will be unable to perform his duties under this
Agreement for at least 90 days due to a physical or mental condition.
(e) "GOOD REASON" shall mean:
(i) The assignment to Executive, without Executive's
prior written consent, of any duties inconsistent
with Executive's position, duties, responsibilities
and status with MedPartners as described in this
Agreement or an adverse change in Executive's titles
or offices or any removal of Executive from, or any
failure to reelect Executive to, any of such
positions, except in connection with the termination
of this Agreement under Sections 9(c), 9(d) or 9(e);
(ii) A reduction in Executive's Base Salary, as the same
may be increased from time to time;
(iii) A termination by MedPartners of any compensation,
retirement, benefit or welfare plan in which
Executive is participating, without substituting
plans providing Executive with substantially similar
benefits, or the taking of any action by MedPartners
which would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any of such plans or deprive Executive
of any material fringe benefit enjoyed by Executive;
(iv) A material reduction in Executive's title or
responsibilities unless replaced with a new title or
new responsibilities of comparable stature or value
to MedPartners within 30 days;
(v) A material breach of this Agreement by MedPartners
that is not remedied within 30 days after receiving
written notice from Executive of such failure;
(vi) Any purported termination for Cause or Disability
without reasonable grounds therefor;
(vii) The relocation of Executive's primary work location
to a location that is more than 40 miles from
Executive's primary work location without Executive's
prior consent; or
(viii) Following the occurrence of a Change in Control, any
decision by Executive to terminate his employment
during the period from the Change in Control through
the first anniversary of the Change in Control.
(f) "RETIREMENT DATE" shall mean the date Executive reaches age 70
1/2, or the date Executive retires in accordance with MedPartners' retirement
arrangements established for Executive with Executive's consent.
SECTION 9. TERMINATION.
This Agreement shall terminate upon the occurrence of any of the
following termination events:
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(a) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
any reason other than Good Reason not less than 180 days after such notice is
given, such termination to be effective on the date specified in such notice;
(b) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason not less than 90 days after such notice is given, such termination
to be effective on the date specified in such notice;
(c) MedPartners gives notice to Executive that MedPartners wishes
to terminate this Agreement for Cause, such termination to be effective upon
receipt by Executive of such notice;
(d) Executive dies or Executive ceases to be able to perform his
duties hereunder due to death or Disability, such termination to be effective
immediately upon such death or Disability;
(e) Executive reaches his Retirement Date, such termination to be
effective upon such Retirement Date;
(f) MedPartners gives notice to Executive following the occurrence
of a Change in Control that MedPartners wishes to terminate this Agreement for
any reason other than for Cause or due to Executive's death, Disability or
Retirement Date, such termination to be effective upon receipt by Executive of
such notice; or
(g) Executive gives notice to MedPartners following the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason, such termination to be effective upon receipt by MedPartners of
such notice.
SECTION 10. TERMINATION BENEFITS.
(a) Upon the occurrence of an event of termination described in
Section 9(a) or 9(c), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to six months of
Executive's annual Base Salary at the time of
termination, payable in a lump sum at the time of
termination; and
(iii) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans.
(b) Upon the occurrence of an event of termination described in
Section 9(d) or 9(e), Executive (or Executive's estate in the event of
Executive's death) shall be entitled to receive the following as severance
compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to six months of
Executive's annual Base Salary at the time of
termination, payable in a lump sum at the time of
termination;
(iii) payment of Executive's Incentive Bonus and
Performance Bonus under Section 5(b) through the date
of termination, calculated on the basis of the sum of
the total
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achievable amounts of each of the Incentive Bonus and
the Performance Bonus for the current fiscal year,
divided by twelve months, and multiplied by the
number of months Executive is employed during such
fiscal year through the date of termination, with any
partial month of employment to be treated as a full
month;
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans; and
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof.
(c) Upon the occurrence of an event of termination described in
Sections 9(b), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) continued payment of Executive's annual Base Salary
at the time of termination (or, if greater, of
Executive's annual Base Salary in effect immediately
prior to the current annual Base Salary rate) for the
remaining term of this Agreement, but in no event for
a period of less than three years;
(iii) continued payment of the total achievable amounts of
each of Executive's Incentive Bonus and Performance
Bonus under Section 5(b) for the current fiscal year
(or, if greater, of the total achievable amounts of
each of Executive's Incentive Bonus and Performance
Bonus in effect for the fiscal year most recently
ended) for the remaining term of this Agreement, but
in no event for a period of less than three years;
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans;
(v) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (v) will terminate with respect to any plan
on the date Executive first becomes eligible for the
same type of coverage under another employer's plan,
and (C) to the extent applicable, upon termination of
coverage under any MedPartners plan pursuant to this
paragraph (v), Executive shall have the option to
have assigned to him at no cost and with no
apportionment for prepaid premiums, any assignable
insurance policy owned by MedPartners and relating
specifically to Executive;
(vi) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
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(vii) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(viii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
(d) Upon the occurrence of an event of termination described in
Section 9(f) or 9(g), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to three times Executive's
annual Base Salary at the time of termination (or, if
greater, three times Executive's annual Base Salary
in effect immediately prior to the current annual
Base Salary rate), payable in a lump sum at the time
of termination;
(iii) payment of an amount equal to three times the sum of
the total achievable amounts of each of Executive's
Incentive Bonus and Performance Bonus under Section
5(b) for the current fiscal year (or, if greater,
three times the sum of the total achievable amounts
of each of Executive's Incentive Bonus and
Performance Bonus in effect for the fiscal year most
recently ended), payable in a lump sum at the time of
termination;
(iv) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (iv) will terminate with respect to any
plan on the date Executive first becomes eligible for
the same type of coverage under another employer's
plan, and (C) to the extent applicable, upon
termination of coverage under any MedPartners plan
pursuant to this paragraph (iv), Executive shall have
the option to have assigned to him at no cost and
with no apportionment for prepaid premiums, any
assignable insurance policy owned by MedPartners and
relating specifically to Executive;
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
(vi) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(vii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
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SECTION 11. CERTAIN ADDITIONAL PAYMENTS BY MEDPARTNERS.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, if it shall be determined that any payment or
distribution by MedPartners to or for Executive's benefit (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 11) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax") , then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 11,
if it shall be determined that Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount that could be paid
to Executive such that the receipt of Payments would not give rise to any
Excise Tax (the "Reduced Amount") , then no Gross-Up Payment shall be made to
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to MedPartners and Executive within 15 business
days of the receipt of notice from Executive that there has been a Payment, or
such earlier time as is requested by MedPartners. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
by MedPartners. Any Gross-Up Payment, as determined pursuant to this Section
11, shall be paid by MedPartners to Executive within five days of the receipt
of the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon MedPartners and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by MedPartners should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that MedPartners exhausts its remedies pursuant to
Section 11(b) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by
MedPartners to or for Executive's benefit.
(b) Executive shall notify MedPartners in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
MedPartners of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later then ten business days after Executive is informed
in writing of such claim and shall apprise MedPartners of the nature of such
claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to MedPartners (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If MedPartners notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
(i) give MedPartners any information reasonably requested
by MedPartners relating to such claim,
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(ii) take such action in connection with contesting such
claim as MedPartners shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by MedPartners,
(iii) cooperate with MedPartners in good faith in order
effectively to contest such claim, and
(iv) permit MedPartners to participate in any proceeding
relating to such claim;
provided, however, that MedPartners shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing provisions
of this Section 11, MedPartners shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as MedPartners shall
determine; provided, however, that if MedPartners directs Executive to pay such
claim and sue for a refund, MedPartners shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for Executive's taxable year with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, MedPartners' control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(c) If, after Executive's receipt of an amount advanced by
MedPartners pursuant to Section 11(b), Executive becomes entitled to receive
any refund with respect to such claim, Executive shall (subject to MedPartners'
complying with the requirements of this Section 11(b)) promptly pay to
MedPartners the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after Executive's
receipt of an amount advanced by MedPartners pursuant to Section 11(b), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and MedPartners does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 12. NON-COMPETITION.
(a) In the event that Executive's employment under this Agreement
shall terminate during its term, for the period of time with respect to which
Executive is entitled to receive compensation hereunder after such termination,
Executive shall not, directly or indirectly, own, operate, be employed by, be a
director of, act as a consultant for, be associated with, or be a partner or
have a proprietary interest in, any enterprise, partnership, association,
corporation, joint venture or other entity, which is competitive with the
medical practice management services business of MedPartners, or any subsidiary
or affiliate thereof, in any county in a state where MedPartners or its
subsidiaries or affiliates are conducting such business at the time of such
termination; provided, however, that if such termination shall occur as a
result of a Change in Control, this Section 12 shall be void and shall be of no
further force and effect.
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(b) The parties have entered into this Section 12 of this
Agreement in good faith and for the reasons set forth in the recitals hereto
and assume that this Agreement is legally binding. If, for any reason, this
Section 12 is not binding because of its geographical scope or because of its
term, then the parties agree that this Agreement shall be deemed effective to
the widest geographical area and/or the longest period of time (but not in
excess of one year) as may be legally enforceable.
(c) Executive acknowledges that the rights and privileges granted
to MedPartners in this Section 12 are of special and unique character, which
gives them a peculiar value, the loss of which may not be reasonably or
adequately compensated for by damages in an action of law, and that a breach
thereof by Executive of this Section 12 will cause MedPartners great and
irreparable injury and damage. Accordingly, Executive hereby agrees that
MedPartners shall be entitled to remedies of injunction, specific performance
or other equitable relief to prevent a breach of this Section 12 of this
Agreement by Executive. This provision shall not be construed as a waiver of
any other rights or remedies MedPartners may have for damages or otherwise.
SECTION 13. NON-ASSIGNABILITY.
Executive shall not have the right to assign, transfer, pledge,
hypothecate or dispose of any right to receive payments hereunder or any
rights, privileges or interest hereunder, all of which are hereby expressly
declared to be non-assignable and non-transferable, except after termination of
his employment hereunder. In the event of a violation of the provisions of
this Section 13, no further sums shall hereafter become due or payable by
MedPartners or its subsidiaries and affiliates to Executive or his assignee,
transferee, pledgee or to any other person whatsoever, and MedPartners shall
have no further liability under this Agreement to Executive.
SECTION 14. CLAIMS; ARBITRATION.
(a) All claims by Executive for compensation and benefits under
this Agreement shall be directed to and determined by the Chief Executive
Officer and shall be in writing. Any denial by the Chief Executive Officer of
a claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and specific
provisions of this Agreement relied upon. The Chief Executive Officer shall
afford a reasonable opportunity to Executive for a review of a decision denying
a claim and shall further allow Executive to appeal to the Chief Executive
Officer a decision of the Chief Executive Officer of MedPartners within 60 days
after notification by the Chief Executive Officer that Executive's claim has
been denied.
(b) To the extent permitted by applicable law, any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Birmingham, Alabama, in accordance with
the rules of the American Arbitration Association then in effect. The
agreement set forth herein to arbitrate shall be specifically enforceable under
the prevailing arbitration law.
(c) By initialing below, the parties hereto (i) acknowledge that
they have read and understood the provisions of this Section regarding
arbitration and (ii) that performance of this Agreement will be an interstate
commerce as that term is used in the Federal Arbitration Act, 9 U.S.C. Section
1 et seq., and the parties contemplated substantial interstate activity in the
performance of this Agreement including, but not limited to, interstate travel,
the use of interstate phone lines, the use of the U.S. mail services and other
interstate courier services.
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Mark L. Wagar For MedPartners:
____________________ ____________________
(d) Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no
event shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.
(e) The award rendered by the arbitrator shall be final and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
(f) Unless otherwise agreed in writing, MedPartners shall continue
to make payments and provide benefits in accordance with this Agreement, and
Executive shall continue to perform his obligations hereunder during any
arbitration proceedings.
(g) In the event Executive incurs legal fees and other expenses in
seeking to obtain or to enforce any rights or benefits provided by this
Agreement and is successful, in whole or in part, in obtaining or enforcing any
such rights or benefits through settlement, arbitration, or otherwise,
MedPartners shall promptly pay Executive's reasonable legal fees and expenses
incurred in enforcing this Agreement and the fees of the arbitrator or
arbitrators. Except to the extent provided in the preceding sentence, each
party shall pay its own legal fees and other expenses associated with any
dispute.
SECTION 15. EMPLOYMENT TAXES.
All compensation paid pursuant to this Agreement, including
compensation paid pursuant to Section 5 and Section 10 of this Agreement, shall
be subject to reduction by all applicable withholding, social security and
other federal, state and local taxes and deductions.
SECTION 16. BINDING EFFECT.
The rights and obligations of MedPartners and its subsidiaries under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of MedPartners. Executive shall not assign or alienate
any interest of his in this Agreement, except as provided in Section 11 hereof.
SECTION 17. WAIVER OF BREACH.
The waiver by either party to this Agreement of a breach of any
provision thereof by the other party shall not operate or be construed as a
waiver of any subsequent breach of such party.
SECTION 18. NOTICES.
Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified or registered mail
to Executive's residence (if such notice is addressed to Executive), or to the
principal executive offices of MedPartners in Birmingham, Alabama (if such
notice is addressed to MedPartners).
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SECTION 19. ENTIRE AGREEMENT.
This instrument shall be governed by the laws of the State of Delaware
and contains the entire agreement of the parties with respect to the subject
matter hereof and supersedes any other agreements, whether written or oral,
between the parties. Without limiting the generality of the foregoing, this
Agreement supersedes and replaces in its entirety the Employment Agreement
dated January 18, 1995, as amended, between Executive and MedPartners (as
successor to Mullikin Medical Enterprises, L.P.).
This Agreement may not be changed orally, but only by an instrument in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall for all purposes be deemed to be an original, but each of which,
when so executed, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MEDPARTNERS/MULLIKIN, INC.
By: /s/ Larry R. House /s/ Mark L. Wagar
--------------------------------- ------------------------------
Larry R. House Mark L. Wagar
Chairman of the Board, President
and Chief Executive Officer
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 24, 1996,
between MEDPARTNERS/MULLIKIN, INC., a Delaware corporation (together with any
successor corporation, "MedPartners"), and HAROLD O. KNIGHT, JR., a resident of
Birmingham, Alabama ("Executive").
WITNESSETH:
WHEREAS, MedPartners and its subsidiaries and affiliates are engaged
in providing medical practice management services throughout the United States;
and
WHEREAS, MedPartners desires to avail itself of Executive's talents
and expertise in the management of the medical practice management business of
MedPartners, and to employ him as the Executive Vice President and Chief
Financial Officer of MedPartners, and Executive is willing to accept such
employment.
NOW THEREFORE, in consideration of the premises, and other mutual
promises and covenants hereinafter contained, MedPartners and Executive do
hereby agree, for their mutual benefit, as follows:
SECTION 1. EMPLOYMENT.
Executive shall be employed by MedPartners under this Agreement,
effective July 24, 1996, and Executive accepts such employment upon the terms
and conditions hereinafter set forth.
SECTION 2. TERM.
The term of employment provided for in this Agreement shall commence
on July 24, 1996, and shall remain in full force and effect for a period of
three years thereafter. Such term shall be automatically extended for an
additional year on each anniversary of the term commencement date, unless
written notice of non-extension is provided by MedPartners to Executive at
least 30 days prior to such anniversary.
SECTION 3. POWERS AND DUTIES.
Executive shall be employed by MedPartners during the term of
employment under this Agreement as the Executive Vice President and Chief
Financial Officer of MedPartners. In addition, Executive shall also hold
similar offices with MedPartners' subsidiaries and affiliates and/or their
successors, and shall perform such duties, as may be assigned to him from time
to time by the Chief Executive Officer of MedPartners ("Chief Executive
Officer").
In carrying out his duties under this Agreement, Executive shall have
such powers and duties usually incident to the office of Executive Vice
President and Chief Financial Officer. The performance by Executive of any
duties assigned to him which are not of the type provided for herein shall not
constitute a waiver of his rights hereunder or an abrogation, abandonment or
termination of this Agreement.
Executive shall devote all of his working time and best efforts in the
best interest of and on behalf of MedPartners throughout the term of this
Agreement in a manner appropriate for an executive having Executive's position,
duties, responsibilities and status. Executive shall not be restricted from
engaging in a business which is non-competitive with MedPartners and its
subsidiaries and affiliates after normal working hours or on week-
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ends or from investing his assets in such form or manner as will not require
any services on his part in the operation of the affairs of the companies in
which such investments are made.
SECTION 4. PLACE OF PERFORMANCE.
The headquarters for the performance of Executive's duties shall be
located in Birmingham, Alabama, but from time to time Executive shall be
required to travel to MedPartners' other locations in the proper conduct of his
responsibilities under this Agreement. Due to the national scope of
MedPartners' business, MedPartners may require Executive to spend a reasonable
amount of time traveling, as his duties and the business of MedPartners and its
subsidiaries and affiliates may require.
SECTION 5. COMPENSATION.
For all services rendered by Executive pursuant to this Agreement,
MedPartners shall pay Executive the following compensation:
(a) Executive shall be paid a Base Salary of $250,000 per year,
payable in accordance with MedPartners' standard payroll practices for
executive employees. Executive's Base Salary shall be reviewed annually during
the term of this Agreement by the Chief Executive Officer.
(b) Executive shall be eligible to receive an annual Incentive
Bonus of up to 50% of his Base Salary at the discretion of the Chief Executive
Officer, which shall not be unreasonably withheld. In addition, Executive
shall be eligible to receive an annual Performance Bonus of up to 25% of his
Base Salary based on Executive's accomplishment of certain financial and
non-financial objectives during each year. The initial criteria for awarding
the Performance Bonus shall be developed jointly by MedPartners and Executive
within 60 days of the date this Agreement is signed by the parties and shall be
subject to adjustment annually during the first 60 days of each calendar year.
All bonus payments shall be made after January 1 of the year following the year
for which such bonus payments are earned.
(c) Executive shall be eligible for other discretionary bonuses
approved by the Board of Directors of MedPartners ("Board of Directors").
(d) For purposes of administration, the terms of this Agreement
shall be given effect on a pro-rata basis for partial calendar years and
otherwise administered on a calendar year basis.
SECTION 6. EMPLOYEE BENEFITS.
Subject to eligibility requirements, Executive will be entitled to
participate in any employee retirement, benefit or welfare plans provided by
MedPartners to its employees and/or to its senior executives, such as life
insurance, health and dental, retirement, savings and disability plans which
MedPartners has in effect or may adopt from time to time. Without limiting the
generality of the foregoing, MedPartners shall provide Executive the following
during the term of this Agreement:
(a) reasonable vacation during each year of this Agreement;
(b) a reasonable car allowance for an automobile owned or leased
by Executive for use by Executive in connection with the performance of his
duties under this Agreement;
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(c) disability insurance coverage paying benefits equal to at
least 80% of Executive's Base Salary, either through a corporate group
disability insurance plan or otherwise;
(d) payment of dues for such professional societies and
associations of which Executive is a member in furtherance of his duties
hereunder;
(e) a split-dollar arrangement with Executive, or a third party
designated by Executive as the owner of life insurance provided under such
arrangement, providing for the payment of premiums on a policy of life
insurance insuring the life of Executive, or insuring the joint lives of
Executive and his spouse;
(f) payment directly to Executive's counsel and/or accountant not
to exceed $5,000 per annum for estate and tax planning services for the benefit
of Executive; and
(g) consideration, at least annually, by the Board of Directors
for the grant to Executive of options to purchase Common Stock of MedPartners.
SECTION 7. EXPENSES.
Executive is authorized to incur reasonable expenses in promoting the
business of MedPartners and its subsidiaries and affiliates, including
expenses, to the extent used for business purposes, for entertainment, travel
and similar items. MedPartners will reimburse Executive for all such expenses,
upon the presentation by him of an itemized account of such expenditures in
accordance with the MedPartners expense reimbursement procedures.
SECTION 8. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
(a) "CAUSE" shall mean (i) repeated violations by Executive of
Executive's obligations under Section 3 of this Agreement (other than as a
result of incapacity due to physical or mental illness) which violations (A)
are demonstrably willful and deliberate on Executive's part, (B) are committed
in bad faith or without reasonable belief that such violations are in the best
interests of MedPartners, and (C) are not remedied in a reasonable period of
time after receipt of written notice from MedPartners specifying such
violations, or (ii) the conviction of Executive of a felony involving moral
turpitude.
(b) "CHANGE IN CONTROL" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of Common
Stock of MedPartners (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of MedPartners entitled
to vote generally in the election of directors ("the
Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a
Change in Control: (1) any acquisition directly from
MedPartners, (2) any acquisition by MedPartners, (3)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by MedPartners
or any corporation controlled by MedPartners, or (4)
any acquisition by
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any corporation pursuant to a transaction which
complies with clauses (1), (2) and (3) of subsection
(iii) below;
(ii) Individuals who, as of the date of this Agreement,
constitute the Board of Directors of MedPartners (the
"Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors;
provided, however, that any individual becoming a
director subsequent to the date hereof whose
election, or nomination for election by MedPartners'
stockholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of MedPartners (a
"Business Combination"), in each case, unless,
following such Business Combination, (1) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result
of such transaction owns MedPartners or all or
substantially all of MedPartners' assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the
case may be, (2) no party (excluding any corporation
resulting from such Business Combination or any
employee benefit plan (or related trust) of the
Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and (3) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members
of the Board of Directors of MedPartners at the time
of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such
Business Combination;
(iv) Approval by the stockholders of MedPartners of a
complete liquidation or dissolution of MedPartners; or
(v) Larry R. House ceases to be Chairman of the Board and
Chief Executive Officer of MedPartners or any
successor corporation.
(c) "CODE" shall mean the Internal Revenue Code of 1986 and all
regulations promulgated thereunder, as the same may be amended from time to
time.
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(d) "DISABILITY" shall be deemed to have occurred if Executive
makes application for or is otherwise eligible for disability benefits under
any MedPartners-sponsored long-term disability program covering Executive, and
Executive qualifies for such benefits. In the absence of a
MedPartners-sponsored long-term disability program covering Executive,
Executive shall be presumed totally and permanently disabled if so determined
by the Chief Executive Officer following reasonable review of a medical opinion
certifying that Executive will be unable to perform his duties under this
Agreement for at least 90 days due to a physical or mental condition.
(e) "GOOD REASON" shall mean:
(i) The assignment to Executive, without Executive's
prior written consent, of any duties inconsistent
with Executive's position, duties, responsibilities
and status with MedPartners as described in this
Agreement or an adverse change in Executive's titles
or offices or any removal of Executive from, or any
failure to reelect Executive to, any of such
positions, except in connection with the termination
of this Agreement under Sections 9(c), 9(d) or 9(e);
(ii) A reduction in Executive's Base Salary, as the same
may be increased from time to time;
(iii) A termination by MedPartners of any compensation,
retirement, benefit or welfare plan in which
Executive is participating, without substituting
plans providing Executive with substantially similar
benefits, or the taking of any action by MedPartners
which would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any of such plans or deprive Executive
of any material fringe benefit enjoyed by Executive;
(iv) A material reduction in Executive's title or
responsibilities unless replaced with a new title or
new responsibilities of comparable stature or value
to MedPartners within 30 days;
(v) A material breach of this Agreement by MedPartners
that is not remedied within 30 days after receiving
written notice from Executive of such failure;
(vi) Any purported termination for Cause or Disability
without reasonable grounds therefor;
(vii) The relocation of Executive's primary work location
to a location that is more than 40 miles from
Executive's primary work location without Executive's
prior consent; or
(viii) Following the occurrence of a Change in Control, any
decision by Executive to terminate his employment
during the period from the Change in Control through
the first anniversary of the Change in Control.
(f) "RETIREMENT DATE" shall mean the date Executive reaches age 70
1/2, or the date Executive retires in accordance with MedPartners' retirement
arrangements established for Executive with Executive's consent.
SECTION 9. TERMINATION.
This Agreement shall terminate upon the occurrence of any of the
following termination events:
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(a) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
any reason other than Good Reason not less than 180 days after such notice is
given, such termination to be effective on the date specified in such notice;
(b) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason not less than 90 days after such notice is given, such termination
to be effective on the date specified in such notice;
(c) MedPartners gives notice to Executive that MedPartners wishes
to terminate this Agreement for Cause, such termination to be effective upon
receipt by Executive of such notice;
(d) Executive dies or Executive ceases to be able to perform his
duties hereunder due to death or Disability, such termination to be effective
immediately upon such death or Disability;
(e) Executive reaches his Retirement Date, such termination to be
effective upon such Retirement Date;
(f) MedPartners gives notice to Executive following the occurrence
of a Change in Control that MedPartners wishes to terminate this Agreement for
any reason other than for Cause or due to Executive's death, Disability or
Retirement Date, such termination to be effective upon receipt by Executive of
such notice; or
(g) Executive gives notice to MedPartners following the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason, such termination to be effective upon receipt by MedPartners of
such notice.
SECTION 10. TERMINATION BENEFITS.
(a) Upon the occurrence of an event of termination described in
Section 9(a) or 9(c), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to six months of
Executive's annual Base Salary at the time of
termination, payable in a lump sum at the time of
termination; and
(iii) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans.
(b) Upon the occurrence of an event of termination described in
Section 9(d) or 9(e), Executive (or Executive's estate in the event of
Executive's death) shall be entitled to receive the following as severance
compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to six months of
Executive's annual Base Salary at the time of
termination, payable in a lump sum at the time of
termination;
(iii) payment of Executive's Incentive Bonus and
Performance Bonus under Section 5(b) through the date
of termination, calculated on the basis of the sum of
the total
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achievable amounts of each of the Incentive Bonus and
the Performance Bonus for the current fiscal year,
divided by twelve months, and multiplied by the
number of months Executive is employed during such
fiscal year through the date of termination, with any
partial month of employment to be treated as a full
month;
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans; and
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof.
(c) Upon the occurrence of an event of termination described in
Sections 9(b), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) continued payment of Executive's annual Base Salary
at the time of termination (or, if greater, of
Executive's annual Base Salary in effect immediately
prior to the current annual Base Salary rate) for the
remaining term of this Agreement, but in no event for
a period of less than three years;
(iii) continued payment of the total achievable amounts of
each of Executive's Incentive Bonus and Performance
Bonus under Section 5(b) for the current fiscal year
(or, if greater, of the total achievable amounts of
each of Executive's Incentive Bonus and Performance
Bonus in effect for the fiscal year most recently
ended) for the remaining term of this Agreement, but
in no event for a period of less than three years;
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans;
(v) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (v) will terminate with respect to any plan
on the date Executive first becomes eligible for the
same type of coverage under another employer's plan,
and (C) to the extent applicable, upon termination of
coverage under any MedPartners plan pursuant to this
paragraph (v), Executive shall have the option to
have assigned to him at no cost and with no
apportionment for prepaid premiums, any assignable
insurance policy owned by MedPartners and relating
specifically to Executive;
(vi) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
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(vii) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(viii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
(d) Upon the occurrence of an event of termination described in
Section 9(f) or 9(g), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to three times Executive's
annual Base Salary at the time of termination (or, if
greater, three times Executive's annual Base Salary
in effect immediately prior to the current annual
Base Salary rate), payable in a lump sum at the time
of termination;
(iii) payment of an amount equal to three times the sum of
the total achievable amounts of each of Executive's
Incentive Bonus and Performance Bonus under Section
5(b) for the current fiscal year (or, if greater,
three times the sum of the total achievable amounts
of each of Executive's Incentive Bonus and
Performance Bonus in effect for the fiscal year most
recently ended), payable in a lump sum at the time of
termination;
(iv) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (iv) will terminate with respect to any
plan on the date Executive first becomes eligible for
the same type of coverage under another employer's
plan, and (C) to the extent applicable, upon
termination of coverage under any MedPartners plan
pursuant to this paragraph (iv), Executive shall have
the option to have assigned to him at no cost and
with no apportionment for prepaid premiums, any
assignable insurance policy owned by MedPartners and
relating specifically to Executive;
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
(vi) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(vii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
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SECTION 11. CERTAIN ADDITIONAL PAYMENTS BY MEDPARTNERS.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, if it shall be determined that any payment or
distribution by MedPartners to or for Executive's benefit (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 11) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 11,
if it shall be determined that Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount that could be paid
to Executive such that the receipt of Payments would not give rise to any
Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to MedPartners and Executive within 15 business
days of the receipt of notice from Executive that there has been a Payment, or
such earlier time as is requested by MedPartners. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
by MedPartners. Any Gross-Up Payment, as determined pursuant to this Section
11, shall be paid by MedPartners to Executive within five days of the receipt
of the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon MedPartners and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by MedPartners should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that MedPartners exhausts its remedies pursuant to
Section 11(b) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by
MedPartners to or for Executive's benefit.
(b) Executive shall notify MedPartners in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
MedPartners of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later then ten business days after Executive is informed
in writing of such claim and shall apprise MedPartners of the nature of such
claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to MedPartners (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If MedPartners notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
(i) give MedPartners any information reasonably requested
by MedPartners relating to such claim,
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(ii) take such action in connection with contesting such
claim as MedPartners shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by MedPartners,
(iii) cooperate with MedPartners in good faith in order
effectively to contest such claim, and
(iv) permit MedPartners to participate in any proceeding
relating to such claim;
provided, however, that MedPartners shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing provisions
of this Section 11, MedPartners shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as MedPartners shall
determine; provided, however, that if MedPartners directs Executive to pay such
claim and sue for a refund, MedPartners shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for Executive's taxable year with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, MedPartners' control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(c) If, after Executive's receipt of an amount advanced by
MedPartners pursuant to Section 11(b), Executive becomes entitled to receive
any refund with respect to such claim, Executive shall (subject to MedPartners'
complying with the requirements of this Section 11(b)) promptly pay to
MedPartners the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after Executive's
receipt of an amount advanced by MedPartners pursuant to Section 11(b), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and MedPartners does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 12. NON-COMPETITION.
(a) In the event that Executive's employment under this Agreement
shall terminate during its term, for the period of time with respect to which
Executive is entitled to receive compensation hereunder after such termination,
Executive shall not, directly or indirectly, own, operate, be employed by, be a
director of, act as a consultant for, be associated with, or be a partner or
have a proprietary interest in, any enterprise, partnership, association,
corporation, joint venture or other entity, which is competitive with the
medical practice management services business of MedPartners, or any subsidiary
or affiliate thereof, in any county in a state where MedPartners or its
subsidiaries or affiliates are conducting such business at the time of such
termination; provided, however, that if such termination shall occur as a
result of a Change in Control, this Section 12 shall be void and shall be of no
further force and effect.
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(b) The parties have entered into this Section 12 of this
Agreement in good faith and for the reasons set forth in the recitals hereto
and assume that this Agreement is legally binding. If, for any reason, this
Section 12 is not binding because of its geographical scope or because of its
term, then the parties agree that this Agreement shall be deemed effective to
the widest geographical area and/or the longest period of time (but not in
excess of one year) as may be legally enforceable.
(c) Executive acknowledges that the rights and privileges granted
to MedPartners in this Section 12 are of special and unique character, which
gives them a peculiar value, the loss of which may not be reasonably or
adequately compensated for by damages in an action of law, and that a breach
thereof by Executive of this Section 12 will cause MedPartners great and
irreparable injury and damage. Accordingly, Executive hereby agrees that
MedPartners shall be entitled to remedies of injunction, specific performance
or other equitable relief to prevent a breach of this Section 12 of this
Agreement by Executive. This provision shall not be construed as a waiver of
any other rights or remedies MedPartners may have for damages or otherwise.
SECTION 13. NON-ASSIGNABILITY.
Executive shall not have the right to assign, transfer, pledge,
hypothecate or dispose of any right to receive payments hereunder or any
rights, privileges or interest hereunder, all of which are hereby expressly
declared to be non-assignable and non-transferable, except after termination of
his employment hereunder. In the event of a violation of the provisions of
this Section 13, no further sums shall hereafter become due or payable by
MedPartners or its subsidiaries and affiliates to Executive or his assignee,
transferee, pledgee or to any other person whatsoever, and MedPartners shall
have no further liability under this Agreement to Executive.
SECTION 14. CLAIMS; ARBITRATION.
(a) All claims by Executive for compensation and benefits under
this Agreement shall be directed to and determined by the Chief Executive
Officer and shall be in writing. Any denial by the Chief Executive Officer of
a claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and specific
provisions of this Agreement relied upon. The Chief Executive Officer shall
afford a reasonable opportunity to Executive for a review of a decision denying
a claim and shall further allow Executive to appeal to the Chief Executive
Officer a decision of the Chief Executive Officer of MedPartners within 60 days
after notification by the Chief Executive Officer that Executive's claim has
been denied.
(b) To the extent permitted by applicable law, any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Birmingham, Alabama, in accordance with
the rules of the American Arbitration Association then in effect. The
agreement set forth herein to arbitrate shall be specifically enforceable under
the prevailing arbitration law.
(c) By initialing below, the parties hereto (i) acknowledge that
they have read and understood the provisions of this Section regarding
arbitration and (ii) that performance of this Agreement will be an interstate
commerce as that term is used in the Federal Arbitration Act, 9 U.S.C. Section
1 et seq., and the parties contemplated substantial interstate activity in the
performance of this Agreement including, but not limited to, interstate travel,
the use of interstate phone lines, the use of the U.S. mail services and other
interstate courier services.
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Harold O. Knight, Jr. For MedPartners:
--------------------- ----------------
(d) Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no
event shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.
(e) The award rendered by the arbitrator shall be final and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
(f) Unless otherwise agreed in writing, MedPartners shall continue
to make payments and provide benefits in accordance with this Agreement, and
Executive shall continue to perform his obligations hereunder during any
arbitration proceedings.
(g) In the event Executive incurs legal fees and other expenses in
seeking to obtain or to enforce any rights or benefits provided by this
Agreement and is successful, in whole or in part, in obtaining or enforcing any
such rights or benefits through settlement, arbitration, or otherwise,
MedPartners shall promptly pay Executive's reasonable legal fees and expenses
incurred in enforcing this Agreement and the fees of the arbitrator or
arbitrators. Except to the extent provided in the preceding sentence, each
party shall pay its own legal fees and other expenses associated with any
dispute.
SECTION 15. EMPLOYMENT TAXES.
All compensation paid pursuant to this Agreement, including
compensation paid pursuant to Section 5 and Section 10 of this Agreement, shall
be subject to reduction by all applicable withholding, social security and
other federal, state and local taxes and deductions.
SECTION 16. BINDING EFFECT.
The rights and obligations of MedPartners and its subsidiaries under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of MedPartners. Executive shall not assign or alienate
any interest of his in this Agreement, except as provided in Section 11 hereof.
SECTION 17. WAIVER OF BREACH.
The waiver by either party to this Agreement of a breach of any
provision thereof by the other party shall not operate or be construed as a
waiver of any subsequent breach of such party.
SECTION 18. NOTICES.
Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified or registered mail
to Executive's residence (if such notice is addressed to Executive), or to the
principal executive offices of MedPartners in Birmingham, Alabama (if such
notice is addressed to MedPartners).
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SECTION 19. ENTIRE AGREEMENT.
This instrument shall be governed by the laws of the State of Delaware
and contains the entire agreement of the parties with respect to the subject
matter hereof and supersedes any other agreements, whether written or oral,
between the parties.
This Agreement may not be changed orally, but only by an instrument in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall for all purposes be deemed to be an original, but each of which,
when so executed, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MEDPARTNERS/MULLIKIN, INC.
By: /s/ Larry R. House /s/ Harold O. Knight, Jr.
------------------------------------- ---------------------------------
Larry R. House Harold O. Knight, Jr.
Chairman of the Board, President
and Chief Executive Officer
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 24, 1996,
between MEDPARTNERS/MULLIKIN, INC., a Delaware corporation (together with any
successor corporation, "MedPartners"), and TRACY P. THRASHER, a resident of
Birmingham, Alabama ("Executive").
WITNESSETH:
WHEREAS, MedPartners and its subsidiaries and affiliates are engaged
in providing medical practice management services throughout the United States;
and
WHEREAS, MedPartners desires to avail itself of Executive's talents
and expertise in the management of the medical practice management business of
MedPartners, and to employ her as the Executive Vice President and Corporate
Secretary of MedPartners, and Executive is willing to accept such employment.
NOW THEREFORE, in consideration of the premises, and other mutual
promises and covenants hereinafter contained, MedPartners and Executive do
hereby agree, for their mutual benefit, as follows:
SECTION 1. EMPLOYMENT.
Executive shall be employed by MedPartners under this Agreement,
effective July 24, 1996, and Executive accepts such employment upon the terms
and conditions hereinafter set forth.
SECTION 2. TERM.
The term of employment provided for in this Agreement shall commence
on July 24, 1996, and shall remain in full force and effect for a period of
three years thereafter. Such term shall be automatically extended for an
additional year on each anniversary of the term commencement date, unless
written notice of non-extension is provided by MedPartners to Executive at
least 30 days prior to such anniversary.
SECTION 3. POWERS AND DUTIES.
Executive shall be employed by MedPartners during the term of
employment under this Agreement as the Executive Vice President and Secretary
of MedPartners. In addition, Executive shall also hold similar offices with
MedPartners' subsidiaries and affiliates and/or their successors, and shall
perform such duties, as may be assigned to her from time to time by the Chief
Executive Officer of MedPartners ("Chief Executive Officer").
In carrying out her duties under this Agreement, Executive shall have
such powers and duties usually incident to the office of Executive Vice
President and Corporate Secretary. The performance by Executive of any duties
assigned to her which are not of the type provided for herein shall not
constitute a waiver of her rights hereunder or an abrogation, abandonment or
termination of this Agreement.
Executive shall devote all of her working time and best efforts in the
best interest of and on behalf of MedPartners throughout the term of this
Agreement in a manner appropriate for an executive having Executive's position,
duties, responsibilities and status. Executive shall not be restricted from
engaging in a business which is non-competitive with MedPartners and its
subsidiaries and affiliates after normal working hours or on week-
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ends or from investing her assets in such form or manner as will not require
any services on her part in the operation of the affairs of the companies in
which such investments are made.
SECTION 4. PLACE OF PERFORMANCE.
The headquarters for the performance of Executive's duties shall be
located in Birmingham, Alabama, but from time to time Executive shall be
required to travel to MedPartners' other locations in the proper conduct of her
responsibilities under this Agreement. Due to the national scope of
MedPartners' business, MedPartners may require Executive to spend a reasonable
amount of time traveling, as her duties and the business of MedPartners and its
subsidiaries and affiliates may require.
SECTION 5. COMPENSATION.
For all services rendered by Executive pursuant to this Agreement,
MedPartners shall pay Executive the following compensation:
(a) Executive shall be paid a Base Salary of $235,000 per year,
payable in accordance with MedPartners' standard payroll practices for
executive employees. Executive's Base Salary shall be reviewed annually during
the term of this Agreement by the Chief Executive Officer.
(b) Executive shall be eligible to receive an annual Incentive
Bonus of up to 50% of her Base Salary at the discretion of the Chief Executive
Officer, which shall not be unreasonably withheld. In addition, Executive
shall be eligible to receive an annual Performance Bonus of up to 25% of her
Base Salary based on Executive's accomplishment of certain financial and
non-financial objectives during each year. The initial criteria for awarding
the Performance Bonus shall be developed jointly by MedPartners and Executive
within 60 days of the date this Agreement is signed by the parties and shall be
subject to adjustment annually during the first 60 days of each calendar year.
All bonus payments shall be made after January 1 of the year following the year
for which such bonus payments are earned.
(c) Executive shall be eligible for other discretionary bonuses
approved by the Board of Directors of MedPartners ("Board of Directors").
(d) For purposes of administration, the terms of this Agreement
shall be given effect on a pro-rata basis for partial calendar years and
otherwise administered on a calendar year basis.
SECTION 6. EMPLOYEE BENEFITS.
Subject to eligibility requirements, Executive will be entitled to
participate in any employee retirement, benefit or welfare plans provided by
MedPartners to its employees and/or to its senior executives, such as life
insurance, health and dental, retirement, savings and disability plans which
MedPartners has in effect or may adopt from time to time. Without limiting the
generality of the foregoing, MedPartners shall provide Executive the following
during the term of this Agreement:
(a) reasonable vacation during each year of this Agreement;
(b) a reasonable car allowance for an automobile owned or leased
by Executive for use by Executive in connection with the performance of her
duties under this Agreement;
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(c) disability insurance coverage paying benefits equal to at
least 80% of Executive's Base Salary, either through a corporate group
disability insurance plan or otherwise;
(d) payment of dues for such professional societies and
associations of which Executive is a member in furtherance of her duties
hereunder;
(e) a split-dollar arrangement with Executive, or a third party
designated by Executive as the owner of life insurance provided under such
arrangement, providing for the payment of premiums on a policy of life
insurance insuring the life of Executive, or insuring the joint lives of
Executive and her spouse;
(f) payment directly to Executive's counsel and/or accountant not
to exceed $5,000 per annum for estate and tax planning services for the benefit
of Executive; and
(g) consideration, at least annually, by the Board of Directors
for the grant to Executive of options to purchase Common Stock of MedPartners.
SECTION 7. EXPENSES.
Executive is authorized to incur reasonable expenses in promoting the
business of MedPartners and its subsidiaries and affiliates, including
expenses, to the extent used for business purposes, for entertainment, travel
and similar items. MedPartners will reimburse Executive for all such expenses,
upon the presentation by her of an itemized account of such expenditures in
accordance with the MedPartners expense reimbursement procedures.
SECTION 8. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
(a) "CAUSE" shall mean (i) repeated violations by Executive of
Executive's obligations under Section 3 of this Agreement (other than as a
result of incapacity due to physical or mental illness) which violations (A)
are demonstrably willful and deliberate on Executive's part, (B) are committed
in bad faith or without reasonable belief that such violations are in the best
interests of MedPartners, and (C) are not remedied in a reasonable period of
time after receipt of written notice from MedPartners specifying such
violations, or (ii) the conviction of Executive of a felony involving moral
turpitude.
(b) "CHANGE IN CONTROL" shall mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of Common
Stock of MedPartners (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of MedPartners entitled
to vote generally in the election of directors ("the
Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a
Change in Control: (1) any acquisition directly from
MedPartners, (2) any acquisition by MedPartners, (3)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by MedPartners
or any corporation controlled by MedPartners, or (4)
any acquisition by
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any corporation pursuant to a transaction which
complies with clauses (1), (2) and (3) of subsection
(iii) below;
(ii) Individuals who, as of the date of this Agreement,
constitute the Board of Directors of MedPartners (the
"Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors;
provided, however, that any individual becoming a
director subsequent to the date hereof whose
election, or nomination for election by MedPartners'
stockholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board;
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of MedPartners (a
"Business Combination"), in each case, unless,
following such Business Combination, (1) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
resulting from such Business Combination (including,
without limitation, a corporation which as a result
of such transaction owns MedPartners or all or
substantially all of MedPartners' assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their
ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the
case may be, (2) no party (excluding any corporation
resulting from such Business Combination or any
employee benefit plan (or related trust) of the
Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such corporation except to the extent
that such ownership existed prior to the Business
Combination, and (3) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members
of the Board of Directors of MedPartners at the time
of the execution of the initial agreement, or of the
action of the Board of Directors, providing for such
Business Combination;
(iv) Approval by the stockholders of MedPartners of a
complete liquidation or dissolution of MedPartners;
or
(v) Larry R. House ceases to be Chairman of the Board and
Chief Executive Officer of MedPartners or any
successor corporation.
(c) "CODE" shall mean the Internal Revenue Code of 1986 and all
regulations promulgated thereunder, as the same may be amended from time to
time.
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(d) "DISABILITY" shall be deemed to have occurred if Executive
makes application for or is otherwise eligible for disability benefits under
any MedPartners-sponsored long-term disability program covering Executive, and
Executive qualifies for such benefits. In the absence of a
MedPartners-sponsored long-term disability program covering Executive,
Executive shall be presumed totally and permanently disabled if so determined
by the Chief Executive Officer following reasonable review of a medical opinion
certifying that Executive will be unable to perform her duties under this
Agreement for at least 90 days due to a physical or mental condition.
(e) "GOOD REASON" shall mean:
(i) The assignment to Executive, without Executive's
prior written consent, of any duties inconsistent
with Executive's position, duties, responsibilities
and status with MedPartners as described in this
Agreement or an adverse change in Executive's titles
or offices or any removal of Executive from, or any
failure to reelect Executive to, any of such
positions, except in connection with the termination
of this Agreement under Sections 9(c), 9(d) or 9(e);
(ii) A reduction in Executive's Base Salary, as the same
may be increased from time to time;
(iii) A termination by MedPartners of any compensation,
retirement, benefit or welfare plan in which
Executive is participating, without substituting
plans providing Executive with substantially similar
benefits, or the taking of any action by MedPartners
which would adversely affect Executive's
participation in or materially reduce Executive's
benefits under any of such plans or deprive Executive
of any material fringe benefit enjoyed by Executive;
(iv) A material reduction in Executive's title or
responsibilities unless replaced with a new title or
new responsibilities of comparable stature or value
to MedPartners within 30 days;
(v) A material breach of this Agreement by MedPartners
that is not remedied within 30 days after receiving
written notice from Executive of such failure;
(vi) Any purported termination for Cause or Disability
without reasonable grounds therefor;
(vii) The relocation of Executive's primary work location
to a location that is more than 40 miles from
Executive's primary work location without Executive's
prior consent; or
(viii) Following the occurrence of a Change in Control, any
decision by Executive to terminate her employment
during the period from the Change in Control through
the first anniversary of the Change in Control.
(f) "RETIREMENT DATE" shall mean the date Executive reaches age 70
1/2, or the date Executive retires in accordance with MedPartners' retirement
arrangements established for Executive with Executive's consent.
SECTION 9. TERMINATION.
This Agreement shall terminate upon the occurrence of any of the
following termination events:
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(a) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
any reason other than Good Reason not less than 180 days after such notice is
given, such termination to be effective on the date specified in such notice;
(b) Executive gives notice to MedPartners prior to the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason not less than 90 days after such notice is given, such termination
to be effective on the date specified in such notice;
(c) MedPartners gives notice to Executive that MedPartners wishes
to terminate this Agreement for Cause, such termination to be effective upon
receipt by Executive of such notice;
(d) Executive dies or Executive ceases to be able to perform her
duties hereunder due to death or Disability, such termination to be effective
immediately upon such death or Disability;
(e) Executive reaches her Retirement Date, such termination to be
effective upon such Retirement Date;
(f) MedPartners gives notice to Executive following the occurrence
of a Change in Control that MedPartners wishes to terminate this Agreement for
any reason other than for Cause or due to Executive's death, Disability or
Retirement Date, such termination to be effective upon receipt by Executive of
such notice; or
(g) Executive gives notice to MedPartners following the occurrence
of a Change in Control that Executive wishes to terminate this Agreement for
Good Reason, such termination to be effective upon receipt by MedPartners of
such notice.
SECTION 10. TERMINATION BENEFITS.
(a) Upon the occurrence of an event of termination described in
Section 9(a) or 9(c), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to six months of
Executive's annual Base Salary at the time of
termination, payable in a lump sum at the time of
termination; and
(iii) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans.
(b) Upon the occurrence of an event of termination described in
Section 9(d) or 9(e), Executive (or Executive's estate in the event of
Executive's death) shall be entitled to receive the following as severance
compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to six months of
Executive's annual Base Salary at the time of
termination, payable in a lump sum at the time of
termination;
(iii) payment of Executive's Incentive Bonus and
Performance Bonus under Section 5(b) through the date
of termination, calculated on the basis of the sum of
the total
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achievable amounts of each of the Incentive Bonus and
the Performance Bonus for the current fiscal year,
divided by twelve months, and multiplied by the
number of months Executive is employed during such
fiscal year through the date of termination, with any
partial month of employment to be treated as a full
month;
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans; and
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof.
(c) Upon the occurrence of an event of termination described in
Sections 9(b), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) continued payment of Executive's annual Base Salary
at the time of termination (or, if greater, of
Executive's annual Base Salary in effect immediately
prior to the current annual Base Salary rate) for the
remaining term of this Agreement, but in no event for
a period of less than three years;
(iii) continued payment of the total achievable amounts of
each of Executive's Incentive Bonus and Performance
Bonus under Section 5(b) for the current fiscal year
(or, if greater, of the total achievable amounts of
each of Executive's Incentive Bonus and Performance
Bonus in effect for the fiscal year most recently
ended) for the remaining term of this Agreement, but
in no event for a period of less than three years;
(iv) payment of any life insurance, disability or other
benefits, if any, for which Executive is then
eligible under the terms of MedPartners' employee
retirement, benefit and welfare plans;
(v) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (v) will terminate with respect to any plan
on the date Executive first becomes eligible for the
same type of coverage under another employer's plan,
and (C) to the extent applicable, upon termination of
coverage under any MedPartners plan pursuant to this
paragraph (v), Executive shall have the option to
have assigned to her at no cost and with no
apportionment for prepaid premiums, any assignable
insurance policy owned by MedPartners and relating
specifically to Executive;
(vi) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
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(vii) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(viii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
(d) Upon the occurrence of an event of termination described in
Section 9(f) or 9(g), Executive shall be entitled to receive the following as
severance compensation:
(i) payment of any previously unpaid Base Salary through
the date of termination;
(ii) payment of an amount equal to three times Executive's
annual Base Salary at the time of termination (or, if
greater, three times Executive's annual Base Salary
in effect immediately prior to the current annual
Base Salary rate), payable in a lump sum at the time
of termination;
(iii) payment of an amount equal to three times the sum of
the total achievable amounts of each of Executive's
Incentive Bonus and Performance Bonus under Section
5(b) for the current fiscal year (or, if greater,
three times the sum of the total achievable amounts
of each of Executive's Incentive Bonus and
Performance Bonus in effect for the fiscal year most
recently ended), payable in a lump sum at the time of
termination;
(iv) subject to the terms and eligibility requirements of
any such plan, continued coverage for a period of
three years following the date of termination under
any employee retirement, benefit and welfare plans of
MedPartners for which Executive is then eligible;
provided that, (A) if Executive's participation in
any such plan is not permitted under the terms
thereof, MedPartners will use reasonable best efforts
to provide or arrange comparable coverage for
Executive, (B) MedPartners' obligation under this
paragraph (iv) will terminate with respect to any
plan on the date Executive first becomes eligible for
the same type of coverage under another employer's
plan, and (C) to the extent applicable, upon
termination of coverage under any MedPartners plan
pursuant to this paragraph (iv), Executive shall have
the option to have assigned to her at no cost and
with no apportionment for prepaid premiums, any
assignable insurance policy owned by MedPartners and
relating specifically to Executive;
(v) a right to immediately vest in 100% of all options to
purchase Common Stock of MedPartners that have been
granted to Executive by MedPartners and a period of
at least 90 days following termination for Executive
to exercise all such options in accordance with the
terms thereof;
(vi) payment of all reasonable legal fees and expenses
incurred by Executive as a result of termination,
including all such fees and expenses, if any,
incurred in contesting or disputing Executive's
termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement; and
(vii) payment of the reasonable costs for outplacement
services for a period not to exceed 18 months.
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SECTION 11. CERTAIN ADDITIONAL PAYMENTS BY MEDPARTNERS.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, if it shall be determined that any payment or
distribution by MedPartners to or for Executive's benefit (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 11) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 11,
if it shall be determined that Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount that could be paid
to Executive such that the receipt of Payments would not give rise to any
Excise Tax (the "Reduced Amount"), then no Gross-Up Payment shall be made to
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
All determinations required to be made under this Section 11,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to MedPartners and Executive within 15 business
days of the receipt of notice from Executive that there has been a Payment, or
such earlier time as is requested by MedPartners. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
by MedPartners. Any Gross-Up Payment, as determined pursuant to this Section
11, shall be paid by MedPartners to Executive within five days of the receipt
of the Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon MedPartners and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by MedPartners should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that MedPartners exhausts its remedies pursuant to
Section 11(b) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by
MedPartners to or for Executive's benefit.
(b) Executive shall notify MedPartners in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
MedPartners of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later then ten business days after Executive is informed
in writing of such claim and shall apprise MedPartners of the nature of such
claim and the date on which such claim is requested to be paid. Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to MedPartners (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due). If MedPartners notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:
(i) give MedPartners any information reasonably requested
by MedPartners relating to such claim,
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(ii) take such action in connection with contesting such
claim as MedPartners shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by MedPartners,
(iii) cooperate with MedPartners in good faith in order
effectively to contest such claim, and
(iv) permit MedPartners to participate in any proceeding
relating to such claim;
provided, however, that MedPartners shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing provisions
of this Section 11, MedPartners shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as MedPartners shall
determine; provided, however, that if MedPartners directs Executive to pay such
claim and sue for a refund, MedPartners shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for Executive's taxable year with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, MedPartners' control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(c) If, after Executive's receipt of an amount advanced by
MedPartners pursuant to Section 11(b), Executive becomes entitled to receive
any refund with respect to such claim, Executive shall (subject to MedPartners'
complying with the requirements of this Section 11(b)) promptly pay to
MedPartners the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after Executive's
receipt of an amount advanced by MedPartners pursuant to Section 11(b), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and MedPartners does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
SECTION 12. NON-COMPETITION.
(a) In the event that Executive's employment under this Agreement
shall terminate during its term, for the period of time with respect to which
Executive is entitled to receive compensation hereunder after such termination,
Executive shall not, directly or indirectly, own, operate, be employed by, be a
director of, act as a consultant for, be associated with, or be a partner or
have a proprietary interest in, any enterprise, partnership, association,
corporation, joint venture or other entity, which is competitive with the
medical practice management services business of MedPartners, or any subsidiary
or affiliate thereof, in any county in a state where MedPartners or its
subsidiaries or affiliates are conducting such business at the time of such
termination; provided, however, that if such termination shall occur as a
result of a Change in Control, this Section 12 shall be void and shall be of no
further force and effect.
10
<PAGE> 11
(b) The parties have entered into this Section 12 of this
Agreement in good faith and for the reasons set forth in the recitals hereto
and assume that this Agreement is legally binding. If, for any reason, this
Section 12 is not binding because of its geographical scope or because of its
term, then the parties agree that this Agreement shall be deemed effective to
the widest geographical area and/or the longest period of time (but not in
excess of one year) as may be legally enforceable.
(c) Executive acknowledges that the rights and privileges granted
to MedPartners in this Section 12 are of special and unique character, which
gives them a peculiar value, the loss of which may not be reasonably or
adequately compensated for by damages in an action of law, and that a breach
thereof by Executive of this Section 12 will cause MedPartners great and
irreparable injury and damage. Accordingly, Executive hereby agrees that
MedPartners shall be entitled to remedies of injunction, specific performance
or other equitable relief to prevent a breach of this Section 12 of this
Agreement by Executive. This provision shall not be construed as a waiver of
any other rights or remedies MedPartners may have for damages or otherwise.
SECTION 13. NON-ASSIGNABILITY.
Executive shall not have the right to assign, transfer, pledge,
hypothecate or dispose of any right to receive payments hereunder or any
rights, privileges or interest hereunder, all of which are hereby expressly
declared to be non-assignable and non-transferable, except after termination of
her employment hereunder. In the event of a violation of the provisions of
this Section 13, no further sums shall hereafter become due or payable by
MedPartners or its subsidiaries and affiliates to Executive or her assignee,
transferee, pledgee or to any other person whatsoever, and MedPartners shall
have no further liability under this Agreement to Executive.
SECTION 14. CLAIMS; ARBITRATION.
(a) All claims by Executive for compensation and benefits under
this Agreement shall be directed to and determined by the Chief Executive
Officer and shall be in writing. Any denial by the Chief Executive Officer of
a claim for benefits under this Agreement shall be delivered to Executive in
writing and shall set forth the specific reasons for the denial and specific
provisions of this Agreement relied upon. The Chief Executive Officer shall
afford a reasonable opportunity to Executive for a review of a decision denying
a claim and shall further allow Executive to appeal to the Chief Executive
Officer a decision of the Chief Executive Officer of MedPartners within 60 days
after notification by the Chief Executive Officer that Executive's claim has
been denied.
(b) To the extent permitted by applicable law, any further dispute
or controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Birmingham, Alabama, in accordance with
the rules of the American Arbitration Association then in effect. The
agreement set forth herein to arbitrate shall be specifically enforceable under
the prevailing arbitration law.
(c) By initialing below, the parties hereto (i) acknowledge that
they have read and understood the provisions of this Section regarding
arbitration and (ii) that performance of this Agreement will be an interstate
commerce as that term is used in the Federal Arbitration Act, 9 U.S.C. Section
1 et seq., and the parties contemplated substantial interstate activity in the
performance of this Agreement including, but not limited to, interstate travel,
the use of interstate phone lines, the use of the U.S. mail services and other
interstate courier services.
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Tracy P. Thrasher For MedPartners:
----------------- ----------------
(d) Notice of the demand for arbitration shall be filed in writing
with the other party to this Agreement and with the American Arbitration
Association. The demand for arbitration shall be made within a reasonable time
after the claim, dispute or other matter in question has arisen, and in no
event shall it be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would be
barred by the applicable statute of limitations.
(e) The award rendered by the arbitrator shall be final and
judgment may be entered upon it in accordance with applicable law in any court
having jurisdiction thereof.
(f) Unless otherwise agreed in writing, MedPartners shall continue
to make payments and provide benefits in accordance with this Agreement, and
Executive shall continue to perform her obligations hereunder during any
arbitration proceedings.
(g) In the event Executive incurs legal fees and other expenses in
seeking to obtain or to enforce any rights or benefits provided by this
Agreement and is successful, in whole or in part, in obtaining or enforcing any
such rights or benefits through settlement, arbitration, or otherwise,
MedPartners shall promptly pay Executive's reasonable legal fees and expenses
incurred in enforcing this Agreement and the fees of the arbitrator or
arbitrators. Except to the extent provided in the preceding sentence, each
party shall pay its own legal fees and other expenses associated with any
dispute.
SECTION 15. EMPLOYMENT TAXES.
All compensation paid pursuant to this Agreement, including
compensation paid pursuant to Section 5 and Section 10 of this Agreement, shall
be subject to reduction by all applicable withholding, social security and
other federal, state and local taxes and deductions.
SECTION 16. BINDING EFFECT.
The rights and obligations of MedPartners and its subsidiaries under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of MedPartners. Executive shall not assign or alienate
any interest of her in this Agreement, except as provided in Section 11 hereof.
SECTION 17. WAIVER OF BREACH.
The waiver by either party to this Agreement of a breach of any
provision thereof by the other party shall not operate or be construed as a
waiver of any subsequent breach of such party.
SECTION 18. NOTICES.
Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified or registered mail
to Executive's residence (if such notice is addressed to Executive), or to the
principal executive offices of MedPartners in Birmingham, Alabama (if such
notice is addressed to MedPartners).
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SECTION 19. ENTIRE AGREEMENT.
This instrument shall be governed by the laws of the State of Delaware
and contains the entire agreement of the parties with respect to the subject
matter hereof and supersedes any other agreements, whether written or oral,
between the parties.
This Agreement may not be changed orally, but only by an instrument in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
SECTION 20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall for all purposes be deemed to be an original, but each of which,
when so executed, shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MEDPARTNERS/MULLIKIN, INC.
By: /s/ Larry R. House /s/ Tracy P. Thrasher
------------------------------------- ---------------------------------
Larry R. House Tracy P. Thrasher
Chairman of the Board, President
and Chief Executive Officer
13
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================================================================================
CREDIT AGREEMENT
by and among
MEDPARTNERS, INC.
as Borrower,
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH),
as Administrative Agent
THE FIRST NATIONAL BANK OF CHICAGO,
as Documentation Agent
and
THE LENDERS PARTY HERETO FROM TIME TO TIME
September 5, 1996
================================================================================
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TABLE OF CONTENTS
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ARTICLE I
Definitions and Terms
1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2. Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
1.3. Classes and Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE II
The Revolving Credit Facility
2.1. Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.2. Competitive Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.3. Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.4. Payment of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.5. Manner of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.6. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.7. Pro Rata Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.8. Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.9. Conversions and Elections of Subsequent Interest
Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.10. Increase and Decrease in Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.11. Unused Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.12. Deficiency Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.13. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
2.14. Swing Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE III
Letters of Credit
3.1. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.2. Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.3. Letter of Credit Facility Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.4. Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE IV
Yield Protection and Illegality
4.1. Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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4.2. Suspension of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.3. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.5. Alternate Loan and Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.7. Certain Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE V
Conditions to Execution of Loan Documents,
Making Loans and Issuing Letters of Credit
5.1. Conditions to Execution of Loan Documents, Making
Loans and Issuing Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.2. Conditions of Revolving Loans and Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE VI
Representations and Warranties
6.1. Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.2. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
6.3. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.4. Subsidiaries and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.5. Ownership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.6. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.7. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.9. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.10. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.11. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.12. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.13. Patents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.14. No Untrue Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.15. No Consents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.16. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.17. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.18. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.19. Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.20. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.21. Existing Settlement Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.22. Related Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
6.23. Representations and Warranties from the Related
Acquisition Transaction Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
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ARTICLE VII
Affirmative Covenants
7.1. Financial Reports, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.2. Maintain Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.3. Existence, Qualification, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.4. Regulations and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
7.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.6. True Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.7. Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.8. Observe all Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.9. Governmental Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
7.10. Covenants Extending to Other Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.11. Officer's Knowledge of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.12. Suits or Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.13. Notice of Discharge of Hazardous Material or
Environmental Complaint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.14. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7.15. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
7.16. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
7.17. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
7.18. Continued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7.19. New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7.20. Caremark Excess Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE VIII
Negative Covenants
8.1. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
8.2. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
8.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
8.4. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
8.5. Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.6. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.7. Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.8. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.9. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.10. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
8.11. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.12. Dissolution, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.13. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
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8.14. Rate Hedging Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.15. Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.16. Prepayments or Amendments of Settlement Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.17. Dividend Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
8.18. Indenture Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ARTICLE IX
Events of Default and Acceleration
9.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
9.2. Administrative Agent to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
9.3. Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
9.4. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
9.5. Allocation of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
ARTICLE X
The Administrative Agent
10.1. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.2. Attorneys-in-fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.3. Limitation on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.4. Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.6. No Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.7. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.8. Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.9. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
10.10. Sharing of Payments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
10.11. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
10.12. Documentation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
ARTICLE XI
Miscellaneous
11.1. Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
11.3. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
11.4. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
11.5. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
11.6. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
11.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
11.8. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
11.9. Indemnification; Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
11.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
11.11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
11.12. Agreement Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
11.13. Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
11.14. Governing Law; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
EXHIBIT A Applicable Commitment Percentages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B Form of Assignment and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C Notice of Appointment (or Revocation)
of Authorized Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
EXHIBIT D-1 Form of Borrowing Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT D-2 Form of Borrowing Notice--Swing Line Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-3
EXHIBIT E Form of Interest Rate Selection Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
EXHIBIT F-1 Form of Competitive Bid Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
EXHIBIT F-2 Form of Revolving Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
EXHIBIT F-3 SWING LINE NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
EXHIBIT G Form of Competitive Bid Quote Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
EXHIBIT H Form of Competitive Bid Quote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . H-1
EXHIBIT I Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
EXHIBIT J Form of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J-1
EXHIBIT K Form of Opinion of Borrower's Counsel
(Closing Date) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K-1
Schedule 1.1 Assumed Debt
Schedule 1.1 Closing Date Prepayable Debt
Schedule 1.1 Designated Caremark Litigation
Schedule 1.1 Additional Settlement Agreements
Schedule 1.1 Insurer Settlement Agreements
Schedule 1.1 OIG Settlement Agreements
Schedule 1.1 Existing Letters of Credit
Schedule 6.4 Subsidiaries and Investments in Other Persons
Schedule 6.6 Other Indebtedness
Schedule 6.7 Liens
Schedule 6.8 Tax Matters
Schedule 6.10 Litigation
Schedule 6.19 Employment Matters
Schedule 7.5 Insurance
Schedule 8.4 Indebtedness at Closing Date
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of September 5, 1996 (the
"Agreement"), is made by and among MEDPARTNERS, INC. (formerly
"MedPartners/Mullikin, Inc."), a Delaware corporation having its principal
place of business in Birmingham, Alabama (the "Borrower"), NATIONSBANK,
NATIONAL ASSOCIATION (SOUTH), a national banking association organized and
existing under the laws of the United States, in its capacity as a Lender
("NationsBank"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association organized and existing under the laws of the United States, in its
capacity as a lender ("First Chicago"), and each other financial institution
executing and delivering a signature page hereto and each other financial
institution which may hereafter execute and deliver an instrument of assignment
and acceptance with respect to this Agreement pursuant to Section 11.1
(hereinafter such financial institutions may be referred to individually as a
"Lender" or collectively as the "Lenders"), NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), in its capacity as administrative agent for the Lenders (in such
capacity, and together with any successor administrative agent appointed in
accordance with the terms of Section 10.9, the "Administrative Agent"), and THE
FIRST NATIONAL BANK OF CHICAGO, in its capacity as documentation agent for the
Lenders (in such capacity, the "Documentation Agent" and, together with the
Administrative Agent, the "Agents");
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders make available to
the Borrower a revolving credit facility of up to $1,000,000,000, the proceeds
of which are to be used for general corporate purposes, including working
capital, the funding of capital expenditures and acquisitions to the extent
permitted hereunder and the repayment, acquisition or defeasance of certain
indebtedness as herein specified, and which shall include a letter of credit
facility of up to $50,000,000 for the issuance of standby letters of credit and
a swing line facility of up to $25,000,000; and
WHEREAS, the Lenders are willing to make such revolving credit, letter
of credit, and swing line facilities available to the Borrower upon the terms
and conditions set forth herein;
NOW, THEREFORE, the Borrower, the Lenders and the Agents hereby agree
as follows:
<PAGE> 8
ARTICLE I
Definitions and Terms
1.1. Definitions. For the purposes of this Agreement, in addition to
the definitions set forth above, the following terms shall have the respective
meanings set forth below:
"Absolute Rate" shall have the meaning assigned to such term
in Section 2.2(c)(ii)(D).
"Absolute Rate Auction" shall mean a solicitation of
Competitive Bid Quotes setting forth Absolute Rates pursuant to
Section 2.2.
"Absolute Rate Loans" shall mean the Competitive Bid Loans the
interest rates on which are determined on the basis of Absolute Rates
set at Absolute Rate Auctions.
"Acquisition" means the acquisition of (i) a controlling
equity interest in another Person (including the purchase of an
option, warrant or convertible or similar type security to acquire
such a controlling interest at the time it becomes exercisable by the
holder thereof), whether by purchase of such equity interest or upon
exercise of an option or warrant for, or conversion of securities
into, such equity interest, or (ii) assets of another Person which
constitute all or substantially all of the assets of such Person or of
a line or lines of business conducted by such Person.
"Additional Disclosure Letter" means the letter dated as of
the Closing Date from the Borrower addressed to the Administrative
Agent and the Lenders and identifying itself as the "Additional
Disclosure Letter" referred to herein.
"Advance" means a borrowing under the Revolving Credit
Facility consisting of the aggregate principal amount of a Revolving
Loan or a Competitive Bid Loan.
"Affiliate" means a Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or
is under common control with the Borrower; (ii) which beneficially
owns or holds 5% or more of any class of the outstanding Voting Stock
(or in the case of a Person which is not a corporation, 5% or more of
the equity interest) of the Borrower; or (iii) 5% or more of any class
of the outstanding Voting Stock (or in the case of a Person which is
not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by the Borrower. The term "control" means
the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person,
whether through ownership of Voting Stock, by contract or otherwise.
"Applicable Commitment Percentage" means, with respect to each
Lender at any time, that percentage of the Total Revolving Credit
Commitment set forth opposite the name of such Lender in Exhibit A;
provided, however, that the Applicable Commitment
2
<PAGE> 9
Percentage of each Lender shall be increased or decreased to reflect
any assignments to or by such Lender effected in accordance with
Section 11.1.
"Applicable Margin" means, with respect to each Eurodollar
Rate Loan, except as set forth below in this definition (i) from the
Closing Date through the date of receipt by the Administrative Agent
of a Compliance Certificate in respect of the fiscal period of the
Borrower and its Subsidiaries ending on December 31, 1996, .875% per
annum and (ii) thereafter for each period beginning on the date of
receipt by the Administrative Agent of a Compliance Certificate in
respect of any quarterly fiscal period of the Borrower and its
Subsidiaries ending on or after March 31, 1997 and ending on the date
next following date of receipt by the Administrative Agent of a
Compliance Certificate in respect of a subsequent fiscal quarter, that
percent per annum set forth below opposite the Consolidated Leverage
Ratio applicable to the Four-Quarter Period of the Borrower and its
Subsidiaries then ended as reflected in the applicable Compliance
Certificate:
<TABLE>
<CAPTION>
Applicable
Consolidated Leverage Ratio Margin
--------------------------- ----------
<S> <C>
Less than .75 to 1.00 .375%
Greater than or equal to .75 to 1.00
and less than 1.50 to 1.00 .500%
Greater than or equal to 1.50 to 1.00
and less than 2.00 to 1.00 .625%
Greater than or equal to 2.00 to 1.00
and less than 2.50 to 1.00 .750%
Greater than or equal to 2.50 to 1.00
and less than 3.00 to 1.00 .875%
Greater than or equal to 3.00 to 1.00 1.125%
</TABLE>
, provided however, if the Borrower shall fail to deliver any such
Compliance Certificate within the time period required by Section 7.1,
then the Applicable Margin shall be 1.125% until the appropriate
Compliance Certificate is so delivered; and provided further, however,
that if at any time after December 31, 1996 the Borrower's long term
senior unsecured, unenhanced debt shall be rated "BB+" or better by
S&P and "Ba1" or better by Moody's (collectively, the "Threshold
Ratings"), then the Borrower may elect, by notice to the
Administrative Agent and the Lenders, effective upon receipt (but
subject to confirmation) by the Administrative Agent, to have the
Applicable Margin determined as set forth below based on such ratings
for the period from the date of receipt of such notice by the
Administrative Agent through the date on which either of the Threshold
Ratings are no longer in effect with respect to such debt of the
Borrower (in which event the method for determining Applicable Margin
as set forth above shall apply):
3
<PAGE> 10
<TABLE>
<CAPTION>
Applicable
Tier Margin S&P Moody's
---- ------ --- -------
<S> <C> <C> <C>
I .625% BB+ Ba1
II .475% BBB- Baa3
III .350% BBB Baa2
IV .300% BBB+ or higher Baa1 or higher
</TABLE>
If, during any period when the Applicable Margin is determined by
reference to ratings by S&P and Moody's of long term senior unsecured,
unenhanced debt of the Borrower as provided above, the respective
ratings of each of S&P and Moody's shall be contained in different
Tiers, then, provided that both ratings shall constitute Threshold
Ratings, (i) the higher Tier shall apply for purposes of determining
the Applicable Margin if the ratings are in consecutive Tiers, and
(ii) the Tier next higher than the Tier containing the lower rating
shall apply for purposes of determining the Applicable Margin if the
ratings are not in consecutive Tiers.
"Applicable Unused Fee" means, except as set forth below in
this definition, (i) from the Closing Date through the date of receipt
by the Administrative Agent of a Compliance Certificate in respect of
the fiscal period of the Borrower and its Subsidiaries ending on
December 31, 1996, .25% per annum and (ii) thereafter for each period
beginning on the date of receipt by the Administrative Agent of a
Compliance Certificate in respect of any quarterly fiscal period of
the Borrower and its Subsidiaries ending on or after March 31, 1997
and ending on the date next following date of receipt by the
Administrative Agent of a Compliance Certificate in respect of a
subsequent fiscal quarter, that percent per annum set forth below
opposite the Consolidated Leverage Ratio applicable to the
Four-Quarter Period of the Borrower and its Subsidiaries then ended as
reflected in the applicable Compliance Certificate:
<TABLE>
<CAPTION>
Applicable
Consolidated Leverage Ratio Unused Fee
--------------------------- ----------
<S> <C>
Less than .75 to 1.00 .150%
Greater than or equal to .75 to 1.00
and less than 1.50 to 1.00 .200%
Greater than or equal to 1.50 to 1.00
and less than 2.00 to 1.00 .225%
Greater than or equal to 2.00 to 1.00
and less than 2.50 to 1.00 .250%
Greater than or equal to 2.50 to 1.00
and less than 3.00 to 1.00 .250%
Greater than or equal to 3.00 to 1.00 .300%
</TABLE>
4
<PAGE> 11
, provided however, if the Borrower shall fail to deliver any such
Compliance Certificate within the time period required by Section 7.1,
then the Applicable Unused Fee shall be .30% until the appropriate
Compliance Certificate is so delivered; and provided further, however,
that if at any time after December 31, 1996 the Borrower's long term
senior unsecured, unenhanced debt shall be rated "BB+" or better by
S&P and "Ba1" or better by Moody's (collectively, the "Threshold
Ratings"), then the Borrower may elect, by notice to the
Administrative Agent and the Lenders, effective upon receipt (but
subject to confirmation) by the Administrative Agent, to have the
Applicable Unused Fee determined as set forth below based on such
ratings for the period from the date of receipt of such notice by the
Administrative Agent through the date on which either of the Threshold
Ratings are no longer in effect with respect to such debt of the
Borrower (in which event the method for determining Applicable Unused
Fee set forth above shall apply):
<TABLE>
<CAPTION>
Applicable
Tier Unused Fee S&P Moody's
---- ---------- --- -------
<S> <C> <C> <C>
I .225% BB+ Ba1
II .175% BBB- Baa3
III .125% BBB Baa2
IV .100% BBB+ or higher Baa1 or higher
</TABLE>
If, during any period when the Applicable Unused Fee is determined by
reference to ratings by S&P and Moody's of long term senior unsecured,
unenhanced debt of the Borrower as provided above, the respective
ratings of each of S&P and Moody's shall be contained in different
Tiers, then, provided that both ratings shall constitute Threshold
Ratings, (i) the higher rating shall apply for purposes of determining
the Applicable Unused Fee if the ratings are in consecutive Tiers and
(ii) the Tier next higher than the Tier containing the lower rating
shall apply for purposes of determining the Applicable Unused Fee if
the ratings are not in consecutive Tiers.
"Applications and Agreements for Letters of Credit" means,
collectively, the Applications and Agreements for Letters of Credit,
or similar documentation, executed by the Borrower from time to time
and delivered to the Issuing Bank to support the issuance of Letters
of Credit.
"Assignment and Acceptance" shall mean an Assignment and
Acceptance in the form of Exhibit B (with blanks appropriately filled
in) delivered to the Administrative Agent in connection with an
assignment of a Lender's interest under this Agreement pursuant to
Section 11.1.
"Assumed Debt" means Indebtedness of a member of the Caremark
Group as in existence immediately prior to the Closing Date the
obligations under which either (i) continue in effect in accordance
with their terms without default, right of acceleration,
5
<PAGE> 12
or payment of any penalty or premium or creation of any additional
Lien securing the same notwithstanding the consummation of the Related
Acquisition and the other transactions contemplated by this Agreement,
or (ii) are, with the consent of the relevant obligee or obligees,
assumed or guaranteed by the Borrower or a Subsidiary, in all cases
having such terms as shall be disclosed to and acceptable to the
Administrative Agent and the Lenders in their discretion, which
Indebtedness is more particularly described on Schedule 1.1--Assumed
Debt.
"Authorized Representative" means any of the President or
Executive Vice Presidents or Vice Presidents of the Borrower or, with
respect to financial matters, the Treasurer or chief financial officer
of the Borrower, or any other Person expressly designated by the Board
of Directors of the Borrower (or the appropriate committee thereof) as
an Authorized Representative of the Borrower, as set forth from time
to time in a certificate in the form of Exhibit C.
"Base Rate" means the per annum rate of interest equal to the
greater of (i) the Prime Rate or (ii) the Federal Funds Effective Rate
plus one-half of one percent (.50%). Any change in the Base Rate
resulting from a change in the Prime Rate or the Federal Funds
Effective Rate shall become effective as of 12:01 A.M. of the Business
Day on which each such change occurs. The Base Rate is a reference
rate used by the Administrative Agent in determining interest rates on
certain loans and is not intended to be the lowest rate of interest
charged on any extension of credit to any debtor.
"Base Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Base Rate.
"Base Rate Refunding Loan" means a Base Rate Loan made either
to (i) satisfy Reimbursement Obligations arising from a drawing under
a Letter of Credit or (ii) pay NationsBank in respect of Swing Line
Outstandings.
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body).
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with a Revolving Loan or a Swing Line
Loan, in the forms of Exhibits D-1 and D-2, respectively.
"Business Day" means, (i) with respect to any Base Rate Loan,
any day which is not a Saturday, Sunday or a day on which banks in the
States of New York and North Carolina are authorized or obligated by
law, executive order or governmental decree to be closed and, (ii)
with respect to any Eurodollar Rate Loan, any day which is a Business
Day, as described above, and on which the relevant international
financial markets are open for the transaction of business
contemplated by this Agreement in London, England, New York, New York
and Charlotte, North Carolina.
6
<PAGE> 13
"Capital Expenditures" means for any period the sum of
(without duplication) (i) all expenditures (whether paid in cash or
accrued as liabilities) by the Borrower or any Subsidiary during that
period that are for items that would be classified as "property, plant
or equipment" or comparable items on the balance sheet of the Borrower
or such Subsidiary, plus (ii) with respect to any Capital Lease
entered into by the Borrower or any Subsidiary during such period, the
present value of the lease payments due under such Capital Lease over
the term of such Capital Lease applying a discount rate equal to the
interest rate provided in such lease (or if such interest rate is not
set forth in such lease, the interest rate assumed in the preparation
of the financial statements of the Borrower and its Subsidiaries
described in Sections 6.6(a) and 7.1(a)), excluding, however, the
amount of any Capital Expenditures paid for with proceeds of casualty
insurance.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time
including Statement No. 13 of the Financial Accounting Standards Board
and any successor thereof.
"Caremark" means Caremark International Inc., a Delaware
corporation and its successors.
"Caremark Counsel" means Wachtell, Lipton, Rosen & Katz,
counsel to the Caremark Group in connection with the Related
Acquisition.
"Caremark Excess Cash Flow" means, with respect to Caremark
and its Subsidiaries (determined for all purposes of this definition
as if each reference to "Borrower" in the definition of "Subsidiary"
in this Section 1.1 were a reference to "Caremark") for any period of
determination thereof, (1) the sum of (i) the gross revenues from
operations of Caremark and its Subsidiaries for such period (including
payments received by Caremark and its Subsidiaries of (A) interest
income, and (B) dividends and distributions made in the ordinary
course of their businesses by Persons in which investment is permitted
pursuant to this Agreement and not related to an extraordinary event),
less all operating and non-operating expenses of Caremark and its
Subsidiaries including taxes on income, plus (ii) all noncash charges
applicable to Caremark and its Subsidiaries for such period, minus (2)
Capital Expenditures (determined for all purposes of this definition
as if each reference to "Borrower" in the definition of "Capital
Expenditures" in this Section 1.1 were a reference to "Caremark") for
such period, all determined on a consolidated basis in accordance with
GAAP applied on a Consistent Basis.
"Caremark Group" means, collectively, Caremark and the
Caremark Subsidiaries; a "member" of the Caremark Group shall mean any
one of such Persons.
"Caremark Inc. Guaranty Limitation" means the sentence
contained in Section 2 of the Guaranty of Caremark Inc. which reads as
follows: "Notwithstanding the foregoing provisions of this Section 2,
so long as the Indenture shall limit the incurrence
7
<PAGE> 14
of certain Indebtedness by the Guarantor, the liability of the
Guarantor with respect to the Guarantors' Obligations shall not exceed
the lesser of (1) the Maximum Amount (as defined above) or (2) the
maximum amount payable hereunder by the Guarantor without giving rise
to a default or event of default under Section 4.07(b) of the
Indenture."
"Caremark Subsidiaries" means the Subsidiaries (determined as
if each reference to "Borrower" in the definition of "Subsidiary" in
this Section 1.1 were a reference to "Caremark") of Caremark as at the
Closing Date, which Persons are more particularly described in
Schedule 6.4.
"Change of Control" means, at any time:
(i) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) either (A) becomes
the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act ), directly or indirectly, of Voting Stock of the
Borrower (or securities convertible into or exchangeable for
such Voting Stock) representing 25% or more of the combined
voting power of all Voting Stock of the Borrower (on a fully
diluted basis) or (B) otherwise has the ability, directly or
indirectly, to elect a majority of the board of directors of
the Borrower;
(ii) during any period of up to 24 consecutive months,
commencing on the Closing Date, individuals who at the
beginning of such 24-month period were directors of the
Borrower shall cease for any reason (other than the death,
disability or retirement of an officer of the Borrower that is
serving as a director at such time so long as another officer
of the Borrower replaces such Person as a director) to
constitute a majority of the board of directors of the
Borrower; or
(iii) any Person or two or more Persons acting in concert
shall have acquired by contract or otherwise, or shall have
entered into a contract or arrangement that, upon consummation
thereof, will result in its or their acquisition of the power
to exercise, directly or indirectly, a controlling influence
on the management or policies of the Borrower.
"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Lenders and the Agents and on which the
conditions set forth in Section 5.1 have been satisfied.
"Closing Date Prepayable Debt" means the Indebtedness
described on Schedule 1.1--Closing Date Prepayable Debt.
"Code" means the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
"Combination Parties" means those corporations and
partnerships whose financial statements are described on pages F-1
through F-4 of the Borrower's Registration
8
<PAGE> 15
Statement filed on Form S-4, Registration No. 33-96978, as filed with
the Securities and Exchange Commission on September 14, 1995, as
amended.
"Common Stock" means the Borrower's common stock, $.001 par
value per share.
"Competitive Bid Borrowing" shall have the meaning assigned to
such term in Section 2.2(b).
"Competitive Bid Loans" shall mean the Loans provided for by
Section 2.2.
"Competitive Bid Notes" shall mean the promissory notes
provided for by Section 2.6(b) substantially in the form of Exhibit
F-1 and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Competitive Bid Quote" shall mean an offer in accordance with
Section 2.2(c) by a Lender to make a Competitive Bid Loan with one
single specified interest rate.
"Competitive Bid Quote Request" shall have the meaning
assigned to such term in Section 2.2(b).
"Compliance Certificate" means a certificate of an Authorized
Representative in the form attached hereto as Exhibit I.
"Compliance Report" means a report detailing all Reportable
Conduct which has occurred since the last such Compliance Report, the
most recent such report as delivered to the Administrative Agent on or
prior to the Closing Date being dated January 31, 1996.
"Consistent Basis" in reference to the application of GAAP
means the accounting principles observed in the period referred to are
comparable in all material respects to those applied in the
preparation of the audited financial statements of the Borrower
referred to in Section 6.6(a).
"Consolidated EBITDA" means, with respect to the Borrower and
its Subsidiaries for the Four-Quarter Period ending on the date of
computation thereof, the sum of, without duplication, (i) Consolidated
Net Income (adjusted by (A) adding back up to $250,000,000 of actual
expenses incurred in connection with the Related Acquisition for the
Four-Quarter Periods ending on or before September 30, 1997, (B)
adding back up to $100,000,000 of actual expenses incurred in
connection with the acquisition of the Combination Parties and the
PPSI Acquisition for the two Four-Quarter Periods ending September 30,
1996 and December 31, 1996, (C) excluding the effect of any gains or
losses with respect to either or both of the Coram Notes, and (D)
excluding from the calculation the after tax amounts of any OIG
Settlement Costs and Insurer Settlement
9
<PAGE> 16
Costs paid or incurred on or after June 13, 1995 and March 18, 1996,
respectively (not to exceed the respective amounts set forth in the
definitions of "OIG Settlement Costs" and "Insurer Settlement Costs"
in this Section 1.1) plus (ii) Consolidated Interest Expense accrued
during such period, plus (iii) taxes on income accrued during such
period, plus (iv) amortization accrued during such period, plus (v)
without duplication, depreciation during such period, all determined
on a consolidated basis in accordance with GAAP applied on a
Consistent Basis; provided, however, that with respect to an
Acquisition which is accounted for as a "purchase", the computation of
Consolidated EBITDA shall include the results of operations of the
Person or assets so acquired which amounts shall be determined on a
historical pro forma basis for the Four-Quarter Period preceding or
including the date of such Acquisition as if such Acquisition had been
consummated as a "pooling of interest".
"Consolidated Fixed Charge Ratio" means, with respect to the
Borrower and its Subsidiaries for any Four-Quarter Period ending as at
the date of computation thereof, the ratio of (i) Consolidated EBITDA
plus Consolidated Lease Payments for such period to (ii) Consolidated
Fixed Charges for such period.
"Consolidated Fixed Charges" means, with respect to Borrower
and its Subsidiaries for any Four-Quarter Period ending as at the date
of computation thereof, the sum of, without duplication, (i)
Consolidated Interest Expense accrued during such period plus (ii)
Consolidated Lease Payments for such period, all determined in
accordance with GAAP on a Consistent Basis; provided, however, that
with respect to an Acquisition which is accounted for as a "purchase",
the computation of Consolidated Fixed Charges shall include the
results of operations of the Person or assets so acquired which
amounts shall be determined on a historical pro forma basis for the
Four-Quarter Period preceding or including the date of such
Acquisition as if such Acquisition had been consummated as a "pooling
of interest".
"Consolidated Indebtedness" means all Indebtedness of the
Borrower and its Subsidiaries, all determined on a consolidated basis;
provided, however, for purposes of determining Consolidated Leverage
Ratio, there shall be included during each "Relevant Period" (as
defined below) in the determination of the amount of "Consolidated
Indebtedness", without duplication, the sum of Designated Caremark
Litigation Costs plus $100,000,000. For purposes of this definition,
"Relevant Period" means the period from the first date of any award,
judgment or settlement (whether or not subject to any right of appeal
or further review) pursuant to the terms of which the Borrower or any
Subsidiary is to make any payment to any Person in respect of any
Designated Caremark Litigation, until such award, judgment or
settlement is fully and finally (subject to no further right of
appeal) reversed or set aside in its entirety, or satisfied.
"Consolidated Interest Expense" means, with respect to any
period of computation thereof, the gross interest expense of the
Borrower and its Subsidiaries, including without limitation (i) the
current amortized portion of debt discounts to the extent included in
gross interest expense, (ii) the current amortized portion of all fees
(including fees
10
<PAGE> 17
payable in respect of any Swap Agreement) payable in connection with
the incurrence of Indebtedness to the extent included in gross
interest expense, (iii) the portion of any payments made in connection
with Capital Leases allocable to interest expense, and (iv) all fees,
charges, discounts and other costs incurred in connection with any
Permitted Receivables Securitization, all determined on a consolidated
basis in accordance with GAAP applied on a Consistent Basis.
"Consolidated Lease Payments" means the gross amount of all
lease or rental payments, whether or not characterized as rent, of the
Borrower and its Subsidiaries, excluding payments in respect of
Capital Leases constituting Indebtedness, all determined on a
consolidated basis in accordance with GAAP applied on a Consistent
Basis.
"Consolidated Leverage Ratio" means, as at the date of
computation thereof, the ratio of Consolidated Indebtedness
(determined as at such date) to Consolidated EBITDA (for the
Four-Quarter Period ending on (or most recently ended prior to) such
date).
"Consolidated Net Income" means, for any period of computation
thereof, the gross revenues from operations of the Borrower and its
Subsidiaries (including payments received by the Borrower and its
Subsidiaries of (i) interest income, and (ii) dividends and
distributions made in the ordinary course of their businesses by
Persons in which investment is permitted pursuant to this Agreement
and not related to an extraordinary event), less all operating and
non-operating expenses of the Borrower and its Subsidiaries including
taxes on income, all determined on a consolidated basis in accordance
with GAAP applied on a Consistent Basis; but excluding (for all
purposes other than compliance with Section 8.1(a) hereof) as income:
(i) net gains on the sale, conversion or other disposition of capital
assets, (ii) net gains on the acquisition, retirement, sale or other
disposition of capital stock or other securities of the Borrower or
its Subsidiaries, (iii) net gains on the collection of proceeds of
life insurance policies, (iv) any write-up of any asset, and (v) any
other net gain or credit of an extraordinary nature as determined in
accordance with GAAP applied on a Consistent Basis; provided, however,
that there shall be added back (to the extent deducted in computing
Consolidated Net Income but for this proviso) non-recurring expenses
accrued during the period of computation and arising in conjunction
with an Acquisition, in an amount not to exceed ten percent (10%) of
the related Cost of Acquisition.
"Consolidated Net Worth" means, as of any date on which the
amount thereof is to be determined, Consolidated Shareholders' Equity
minus (without duplication of deductions in respect of items already
deducted in arriving at surplus and retained earnings) all reserves
(other than contingency reserves not allocated to any particular
purpose), including without limitation reserves for depreciation,
depletion, amortization, obsolescence, deferred income taxes,
insurance and inventory valuation, all as determined on a consolidated
basis in accordance with GAAP applied on a Consistent Basis.
"Consolidated Shareholders' Equity" means, as of any date on
which the amount thereof is to be determined, the sum of the following
in respect of the Borrower and its
11
<PAGE> 18
Subsidiaries (determined on a consolidated basis and excluding any
upward adjustment after the Closing Date due to revaluation of
assets): (i) the amount of issued and outstanding share capital, plus
(ii) the amount of additional paid-in capital and retained earnings
(or, in the case of a deficit, minus the amount of such deficit), plus
(iii) the amount of any foreign currency translation adjustment (if
positive, or, if negative, minus the amount of such translation
adjustment), minus (iv) the amount of any treasury stock, all as
determined in accordance with GAAP applied on a Consistent Basis.
"Consolidated Total Assets" means, as of any date on which the
amount thereof is to be determined, the net book value of all assets
of the Borrower and its Subsidiaries as determined on a consolidated
basis in accordance with GAAP applied on a Consistent Basis.
"Contingent Obligation" of any Person means all contingent
liabilities required (or which, upon the creation or incurring
thereof, would be required) to be included in the financial statements
(including footnotes) of such Person in accordance with GAAP applied
on a Consistent Basis, including Statement No. 5 of the Financial
Accounting Standards Board, all Rate Hedging Obligations and any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
including obligations of such Person however incurred:
(1) to purchase such Indebtedness or other
obligation or any property or assets constituting security
therefor;
(2) to advance or supply funds in any manner (i) for
the purchase or payment of such Indebtedness or other
obligation, or (ii) to maintain a minimum working capital, net
worth or other balance sheet condition or any income statement
condition of the primary obligor;
(3) to grant or convey any lien, security interest,
pledge, charge or other encumbrance on any property or assets
of such Person to secure payment of such Indebtedness or other
obligation;
(4) to lease property or to purchase securities or
other property or services primarily for the purpose of
assuring the owner or holder of such Indebtedness or
obligation of the ability of the primary obligor to make
payment of such Indebtedness or other obligation; or
(5) otherwise to assure the owner of the
Indebtedness or such obligation of the primary obligor against
loss in respect thereof.
Such liabilities shall be computed at the amount which, in light of
all the facts and circumstances existing at the time, represent the
present value of the amount which can reasonably be expected to become
an actual or matured liability.
12
<PAGE> 19
"Coram" means Coram Healthcare Corporation and its successors.
"Coram Litigation" means, collectively, (i) the civil action
by Coram against Caremark and other members of the Caremark Group in
the California Superior Court, County of San Francisco, Case No.
972431, and (ii) all other actions, suits or proceedings by Coram now
or hereafter brought against any member of the Caremark Group alleging
or arising out of facts or claims similar in substance to any of those
contained in the litigation described in clause (i).
"Coram Notes" means, collectively, (i) the $25,000,000 Coram
Healthcare Corporation 12% Non-Convertible Subordinated Note due
October 1, 2005 issued as of April 1, 1995 to Caremark, (ii) the
$75,000,000 Coram Healthcare Corporation 7% Convertible Subordinated
Note due October 1, 2005 issued as of April 1, 1995 to Caremark and
(iii) any other uncollected proceeds and payment in kind notes payable
to Caremark (not to exceed $13,000,000 in the aggregate principal
amount) associated with the Caremark sale of assets to Coram on April
6, 1995.
"Corporate Integrity Agreement" means the Corporate Integrity
Agreement entered into by members of the Caremark Group in connection
with the OIG Settlement Agreements, a copy of which has been furnished
to the Administrative Agent, as the same may be amended, modified or
supplemented.
"Cost of Acquisition" means the sum of (i) the amount of cash
paid by the Borrower and its Subsidiaries in connection with such
Acquisition, (ii) the Stock Consideration issued or given in such
Acquisition, (iii) the amount (determined by using the face amount or
the amount payable at maturity, whichever is greater) of all
Indebtedness incurred, assumed or acquired in connection with such
Acquisition, (iv) all additional purchase price amounts in the form of
earnouts and other contingent obligations that should be recorded on
the financial statements of the Borrower and its Subsidiaries in
connection with GAAP, (v) all amounts paid in respect of covenants not
to compete, consulting agreements and other affiliated contracts in
connection with such Acquisition that should be recorded on financial
statements of the Borrower and its Subsidiaries in connection with
GAAP, and (vi) the aggregate fair market value of all other
consideration given by the Borrower and its Subsidiaries in connection
with such Acquisition.
"Credit Party" means, collectively, the Borrower and each
Guarantor.
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default hereunder.
"Default Rate" means (i) with respect to each Fixed Rate Loan,
until the end of the Interest Period applicable thereto, a rate of two
percentage points (2%) above the Fixed Rate applicable to such Loan,
and thereafter a rate of interest per annum which shall be two
percentage points (2%) above the Base Rate, (ii) with respect to Base
Rate
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<PAGE> 20
Loans, a rate of interest per annum which shall be two percentage
points (2%) above the Base Rate and (iii) in any case, the maximum
rate permitted by applicable law, if lower.
"Designated Caremark Litigation" means, collectively, (i) the
Coram Litigation, (ii) those actions, suits, claims, settlements or
other proceedings more particularly described on Schedule
1.1--Designated Caremark Litigation, and (iii) any other action,
suit, claim or proceeding by any Person (including arbitration or
mediation proceedings and any investigation by any Governmental
Authority) against any member of the Caremark Group or (in connection
with claims and investigations not then the subject of litigation to
which a member of the Caremark Group is a party) as to which a member
of the Caremark Group is a subject or target, which alleges or is
otherwise based in whole or in part upon actual or alleged conduct of
any member of the Caremark Group prior to the Closing Date similar in
substance to actual or alleged conduct giving rise to any of the
matters referred to in clauses (i) and (ii) of this definition.
"Designated Caremark Litigation Costs" means the aggregate
amount to be paid by the Borrower or any Subsidiary pursuant to all
judgments, awards or settlements (whether or not subject to further
right of appeal or review) in respect of Designated Caremark
Litigation; provided, however, (i) there shall be excluded from such
determination the amount of any such judgment, award or settlement to
be paid or satisfied by reduction of amounts owing to any member of
the Caremark Group under either or both of the Coram Notes, and (ii)
the amount of Designated Caremark Litigation Costs shall be reduced
from time to time by payments made in satisfaction of such judgments,
awards and settlements.
"Designated Officer" shall have the meaning therefor provided
in Section 7.11.
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United
States of America.
"Eligible Securities" means the following obligations and any
other obligations previously approved in writing by the Administrative
Agent:
(a) Government Securities;
(b) obligations of any corporation organized
under the laws of any state of the United States of America or
under the laws of any other nation, payable in Dollars in the
United States of America, expressed to mature not later than
90 days following the date of issuance thereof and rated in an
investment grade rating category by S&P and Moody's;
(c) interest bearing demand or time deposits
issued by any Lender or certificates of deposit maturing
within one year from the date of issuance thereof and issued
by a bank or trust company organized under the laws of the
United States or of any state thereof having capital surplus
and undivided profits
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<PAGE> 21
aggregating at least $1,000,000,000 and being rated "A" or
better by S&P and "A-2" or better by Moody's;
(d) Repurchase Agreements;
(e) Municipal Obligations;
(f) Pre-Refunded Municipal Obligations;
(g) shares of mutual funds which invest in
obligations described in paragraphs (a) through (f) above, the
shares of which mutual funds are at all times rated "AAA" by
S&P;
(h) tax-exempt or taxable adjustable rate
preferred stock issued by a Person having a rating of its long
term unsecured debt of "A" or better by S&P or "A-2" or better
by Moody's; and
(i) asset-backed remarketed certificates of
participation representing a fractional undivided interest in
the assets of a trust, which certificates are rated at least
"A-1" by S&P and "P- 1" by Moody's.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA which (i) is maintained for
employees of the Borrower or any of its ERISA Affiliates or is assumed
by the Borrower or any of its ERISA Affiliates in connection with any
Acquisition or (ii) has at any time been maintained for the employees
of the Borrower or any current or former ERISA Affiliate.
"Environmental Laws" means, collectively, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act, the Toxic Substances Control
Act, as amended, the Clean Air Act, as amended, the Clean Water Act,
as amended, any other "Superfund" or "Superlien" law or any other
federal, or applicable state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning, any pollutant,
contaminant, or hazardous, toxic or dangerous waste, substance or
material.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute and all
rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to the Borrower, means any
Person or trade or business which is a member of a group which is
under common control with the Borrower, who together with the
Borrower, is treated as a single employer within the meaning of
Section 414(b) and (c) of the Code.
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<PAGE> 22
"Eurodollar Auction" shall mean a solicitation of Competitive
Bid Quotes setting forth Eurodollar Margins based on the Interbank
Offered Rate pursuant to Section 2.2.
"Eurodollar Margin" shall have the meaning assigned to such
term in Section 2.2(c)(ii)(C).
"Eurodollar Market Loans" shall mean Competitive Bid Loans
interest rates on which are determined on the basis of Interbank
Offered Rate pursuant to a Eurodollar Auction.
"Eurodollar Rate Loan" means a Revolving Loan for which the
rate of interest is determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means the interest rate per annum calculated
according to the following formula:
<TABLE>
<S> <C> <C> <C>
Eurodollar = Interbank Offered Rate + Applicable
Rate 1- Eurodollar Reserve Percentage Margin
</TABLE>
"Eurodollar Reserve Percentage" means, for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D or any successor regulation, as the maximum
reserve requirement (including any basic, supplemental, emergency,
special, or marginal reserves) applicable with respect to Eurocurrency
liabilities as that term is defined in Regulation D (or against any
other category of liabilities that includes deposits by reference to
which the interest rate of Eurodollar Rate Loans is determined),
whether or not the Administrative Agent or any Lender has any
Eurocurrency liabilities subject to such requirements, without
benefits of credits or proration, exceptions or offsets that may be
available from time to time to the Administrative Agent or any Lender.
The Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurodollar Reserve Percentage.
"Event of Default" means any of the occurrences set forth as
such in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
"Exclusion Event" means the occurrence of one or more of the
following events: (i) the OIG excludes the Borrower or any of its
Material Subsidiaries (or any healthcare facilities material to the
operations of any Material Subsidiary) from participation in the
Medicare or Medicaid program; (ii) any other federal administrative or
regulatory body obtains a similar remedy; (iii) an administrative law
judge shall enter a judgment or a decision which excludes the Borrower
or any of its Material Subsidiaries (or any healthcare facilities
material to the operations of any Material Subsidiary) from
participation in the Medicare or Medicaid program or (iv) any
administrative or regulatory body of a State of the United States in
which the Borrower and its
16
<PAGE> 23
Subsidiaries, on a consolidated basis, have at least 10% of their
total net sales during the most recently ended fiscal quarter, obtains
or invokes a similar remedy.
"Existing Letters of Credit" means, collectively, the
irrevocable letters of credit issued for the benefit of one or more
members of the Caremark Group by The First National Bank of Chicago
prior to the Closing Date and remaining outstanding as of the Closing
Date, all as more particularly described on Schedule 1.1 - Existing
Letters of Credit.
"Existing Settlement Agreements" means, collectively, the OIG
Settlement Agreements, the Insurer Settlement Agreements, and the
other agreements more particularly described on Schedule
1.1--Additional Settlement Agreements.
"Facility Termination Date" means the date on which the
Revolving Credit Termination Date shall have occurred, no Letters of
Credit shall remain outstanding, the Borrower shall have fully,
finally and irrevocably paid and satisfied all Obligations, and no
Person shall have any continuing obligation to make Loans or to issue
Letters of Credit.
"Fair Market Value" means, with respect to any capital stock
or other ownership interests issued or given by the Borrower or any
Subsidiary in connection with an Acquisition, (i) in the case of
capital stock that is Common Stock and such Common Stock is then
designated as a national market system security by the National
Association of Securities Dealers, Inc. ("NASDAQ") or is listed on a
national securities exchange, the average of the last reported bid and
ask quotations or prices reported thereon for Common Stock or such
other value as may be ascribed to the Common Stock in a definitive
merger or acquisition agreement provided such value is determined
according to customary methods for like transactions and is approved
(to the extent required by Borrower's charter or bylaws) by the
Borrower's board of directors or (ii) in the case of capital stock
that is not Common Stock or in the event that Common Stock is not so
designated on NASDAQ or listed on such national exchange, or in the
case of any other ownership interests, the determination of the fair
market value thereof in good faith by a majority of disinterested
members of the board of directors of the Borrower or such Subsidiary,
in each case effective as of the close of business on the Business Day
immediately preceding the closing date of such Acquisition.
"Federal Funds Effective Rate" means, for any day, the rate
per annum (rounded upward to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day, provided that (a)
if such day is not a Business Day, the Federal Funds Effective Rate
for such day shall be such rate on such transactions on the next
preceding Business Day, and (b) if no such rate is so published on
such next succeeding Business Day, the Federal Funds Effective Rate
for such day shall be the average rate quoted to the Administrative
Agent by federal
17
<PAGE> 24
funds dealers selected by the Agent on such day on such transaction as
determined by the Administrative Agent.
"Fiscal Year" means the 12 month period of the Borrower
commencing on January 1 of each calendar year and ending on December
31 of each calendar year.
"Fixed Rate" shall mean the Absolute Rate, the Eurodollar
Rate, or the Interbank Offered Rate plus the Eurodollar Margin, as the
case may be.
"Fixed Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Fixed Rate.
"Foreign Benefit Law" means any applicable statute, law,
ordinance, code, rule, regulation, order or decree of any foreign
nation or any province, state, territory, protectorate or other
political subdivision thereof regulating, relating to, or imposing
liability or standards of conduct concerning, any Employee Benefit
Plan.
"Four-Quarter Period" means a period of four full consecutive
fiscal quarters of the Borrower and its Subsidiaries, taken together
as one accounting period.
"GAAP" or "Generally Accepted Accounting Principles" means
generally accepted accounting principles, being those principles of
accounting set forth in pronouncements of the Financial Accounting
Standards Board, the American Institute of Certified Public
Accountants or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report.
"Government Securities" means direct obligations of, or
obligations the timely payment of principal and interest on which are
fully and unconditionally guaranteed by, the United States of America.
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, court, agency or instrumentality or political
subdivision thereof or any entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a
foreign governmental entity.
"Guarantors" means, at the Closing Date, the Material
Subsidiaries at such date, and at any later date, the Material
Subsidiaries who are required to be parties to a Guaranty at such
date.
"Guaranty" means each Guaranty and Suretyship Agreement
between one or more Guarantors and the Administrative Agent for the
benefit of the Lenders, delivered as of the Closing Date and otherwise
pursuant to Section 7.19, in the form of Exhibit J, as the same may be
amended, modified or supplemented; provided, however, (i) the Guaranty
18
<PAGE> 25
of Caremark, Inc. may contain the Caremark, Inc. Guaranty Limitation
which remains in effect until the Guaranty Limitation Release Date,
and (ii) the Guaranty of Caremark may contain the additional covenant
of Caremark to make, until the Guaranty Limitation Release Date, the
distributions to the Borrower of Caremark Excess Cash Flow provided
for in Section 7.20.
"Guaranty Limitation Release Date" means the date upon which
the Borrower shall furnish to the Administrative Agent (i) evidence
satisfactory to the Administrative Agent that the Caremark Inc.
Guaranty Limitation is no longer required by the Indenture, which
shall include the opinion of counsel to Caremark, Inc. addressed to
the Administrative Agent and the Lenders substantially to that effect,
and (ii) the written acknowledgement by the Borrower and Caremark,
Inc. addressed to the Administrative Agent and the Lenders stating
that the Caremark, Inc. Guaranty Limitation is deemed deleted and of
no further force and effect.
"Hazardous Material" means and includes any pollutant,
contaminant, hazardous, toxic or dangerous waste, substance or
material (including petroleum products, asbestos-containing materials
and lead), the management, generation, handling, storage,
transportation, disposal, treatment, release, discharge or emission of
which is subject to any Environmental Law.
"Indebtedness" means with respect to any Person, without
duplication, all Indebtedness for Money Borrowed, all indebtedness of
such Person for the acquisition of property, all indebtedness secured
by any Lien on the property of such Person whether or not such
indebtedness is assumed, all Letter of Credit Outstandings, all
liability of such Person by way of endorsements (other than for
collection or deposit of negotiable instruments in the ordinary course
of business), all Contingent Obligations and Off Balance Sheet
Liabilities, that portion of obligations with respect to Capital
Leases and other items which in accordance with GAAP are classified as
a liability on a balance sheet; but excluding all accounts payable in
the ordinary course of business so long as payment therefor is due
within one year; provided that in no event shall the term Indebtedness
include shareholders' capital, surplus and retained earnings, minority
interest in Subsidiaries, lease obligations not constituting either
Capital Leases or Off Balance Sheet Liabilities, reserves for deferred
income taxes and investment credits, other deferred credits and
reserves, and deferred compensation obligations.
"Indebtedness for Money Borrowed" means all indebtedness in
respect of money borrowed, including without limitation all Capital
Leases and the deferred purchase price of any property or asset,
evidenced by a promissory note, bond, debenture or similar written
obligation for the payment of money (including conditional sales or
similar title retention agreements).
"Indenture" means the Indenture dated as of August 1, 1993
between Caremark, as issuer, and Bank America National Trust Company,
as trustee.
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<PAGE> 26
"Indenture Note Purchases" means the acquisition, redemption
or defeasance of the Indenture Notes by the Borrower or any Guarantor
other than Caremark, Inc..
"Indenture Notes" means the notes issued and outstanding from
time to time under the Indenture.
"Indenture Notes Purchase Sublimit" means, until the Guaranty
Limitation Release Date, $100,000,000.
"Insurer Settlement Agreements" means, collectively, the
agreements more particularly described in Schedule 1.1--Insurer
Settlement Agreements.
"Insurer Settlement Costs" means the sum of all amounts to be
paid by any member of the Caremark Group pursuant to the Insurer
Settlement Agreements; provided, however, the aggregate after tax
amount of all such amounts, fees, costs and expenses under Insurer
Settlement Agreements shall not exceed the "Original After Tax Cost
Amount" as described in the Additional Disclosure Letter.
"Interbank Offered Rate" means, with respect to any Eurodollar
Rate Loan or Eurodollar Market Loan for any Interest Period applicable
thereto, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 A.M. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such
Interest Period. If for any reason such rate is not available, the
term "Interbank Offered Rate" shall mean, with respect to any
Eurodollar Rate Loan or Eurodollar Market Loan for any Interest Period
applicable thereto, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as
the London interbank offered rate for deposits in Dollars at
approximately 11:00 A.M. (London time) two Business Days, in the case
of a Eurodollar Rate Loan and four Business Days in the case of a
Eurodollar Market Loan, prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if
more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
"Interest Period" means,
(i) with respect to each Eurodollar Rate Loan, a period
commencing on the date such Eurodollar Rate Loan is made or converted
and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Borrower may select
as provided in Section 2.1(c), except that each Interest Period that
commences on the last Business Day of a calendar month (or any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month;
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<PAGE> 27
(ii) with respect to any Absolute Rate Loan, the period
commencing on the date such Absolute Rate Loan is made and ending on
any Business Day not less than 7 and not more than 180 days
thereafter, as the Borrower may select as provided in Section 2.2(b);
and
(iii) with respect to any Eurodollar Market Loan, the period
commencing on the date such Eurodollar Market Loan is made and ending
on the numerically corresponding day in the first, second, third or
sixth calendar month thereafter, as the Borrower may select as
provided in Section 2.2(b), except that each Interest Period that
commences on the last Business Day of a calendar month (or any day for
which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month;
provided, however, that notwithstanding the foregoing: (i) if any
Interest Period would otherwise end after the Stated Termination Date,
such Interest Period shall end on the Stated Termination Date; (ii)
each Interest Period that would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, in the
case of an Interest Period for a Eurodollar Rate Loan or a Eurodollar
Market Loan, if such next succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (iii)
notwithstanding clauses (i) and (ii) above, no Interest Period for any
Loan (other than an Absolute Rate Loan) shall have a duration of less
than one month and, if the Interest Period for any Eurodollar Rate
Loan or Eurodollar Market Loan would otherwise be a shorter period,
such Loan shall not be available hereunder for such period, and (iv)
there shall not be more than twelve (12) Interest Periods in effect on
any day.
"Interest Rate Selection Notice" means the written request of
an Authorized Representative, delivered by telefacsimile transmission
to the Administrative Agent and effective upon receipt, to elect a
subsequent Interest Period for or to convert a Revolving Loan or
Revolving Loans of any Type hereunder, as such election or conversion
shall be otherwise permitted herein. Any Interest Rate Selection
Notice shall be binding on and irrevocable by the Borrower and shall
be in the form attached hereto as Exhibit E.
"Issuing Bank" means (i) NationsBank as issuer of Letters of
Credit under Article III, and (ii) The First National Bank of Chicago
only with respect to the Existing Letters of Credit.
"LC Account Agreement" means the LC Account Agreement dated as
of the date hereof between the Borrower and the Administrative Agent,
as amended, modified or supplemented from time to time.
"Lending Office" means, as to each Lender, the Lending Office
of such Lender designated on the signature pages hereof or in an
Assignment and Acceptance or such other office of such Lender (or of
an affiliate of such Lender) as such Lender may from
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<PAGE> 28
time to time specify to the Authorized Representative and the
Administrative Agent as the office by which its Loans are to be made
and maintained.
"Letters of Credit" means standby letters of credit issued by
the Issuing Bank for the account of the Borrower in favor of a Person
advancing credit or securing an obligation on behalf of the Borrower,
and shall include the Existing Letters of Credit.
"Letter of Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to acquire Participations in
respect of Letters of Credit and Reimbursement Obligations up to an
aggregate amount at any one time outstanding equal to such Lender's
Applicable Commitment Percentage of the Total Letter of Credit
Commitment as the same may be increased or decreased from time to time
pursuant to this Agreement.
"Letter of Credit Facility" means the facility described in
Article III providing for the issuance by the Issuing Bank of Letters
of Credit (including the Existing Letters of Credit) in an aggregate
stated amount at any time outstanding not exceeding the Total Letter
of Credit Commitment.
"Letter of Credit Outstandings" means, as of any date of
determination, the aggregate amount remaining undrawn under all
Letters of Credit (including the Existing Letters of Credit) plus the
principal amount of all Reimbursement Obligations then outstanding.
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this Agreement, the Borrower and any
Subsidiary shall be deemed to be the owner of any property which it
has acquired or holds subject to a conditional sale agreement,
financing lease, or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for
security purposes.
"Loan" or "Loans" means any Revolving Loans, Swing Line Loans,
Competitive Bid Loans and Reimbursement Obligations, and all
extensions and renewals thereof.
"Loan Documents" means this Agreement, the Notes, the
Guaranties, the LC Account Agreement, the Applications and Agreements
for Letter of Credit, and all other instruments and documents
heretofore or hereafter executed or delivered to or in favor of any
Lender or the Administrative Agent in connection with the Loans made
and transactions contemplated under this Agreement, as the same may be
amended, supplemented or replaced from time to time.
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<PAGE> 29
"Material Adverse Effect" means a material adverse effect on
(i) the business, properties, operations or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole,
(ii) the ability of any Credit Party to pay or perform its respective
obligations, liabilities and indebtedness under the Loan Documents as
such payment or performance becomes due in accordance with the terms
thereof, or (iii) the rights, powers and remedies of the
Administrative Agent or any Lender under any Loan Document or the
validity, legality or enforceability thereof (including for purposes
of clauses (ii) and (iii) the imposition of materially burdensome
conditions thereon).
"Material Subsidiary" means any direct or indirect Subsidiary
of the Borrower which (i) has total assets equal to or greater than 5%
of Consolidated Total Assets (calculated as of the most recent fiscal
period with respect to which the Administrative Agent shall have
received financial statements required to be delivered pursuant to
Sections 7.1(a) or (b) (or if prior to delivery of any financial
statements pursuant to such Sections, then calculated with respect to
the Fiscal Year end financial statements referenced in Section 6.6)
(the "Required Financial Information")) or (ii) has income equal to or
greater than 5% of Consolidated Net Income (calculated for the most
recent period for which the Administrative Agent has received the
Required Financial Information); provided, however, that
notwithstanding the foregoing, the term "Material Subsidiaries" shall
mean Subsidiaries of the Borrower that together have assets equal to
not less than 80% of Consolidated Total Assets (calculated as
described above) or net income of not less than 80% of Consolidated
Net Income (calculated as described above); provided further that if
more than one combination of Subsidiaries satisfies such threshold,
then those Subsidiaries so determined to be "Material Subsidiaries"
shall be specified by the Borrower.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate is making, or is accruing an obligation to make,
contributions or has made, or been obligated to make, contributions
within the preceding six (6) Fiscal Years.
"Municipal Obligations" means general obligations issued by,
and supported by the full taxing authority of, any state of the United
States of America or of any municipal corporation or other public body
organized under the laws of any such state which are rated in the
highest investment rating category by both S&P and Moody's.
"NCMI" means NationsBanc Capital Markets, Inc. and its
successors.
"Net Proceeds" from the issuance of equity or Indebtedness
means cash payments received therefrom as and when received, net of
all legal, accounting, banking, underwriting, title and recording fees
and expenses, commissions, discounts and other issuance expenses
incurred in connection therewith and all taxes required to be paid or
accrued as a consequence of such transaction.
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<PAGE> 30
"Notes" means, collectively, the Revolving Notes, the
Competitive Bid Notes, and the Swing Line Note.
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) the
Reimbursement Obligations and otherwise in respect of the Letters of
Credit, (iii) all liabilities of Borrower to any Lender which arise
under a Swap Agreement, and (iv) the payment and performance of all
other obligations, liabilities and Indebtedness of the Borrower to the
Lenders, the Administrative Agent or NCMI hereunder, under any one or
more of the other Loan Documents or with respect to the Loans.
"Off Balance Sheet Liabilities" means, with respect to the
Borrower and its Subsidiaries, (a) any repurchase obligation or
liability of the Borrower or any Subsidiary with respect to accounts
or notes receivable sold by the Borrower or any Subsidiary, (b) the
face amount of accounts receivable pursuant to a Permitted Receivables
Securitization, (c) any repurchase obligation or liability of the
Borrower or any Subsidiary with respect to property leased by such
Person as lessee, (d) obligations arising with respect to any other
transaction which is the functional equivalent of or takes the place
of borrowing but which does not constitute a liability on the
consolidated balance sheets of the Borrower and its Subsidiaries
excluding therefrom operating leases which do not require payment by
or due from such Person: (i) at the scheduled termination of such
operating lease, (ii) pursuant to a required purchase by such Person
of the leased property, or (iii) under any guaranty by such Person of
the value of the leased property or (e) net liabilities under any Rate
Hedging Obligations.
"OIG" means the Office of Inspector General of the U.S.
Department of Health and Human Services or any other regulatory body
which succeeds to the functions thereof.
"OIG Proceedings" means all investigations, proceedings and
litigation described in the first three paragraphs of "Item 3. Legal
Proceedings" of Caremark's Form 10-K for the year ended December 31,
1994.
"OIG Settlement Agreements" means, collectively, the
agreements more particularly described on Schedule 1.1--OIG Settlement
Agreements.
"OIG Settlement Costs" means the sum of (i) all amounts to be
paid by any member of the Caremark Group pursuant to the OIG
Settlement Agreements and (ii) all fees, costs and expenses paid or
payable by any member of the Caremark Group to any Person in
connection with the OIG Settlement Agreements or the proceedings from
which such OIG Settlement Agreements arose; provided, however, the
aggregate after tax amount of all such amounts, fees, costs and
expenses under clauses (i) and (ii) shall not exceed $145,009,000.
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<PAGE> 31
"Participation" means, (i) with respect to any Lender (other
than the Issuing Bank) and a Letter of Credit, the extension of credit
represented by the participation of such Lender hereunder in the
liability of the Issuing Bank in respect of a Letter of Credit issued
by the Issuing Bank in accordance with the terms hereof and (ii) with
respect to any Lender (other than NationsBank) and a Swing Line Loan,
the extension of credit represented by the participation of such
Lender hereunder in the liability of NationsBank in respect of a Swing
Line Loan made by NationsBank in accordance with the terms hereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor thereto.
"Pension Plan" means any employee pension benefit plan within the
meaning of Section 3(2) of ERISA, other than a Multiemployer Plan,
which is subject to the provisions of Title IV of ERISA or Section 412
of the Code and which (i) is maintained for employees of the Borrower
or any of its ERISA Affiliates or is assumed by the Borrower or any of
its ERISA Affiliates in connection with any Acquisition or (ii) has at
any time been maintained for the employees of the Borrower or any
current or former ERISA Affiliate.
"Permitted Receivables Securitization" means limited recourse
or non-recourse sales and assignments of accounts receivable of the
Borrower or its Subsidiaries to one or more entities, the proceeds of
which shall be made available to the Borrower or its Subsidiaries;
provided, however, that the maximum face amount of accounts receivable
which may be sold is $100,000,000 and the minimum price which shall be
paid for receivables is 70% of the face amount thereof.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a
government or agency or political subdivision thereof.
"PPSI Acquisition" means the consummated acquisition by the
Borrower of Pacific Physician Services, Inc. pursuant to that certain
Plan and Agreement of Merger and Reorganization dated as of December
11, 1995 between such Persons.
"Pre-Refunded Municipal Obligations" means obligations of any
state of the United States of America or of any municipal corporation
or other public body organized under the laws of any such state which
are rated, based on the escrow, in the highest investment rating
category by both S&P and Moody's and which have been irrevocably
called for redemption and advance refunded through the deposit in
escrow of Government Securities or other debt securities which are (i)
not callable at the option of the issuer thereof prior to maturity,
(ii) irrevocably pledged solely to the payment of all principal and
interest on such obligations as the same becomes due and (iii) in a
principal amount and bear such rate or rates of interest as shall be
sufficient to pay in full all principal of,
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<PAGE> 32
interest, and premium, if any, on such obligations as the same becomes
due as verified by a nationally recognized firm of certified public
accountants.
"Prime Rate" means the rate of interest per annum announced
publicly by the Administrative Agent as its prime rate from time to
time. The Prime Rate is not necessarily the best or the lowest rate
of interest offered by the Administrative Agent.
"Principal Office" means the office of the Administrative
Agent at NationsBank, National Association, Independence Center, 15th
Floor, NC1 001-15-04, Charlotte, North Carolina 28255, Attention:
Agency Services, or such other office and address as the
Administrative Agent may from time to time designate.
"Pro Forma Historical Statements" means (i) the pro forma
consolidated balance sheet as at March 31, 1996, and (ii) the pro
forma consolidated income statements for the Fiscal Years ended
December 31, 1993, December 31, 1994 and December 31, 1995, prepared
in accordance with GAAP by independent certified public accountants of
national reputation, of the Borrower and its Subsidiaries, giving
historical pro forma effect to the Related Acquisition, which shall be
furnished to the Administrative Agent and the Lenders prior to the
Closing Date.
"Quotation Date" shall have the meaning assigned to such term
in Section 2.1(b)(v).
"Rate Hedging Obligations" means any and all obligations of
the Borrower or any Subsidiary, whether absolute or contingent and
howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and
substitutions therefor), under (a) any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward
rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, Dollar-denominated or
cross-currency interest rate exchange agreements, forward currency
exchange agreements, interest rate cap or collar protection
agreements, forward rate currency or interest rate options, puts,
warrants and those commonly known as interest rate "swap" agreements;
and (b) any and all cancellations, buybacks, reversals, terminations
or assignments of any of the foregoing.
"Registration Statement" means the Borrower's Registration
Statement on Form S-4, Registration No. 333- 09767, as filed with the
Securities and Exchange Commission on August 16, 1996, as amended.
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time.
"Regulatory Change" means any change effective after the
Closing Date in United States federal or state laws or regulations
(including Regulation D and capital adequacy
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<PAGE> 33
regulations) or foreign laws or regulations or the adoption or making
after such date of any interpretations, directives or requests
applying to a class of banks, which includes any of the Lenders, under
any United States federal or state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental
or monetary authority charged with the interpretation or
administration thereof or compliance by any Lender with any request or
directive regarding capital adequacy, including those relating to
"highly leveraged transactions," whether or not having the force of
law, and whether or not failure to comply therewith would be unlawful.
"Reimbursement Obligation" means, at any time, the obligation
of the Borrower with respect to any Letter of Credit to reimburse the
Issuing Bank and the Lenders to the extent of their respective
Participations (including by the receipt by the Issuing Bank of
proceeds of Loans) for amounts theretofore paid by the Issuing Bank
pursuant to a drawing under such Letter of Credit.
"Related Acquisition" means the acquisition by the Borrower of
the Caremark Group in accordance with the terms of the Related
Acquisition Agreement, as such transaction is further described in the
Registration Statement.
"Related Acquisition Agreement" means that certain Plan and
Agreement of Merger dated as of May 13, 1996 by and among the
Borrower, Caremark and PPM Merger Corporation, and all schedules,
annexes and exhibits thereto, as the same may be amended or
supplemented in a manner acceptable to the Administrative Agent and
the Required Lenders in their discretion.
"Related Acquisition Transaction Documents" means the Related
Acquisition Agreement and each document, agreement, instrument,
opinion or certificate incorporated therein or delivered in connection
therewith, including in each case all annexes, schedules and exhibits
thereto, as any of the same may be amended or supplemented in a manner
acceptable to the Administrative Agent and the Required Lenders in
their discretion.
"Reportable Conduct" shall have the meaning provided therefor
in the Corporate Integrity Agreement as in effect as of the Closing
Date.
"Repurchase Agreement" means a repurchase agreement entered
into with any financial institution whose debt obligations or
commercial paper are rated "A" or better by S&P and "A-2" or better by
Moody's and "A-1" by S&P and "P-1" by Moody's, respectively.
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 51% of
the aggregate Credit Exposures of all the Lenders on such date. For
purposes of the preceding sentence, the amount of the "Credit
Exposure" of each Lender shall be equal to the aggregate principal
amount of the Loans owing to such Lender (without regard to any Swing
Line Outstandings or, so long as there shall not exist any Event of
Default which shall have resulted in the
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<PAGE> 34
commitments of the Lenders to make additional Revolving Loans or Swing
Line Loans being terminated, any Competitive Bid Loan owing to such
Lender) plus, so long as there shall not exist any Event of Default
which shall have resulted in the commitments of the Lenders to make
additional Revolving Loans or Swing Line Loans being terminated, the
aggregate unutilized amounts of such Lender's Revolving Credit
Commitment, plus the amount of such Lender's Applicable Commitment
Percentage of Letter of Credit Outstandings; provided that, (i) if any
Lender shall have failed to pay to the Issuing Bank its Applicable
Commitment Percentage of any drawing under any Letter of Credit
resulting in an outstanding Reimbursement Obligation, such Lender's
Credit Exposure attributable to Letters of Credit and Reimbursement
Obligations shall be deemed to be held by the Issuing Bank for
purposes of this definition and (ii) if any Lender shall have failed
to pay to NationsBank its Applicable Commitment Percentage of any
Swing Line Loan, such Lender's Credit Exposure attributable to all
Swing Line Outstandings shall be deemed to be held by NationsBank for
purposes of this definition.
"Revolving Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to make Revolving Loans to the
Borrower up to an aggregate principal amount at any one time
outstanding equal to such Lender's Applicable Commitment Percentage of
the Total Revolving Credit Commitment.
"Revolving Credit Facility" means the facility described in
Article II hereof providing for Loans to the Borrower by the Lenders
in the aggregate principal amount of the Total Revolving Credit
Commitment.
"Revolving Credit Outstandings" means, as of any date of
determination, the aggregate principal amount of all Revolving Loans
then outstanding.
"Revolving Credit Termination Date" means (i) the Stated
Termination Date or (ii) such earlier date of termination of Lenders'
obligations pursuant to Section 9.1 upon the occurrence of an Event of
Default, or (iii) such date as the Borrower may voluntarily and
permanently terminate the Revolving Credit Facility by payment in full
of all Revolving Credit Outstandings, Swing Line Outstandings,
Competitive Bid Loans, and Letter of Credit Outstandings, together
with all accrued and unpaid interest thereon and other Obligations
incurred in connection therewith, and cancellation of all Letters of
Credit.
"Revolving Loan" means any borrowing pursuant to an Advance
under the Revolving Credit Facility in accordance with Section 2.1(a).
"Revolving Notes" means, collectively, the promissory notes of
the Borrower evidencing Revolving Loans executed and delivered to the
Lenders as provided in Section 2.6(a) substantially in the form of
Exhibit F-2, with appropriate insertions as to amounts, dates and
names of Lenders.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies.
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<PAGE> 35
"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is not a Multiemployer Plan.
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including Contingent Obligations;
(ii) it is then able and expects to be able to
pay its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Stated Termination Date" means September 5, 2001.
"Stock Consideration" means, with respect to an Acquisition,
the Fair Market Value of all capital stock or other ownership
interests of the Borrower or any Subsidiary issued or given in
connection with such Acquisition.
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by the Borrower
and/or by one or more of the Borrower's Subsidiaries.
"Swap Agreement" means one or more agreements between the
Borrower and any Person with respect to Indebtedness evidenced by any
or all of the Notes, on terms mutually acceptable to the Borrower and
such Person and approved by each of the Lenders, which agreements
create Rate Hedging Obligations; provided, however, that no such
approval of the Lenders shall be required to the extent such
agreements are entered into between the Borrower and any Lender.
"Swing Line" means the revolving line of credit established by
NationsBank in favor of the Borrower pursuant to Section 2.14.
"Swing Line Loans" means loans made by NationsBank to the
Borrower pursuant to Section 2.14.
"Swing Line Note" means the promissory note of the Borrower
evidencing Swing Line Loans executed and delivered to NationsBank as
provided in Section 2.14, substantially in the form of Exhibit F-3.
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<PAGE> 36
"Swing Line Outstandings" means, as of any date of
determination, the aggregate principal amount of all Swing Line Loans
then outstanding.
"Termination Event" means: (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder (unless
the notice requirement has been waived by applicable regulation); or
(ii) the withdrawal of the Borrower or any ERISA Affiliate from a
Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA or was deemed such
under Section 4068(f) of ERISA; or (iii) the termination of a Pension
Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA; or (iv) the institution of proceedings to
terminate a Pension Plan by the PBGC; or (v) any other event or
condition which would constitute grounds under Section 4042(a) of
ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; or (vi) the partial or complete
withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer
Plan; or (vii) the imposition of a Lien pursuant to Section 412 of the
Code or Section 302 of ERISA; or (viii) any event or condition which
results in the reorganization or insolvency of a Multiemployer Plan
under Section 4241 or Section 4245 of ERISA, respectively; or (ix) any
event or condition which results in the termination of a Multiemployer
Plan under Section 4041A of ERISA or the institution by the PBGC of
proceedings to terminate a Multiemployer Plan under Section 4042 of
ERISA.
"Total Letter of Credit Commitment" means an amount not to
exceed $50,000,000.
"Total Revolving Credit Commitment" means a principal amount
equal to (i) from the Closing Date through December 31, 1996,
$750,000,000, and (ii) thereafter, $1,000,000,000, as reduced from
time to time in accordance with Section 2.8.
"Voting Stock" means shares of capital stock issued by a
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
1.2. Rules of Interpretation.
(a) All accounting terms not specifically defined herein
shall have the meanings assigned to such terms by, and shall be
interpreted in accordance with, GAAP applied on a Consistent Basis.
(b) Each term defined in Article 1 or 9 of the North Carolina
Uniform Commercial Code shall have the meaning given therein unless
otherwise defined herein, except to the extent that the Uniform
Commercial Code of another jurisdiction is
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<PAGE> 37
controlling, in which case such terms shall have the meaning given in
the Uniform Commercial Code of the applicable jurisdiction.
(c) The headings, subheadings and table of contents used
herein or in any other Loan Document are solely for convenience of
reference and shall not constitute a part of any such document or
affect the meaning, construction or effect of any provision thereof.
(d) Except as otherwise expressly provided, references herein
to articles, sections, paragraphs, clauses, annexes, appendices,
exhibits and schedules are references to articles, sections,
paragraphs, clauses, annexes, appendices, exhibits and schedules in or
to this Agreement.
(e) All definitions set forth herein or in any other Loan
Document shall apply to the singular as well as the plural form of
such defined term, and all references to the masculine gender shall
include reference to the feminine or neuter gender, and vice versa, as
the context may require.
(f) When used herein or in any other Loan Document, words
such as "hereunder", "hereto", "hereof" and "herein" and other words
of like import shall, unless the context clearly indicates to the
contrary, refer to the whole of the applicable document and not to any
particular article, section, subsection, paragraph or clause thereof.
(g) References to "including" means including without
limiting the generality of any description preceding such term, and
for purposes hereof the rule of ejusdem generis shall not be
applicable to limit a general statement, followed by or referable to
an enumeration of specific matters, to matters similar to those
specifically mentioned.
(h) All dates and times of day specified herein shall refer
to such dates and times at Charlotte, North Carolina.
(i) Each of the parties to the Loan Documents and their
counsel have reviewed and revised, or requested (or had the
opportunity to request) revisions to, the Loan Documents, and any rule
of construction that ambiguities are to be resolved against the
drafting party shall be inapplicable in the construing and
interpretation of the Loan Documents and all exhibits, schedules and
appendices thereto.
(j) Any reference to an officer of the Borrower or any
other Person by reference to the title of such officer shall be deemed
to refer to each other officer of such Person, however titled,
exercising the same or substantially similar functions.
(k) All references to any agreement or document as
amended, modified or supplemented, or words of similar effect, shall
mean such document or agreement, as the
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case may be, as amended, modified or supplemented from time to time
only as and to the extent permitted therein and in the Loan Documents.
1.3. Classes and Types of Loans. Loans hereunder are distinguished
by "Class" and by "Type". The "Class" of a Loan refers to whether such Loan is
a Competitive Bid Loan or a Revolving Loan, each of which constitutes a Class.
The "Type" of a Loan refers to whether such Loan is a Base Rate Loan, a
Eurodollar Rate Loan, an Absolute Rate Loan or a Eurodollar Market Loan, each
of which constitutes a Type. Loans may be identified by both Class and Type.
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ARTICLE II
The Revolving Credit Facility
2.1. Revolving Loans.
(a) Commitment. Subject to the terms and conditions of
this Agreement, each Lender severally agrees to make Advances to the Borrower
under the Revolving Credit Facility from time to time from the Closing Date
until the Revolving Credit Termination Date on a pro rata basis as to the total
borrowing requested by the Borrower on any day determined by such Lender's
Applicable Commitment Percentage up to but not exceeding the Revolving Credit
Commitment of such Lender, provided, however, that the Lenders will not be
required and shall have no obligation to make any such Advance (i) so long as a
Default or an Event of Default has occurred and is continuing or (ii) if the
Administrative Agent has terminated the commitments of the Lenders to make
Revolving Credit Loans or accelerated the maturity of any of the Notes as a
result of an Event of Default; provided further, however, that immediately
after giving effect to each such Advance, (A) the principal amount of Revolving
Credit Outstandings plus Letter of Credit Outstandings plus Swing Line
Outstandings plus outstanding Competitive Bid Loans shall not exceed the Total
Revolving Credit Commitment, and (B) until the Guaranty Limitation Release
Date, the principal amount of Revolving Credit Outstandings plus Letter of
Credit Outstandings plus Swing Line Outstandings plus outstanding Competitive
Bid Loans (excluding Advances, Loans and Letters of Credit used directly or
indirectly to effect Indenture Note Purchases) shall not exceed the Total
Revolving Credit Commitment minus the Indenture Notes Purchase Sublimit.
Within such limits, the Borrower may borrow, repay and reborrow under the
Revolving Credit Facility on a Business Day from the Closing Date until, but
(as to borrowings and reborrowings) not including, the Revolving Credit
Termination Date; provided, however, that (x) no Eurodollar Rate Loan shall be
made which has an Interest Period that extends beyond the Stated Termination
Date and (y) each Eurodollar Rate Loan may be repaid only on the last day of
the Interest Period with respect thereto unless such payment is accompanied by
the additional payment, if any, required by Section 4.4.
(b) Amounts. The aggregate unpaid principal amount of
the Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing
Line Outstandings plus outstanding Competitive Bid Loans shall not exceed at
any time the Total Revolving Credit Commitment, and until the Guaranty
Limitation Release Date, the aggregate principal amount of Revolving Credit
Outstandings plus Letter of Credit Outstandings plus Swing Line Outstandings
plus outstanding Competitive Bid Loans (excluding Advances, Loans and Letters
of Credit used directly or indirectly to effect Indenture Note Purchases) shall
not exceed at any time the Total Revolving Credit Commitment minus the
Indenture Notes Purchase Sublimit, and, in the event there shall be outstanding
any such excess, the Borrower shall immediately make such payments and
prepayments as shall be necessary to comply with this restriction. Each
Revolving Loan hereunder, other than Base Rate Refunding Loans, and each
conversion under Section 2.9, shall be in an amount of at least $5,000,000,
and, if greater than $5,000,000, an integral multiple of $500,000.
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(c) Advances. (i) An Authorized Representative shall
give the Administrative Agent (1) prior to 11:00 A.M. at least three (3)
Business Days' irrevocable written notice by telefacsimile transmission of a
Borrowing Notice or Interest Rate Selection Notice (as applicable) with
appropriate insertions, effective upon receipt, of each Revolving Loan that is
a Eurodollar Rate Loan (whether representing an additional borrowing hereunder
or the conversion of a borrowing hereunder from Base Rate Loans to Eurodollar
Rate Loans) and (2) irrevocable written notice by telefacsimile transmission of
a Borrowing Notice or Interest Rate Selection Notice (as applicable) with
appropriate insertions, effective upon receipt, of each Revolving Loan (other
than Base Rate Refunding Loans to the extent the same are effected without
notice pursuant to Section 2.1(c)(iv)) that is a Base Rate Loan (whether
representing an additional borrowing hereunder or the conversion of borrowing
hereunder from Eurodollar Rate Loans to Base Rate Loans) prior to 11:00 A.M. on
the Business Day of such proposed Revolving Loan. Each such notice shall
specify the amount of the borrowing, the Type of Revolving Loan (Base Rate or
Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate Loan, the
Interest Period to be used in the computation of interest. Notice of receipt
of such Borrowing Notice or Interest Rate Selection Notice, as the case may be,
together with the amount of each Lender's portion of an Advance requested
thereunder, shall be provided by the Administrative Agent to each Lender by
telefacsimile transmission with reasonable promptness, but (provided the
Administrative Agent shall have received such notice by 11:00 A.M. and if not
so received, such notice shall be deemed to have been received by the
Administrative Agent on the next succeeding Business Day) not later than 1:00
P.M. on the same day as the Administrative Agent's receipt of such notice.
Notwithstanding the foregoing: (1) the Borrower may obtain one or more
Eurodollar Rate Loans on the Closing Date provided that: (x) the Administrative
Agent shall receive the Borrowing Notice therefor in the manner specified in
this Section 2.1(c)(i) not later than 11:00 A.M. on the third Business Day
preceding the Closing Date and (y) the conditions to making Loans and issuing
Letters of Credit in Article V shall be satisfied as of the Closing Date; and
(2) the delivery by the Borrower of the Borrowing Notice described in clause
(1)(x) of this sentence shall constitute the Borrower's irrevocable agreement
to be bound by the terms of Article IV with respect to the funds requested
under such Borrowing Notice, whether or not Eurodollar Rate Loans are made
available to the Borrower on the date requested in the Borrowing Notice, and
for that purpose the failure of such Eurodollar Rate Loans to be made as a
result of any condition thereto not being satisfied shall constitute a failure
of the Borrower to borrow a Fixed Rate Loan as described in Section 4.4(b).
(ii) Not later than 3:00 P.M. on the date specified for each
borrowing under this Section 2.1, each Lender shall, pursuant to the terms and
subject to the conditions of this Agreement, make the amount of the Loan or
Loans to be made by it on such day available to the Administrative Agent, by
depositing or transferring the proceeds thereof in immediately available funds
at the Principal Office. The amount so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made available
to or for the benefit of the Borrower by delivery of the proceeds thereof to
the Borrower or a designated Subsidiary as shall be directed in the applicable
Borrowing Notice by the Authorized Representative.
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(iii) The Borrower shall have the option to elect the duration of the
initial and any subsequent Interest Periods and to convert the Revolving Loans
in accordance with Section 2.9. Eurodollar Rate Loans and Base Rate Loans may
be outstanding at the same time, provided, however, there shall not be
outstanding at any one time Loans (whether Revolving Loans or Competitive Bid
Loans) having more than twelve (12) different Interest Periods. If the
Administrative Agent does not receive a Borrowing Notice or an Interest Rate
Selection Notice giving notice of election of the duration of an Interest
Period or of conversion of any Loan to or continuation of a Loan as a
Eurodollar Rate Loan by the time prescribed by Section 2.1(c) or 2.9, the
Borrower shall be deemed to have elected to convert such Revolving Loan to (or
continue such Revolving Loan as) a Base Rate Loan until the Borrower notifies
the Administrative Agent in accordance with Section 2.9.
(iv) Notwithstanding the foregoing, if a drawing is made under any
Letter of Credit, such drawing is honored by the Issuing Bank prior to the
Stated Termination Date, and the Borrower shall not immediately fully reimburse
the Issuing Bank in respect of such drawing, (A) provided that the conditions
to making a Revolving Loan as herein provided shall then be satisfied, the
Reimbursement Obligation arising from such drawing shall be paid to the Issuing
Bank by the Administrative Agent without the requirement of notice to or from
the Borrower from immediately available funds which shall be advanced as a Base
Rate Refunding Loan by each Lender under the Revolving Credit Facility in an
amount equal to such Lender's Applicable Commitment Percentage of such
Reimbursement Obligation, and (B) if the conditions to making a Revolving Loan
as herein provided shall not then be satisfied, each of the Lenders shall fund
by payment to the Administrative Agent (for the benefit of the Issuing Bank) in
immediately available funds the purchase from the Issuing Bank of their
respective Participations in the related Reimbursement Obligation based on
their respective Applicable Commitment Percentages of the Total Letter of
Credit Commitment. If a drawing is presented under any Letter of Credit in
accordance with the terms thereof and the Borrower shall not immediately
reimburse the Issuing Bank in respect thereof, then notice of such drawing or
payment shall be provided promptly by the Issuing Bank to the Administrative
Agent and the Administrative Agent shall provide notice to each Lender by
telephone or telefacsimile transmission. If notice to the Lenders of a drawing
under any Letter of Credit is given by the Administrative Agent at or before
12:00 noon on any Business Day, each Lender shall, pursuant to the conditions
specified in this Section 2.1(c)(iv), either make a Base Rate Refunding Loan or
fund the purchase of its Participation in the amount of such Lender's
Applicable Commitment Percentage of such drawing or payment and shall pay such
amount to the Administrative Agent for the account of the Issuing Bank at the
Principal Office in Dollars and in immediately available funds before 2:30 P.M.
on the same Business Day. If notice to the Lenders of a drawing under a Letter
of Credit is given by the Administrative Agent after 12:00 noon on any Business
Day, each Lender shall, pursuant to the conditions specified in this Section
2.1(c)(iv), either make a Base Rate Refunding Loan or fund the purchase of its
Participation in the amount of such Lender's Applicable Commitment Percentage
of such drawing or payment and shall pay such amount to the Administrative
Agent for the account of the Issuing Bank at the Principal Office in Dollars
and in immediately available funds before 12:00 noon on the next following
Business Day. Any such Base Rate Refunding Loan shall be advanced as, and
shall continue as, a Base Rate Loan
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unless and until the Borrower converts such Base Rate Loan in accordance with
the terms of Section 2.9.
2.2. Competitive Bid Loans.
(a) In addition to borrowings of Revolving Loans, at any
time from the Closing Date prior to the Revolving Credit Termination Date the
Borrower may, as set forth in this Section 2.2, request the Lenders to make
offers to make Competitive Bid Loans to the Borrower in Dollars. The Lenders
may, but shall have no obligation to, make such offers and the Borrower may,
but shall have no obligation to, accept any such offers in the manner set forth
in this Section 2.2. Competitive Bid Loans may be Eurodollar Market Loans or
Absolute Rate Loans (each a "Type" of Competitive Bid Loan), provided that:
(i) the aggregate amount of outstanding
Competitive Bid Loans shall not exceed the Total Revolving
Credit Commitment less the sum of the principal amount of
Revolving Credit Outstandings plus Letter of Credit
Outstandings plus Swing Line Outstandings;
(ii) there may be no more than twelve (12)
different Interest Periods for both Revolving Loans and
Competitive Bid Loans outstanding at the same time (for which
purpose Interest Periods described in different lettered
clauses of the definition of the term "Interest Period" shall
be deemed to be different Interest Periods even if they are
coterminous);
(iii) the aggregate amount of outstanding
Competitive Bid Loans of a Lender shall not exceed at any time
an amount equal to the Total Revolving Credit Commitment; and
(iv) no Competitive Bid Loan shall have a maturity
date subsequent to the Revolving Credit Termination Date.
(b) When the Borrower wishes to request offers to make
Competitive Bid Loans, it shall give the Administrative Agent (which shall
promptly notify the Lenders) notice (a "Competitive Bid Quote Request") to be
received no later than 11:00 A.M. on (x) the fourth Business Day prior to the
date of borrowing proposed therein, in the case of a Eurodollar Auction or (y)
the Business Day next preceding the date of borrowing proposed therein, in the
case of an Absolute Rate Auction (or, in any such case, such other time and
date as the Borrower and the Administrative Agent, with the consent of the
Required Lenders, may agree). The Borrower may request offers to make
Competitive Bid Loans for up to three (3) different Interest Periods in a
single notice (for which purpose Interest Periods in different lettered clauses
of the definition of the term "Interest Period" shall be deemed to be different
Interest Periods even if they are coterminous); provided that the request for
each separate Interest Period shall be deemed to be a separate Competitive Bid
Quote Request for a separate borrowing (a "Competitive Bid Borrowing") and
there shall not be outstanding at any one time more than
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twelve (12) Competitive Bid Borrowings. Each such Competitive Bid Quote
Request shall be substantially in the form of Exhibit G and shall specify as to
each Competitive Bid Borrowing:
(i) the proposed date of such Competitive Bid
Borrowing, which shall be a Business Day;
(ii) the aggregate amount of such Competitive Bid
Borrowing, which shall be at least $5,000,000 (or a larger
integral multiple of $500,000) but shall not cause the limits
specified in Section 2.2(a) to be violated;
(iii) the duration of the Interest Period applicable
thereto;
(iv) whether the Competitive Bid Quotes requested
for a particular Interest Period are seeking quotes for
Eurodollar Market Loans or Absolute Rate Loans; and
(v) if the Competitive Bid Quotes requested are
seeking quotes for Absolute Rate Loans, the date on which the
Competitive Bid Quotes are to be submitted if it is before the
proposed date of borrowing (the date on which such Competitive
Bid Quotes are to be submitted is called the "Quotation
Date").
Except as otherwise provided in this Section 2.2(b), no Competitive Bid Quote
Request shall be given within five (5) Business Days (or such other number of
days as the Borrower and the Administrative Agent, with the consent of the
Required Lenders, may agree) of any other Competitive Bid Quote Request.
(c) (i) Each Lender may submit one or more Competitive
Bid Quotes, each containing an offer to make a Competitive Bid Loan in response
to any Competitive Bid Quote Request; provided that, if the Borrower's request
under Section 2.2(b) specified more than one Interest Period, such Lender may
make a single submission containing one or more Competitive Bid Quotes for each
such Interest Period. Each Competitive Bid Quote must be submitted to the
Administrative Agent not later than (x) 2:00 P.M. on the fourth Business Day
prior to the proposed date of borrowing, in the case of a Eurodollar Auction or
(y) 10:00 A.M. on the Quotation Date, in the case of an Absolute Rate Auction
(or, in any such case, such other time and date as the Borrower and the
Administrative Agent, with the consent of the Required Lenders, may agree);
provided that any Competitive Bid Quote may be submitted by NationsBank (or its
Applicable Lending Office) only if NationsBank (or such Applicable Lending
Office) notifies the Borrower of the terms of the offer contained therein not
later than (x) 1:00 P.M. on the fourth Business Day prior to the proposed date
of borrowing, in the case of a Eurodollar Auction or (y) 9:45 A.M. on the
Quotation Date, in the case of an Absolute Rate Auction. Subject to Article
IV, Article VI and Article IX, any Competitive Bid Quote so made shall be
irrevocable except with the consent of the Administrative Agent given on the
instructions of the Borrower.
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(ii) Each Competitive Bid Quote shall be substantially in
the form of Exhibit H and shall specify:
(A) the proposed date of borrowing and
the Interest Period therefor;
(B) the principal amount of the
Competitive Bid Loan for which each such Competitive
Bid Quote is being made, which principal amount shall
be at least $5,000,000 (or a larger integral multiple
of $500,000); provided that the aggregate principal
amount of all Competitive Bid Loans for which a
Lender submits Competitive Bid Quotes (x) may not
exceed the Total Revolving Credit Commitment and (y)
may not exceed the principal amount of the
Competitive Bid Borrowing for a particular Interest
Period for which offers were requested;
(C) in the case of a Eurodollar Auction,
the margin above or below the applicable Interbank
Offered Rate adjusted for any Eurodollar Reserve
Percentage (the "Eurodollar Margin") offered for each
such Competitive Bid Loan, expressed as a percentage
(rounded upwards, if necessary, to the nearest
1/10,000th of 1%) to be added to or subtracted from
the applicable Interbank Offered Rate as so adjusted;
(D) in the case of an Absolute Rate Auction,
the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/10,000th of 1%) offered
for each such Competitive Bid Loan (the "Absolute
Rate"); and
(E) the identity of the quoting Lender.
Unless otherwise agreed by the Administrative Agent and the Borrower, no
Competitive Bid Quote shall contain qualifying, conditional or similar language
or propose terms other than or in addition to those set forth in the applicable
Competitive Bid Quote Request and, in particular, no Competitive Bid Quote may
be conditioned upon acceptance by the Borrower of all (or some specified
minimum) of the principal amount of the Competitive Bid Loan for which such
Competitive Bid Quote is being made.
(d) The Administrative Agent shall (x) in the case of a
Eurodollar Auction, by 4:00 P.M. on the day a Competitive Bid Quote is
submitted or (y) in the case of an Absolute Rate Auction, as promptly as
practicable after the Competitive Bid Quote is submitted (but in any event not
later than 11:00 A.M. on the Quotation Date), notify the Borrower of the terms
(i) of any Competitive Bid Quote submitted by a Lender that is in accordance
with Section 2.2(c) and (ii) of any Competitive Bid Quote that amends, modifies
or is otherwise inconsistent with a previous Competitive Bid Quote submitted by
such Lender with respect to the same Competitive Bid Quote Request. Any such
subsequent Competitive Bid Quote shall be disregarded by the Administrative
Agent unless such subsequent Competitive Bid Quote is
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submitted solely to correct a manifest error in such former Competitive Bid
Quote. The Administrative Agent's notice to the Borrower shall specify (A) the
aggregate principal amount of the Competitive Bid Borrowing for which
Competitive Bid Quotes have been received and (B) the respective principal
amounts and Eurodollar Margins or Absolute Rates, as the case may be, so
offered by each Lender (identifying the Lender that made each Competitive Bid
Quote).
(e) Not later than 11:00 A.M. on (x) the third Business
Day prior to the proposed date of borrowing, in the case of a Eurodollar
Auction or (y) the Quotation Date, in the case of an Absolute Rate Auction (or,
in any such case, such other time and date as the Borrower and the
Administrative Agent, with the consent of the Required Lenders, may agree), the
Borrower shall notify the Administrative Agent of its acceptance or
nonacceptance of the offers so notified to it pursuant to Section 2.2(d) (and
the failure of the Borrower to give such notice by such time shall constitute
nonacceptance) and the Administrative Agent shall promptly notify each affected
Lender. In the case of acceptance, such notice shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Competitive Bid Quote in whole or in part (provided
that any Competitive Bid Quote accepted in part shall be at least $5,000,000 or
a larger integral multiple of $500,000); provided that:
(i) the aggregate principal amount of each
Competitive Bid Borrowing may not exceed the applicable amount
set forth in the related Competitive Bid Quote Request;
(ii) the aggregate principal amount of each
Competitive Bid Borrowing shall be at least $5,000,000 (or a
larger integral multiple of $500,000) but shall not cause the
limits specified in Section 2.2(a) to be violated;
(iii) acceptance of offers may be made only in
ascending order of Eurodollar Margins or Absolute Rates, as
the case may be, in each case beginning with the lowest rate
so offered; provided, however, that the Borrower, in its sole
discretion, may accept other than the lowest rate where
acceptance of the lowest rate will result in an increase in
the fee payable by Borrower under Section 2.11; and
(iv) the Borrower may not accept any offer where the
Administrative Agent has correctly advised the Borrower that
such offer fails to comply with Section 2.2(c)(ii) or
otherwise fails to comply with the requirements of this
Agreement (including, without limitation, Section 2.2(a)).
If offers are made by two or more Lenders with the same Eurodollar Margins or
Absolute Rates, as the case may be, for a greater aggregate principal amount
than the amount in respect of which offers are permitted to be accepted for the
related Interest Period after the acceptance of all offers, if any, of all
lower Eurodollar Margins or Absolute Rates, as the case may be, offered by any
Lender for such related Interest Period, the principal amount of Competitive
Bid Loans in respect of which such offers are accepted shall be allocated by
the Borrower among such
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Lenders as nearly as possible (in amounts of at least $5,000,000 or larger
integral multiples of $500,000) in proportion to the aggregate principal amount
of such offers. Determinations by the Borrower of the amounts of Competitive
Bid Loans and the lowest bid after adjustment as provided in Section
2.2(e)(iii) shall be conclusive in the absence of manifest error. The Borrower
shall pay to the Administrative Agent an administrative fee for each
Competitive Bid Borrowing in an amount to be agreed upon by the Borrower and
the Administrative Agent.
(f) Any Lender whose offer to make any Competitive Bid
Loan has been accepted shall, not later than 1:00 P.M. on the date specified
for the making of such Loan, make the amount of such Loan available to the
Administrative Agent at the Principal Office in Dollars and in immediately
available funds, for account of the Borrower. The amount so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Borrower on such date by depositing the
same, in Dollars and in immediately available funds, in an account of the
Borrower maintained at the Principal Office.
2.3. Payment of Interest. (a) The Borrower shall pay interest to
the Administrative Agent for the account of each Lender on the outstanding and
unpaid principal amount of each Loan made by such Lender for the period
commencing on the date of such Loan until such Loan shall be paid, continued or
converted, as the case may be, at the then applicable Base Rate for Base Rate
Loans or applicable Fixed Rate for Fixed Rate Loans, as designated by the
Authorized Representative pursuant to Sections 2.1 or 2.2; provided, however,
that if any amount shall not be paid when due (at maturity, by acceleration or
otherwise), all amounts outstanding hereunder shall bear interest thereafter at
the Default Rate.
(b) Interest on each Loan shall be computed on the basis
of a year of 360 days and calculated in each case for the actual number of days
elapsed. Interest on each Revolving Loan shall be paid (i) quarterly in
arrears on the last Business Day of each March, June, September and December,
commencing September 30, 1996 for each Base Rate Loan, (ii) on the last day of
the applicable Interest Period for each Fixed Rate Loan and, if such Interest
Period extends for more than three (3) months, at intervals of three (3) months
after the first day of such Interest Period, and (iii) upon the Revolving
Credit Termination Date.
2.4. Payment of Principal. The principal amount of each Revolving
Loan shall be due and payable to the Administrative Agent for the benefit of
each Lender in full on the Revolving Credit Termination Date, or earlier as
specifically provided herein. The principal amount of each Competitive Bid
Loan shall be due and payable to the Administrative Agent for the benefit of
the applicable Lender in full on the last day of the Interest Period applicable
thereto, or earlier as specifically provided herein. The principal amount of
any Base Rate Loan may be prepaid in whole or in part at any time. The
principal amount of any Fixed Rate Loan may be prepaid only at the end of the
applicable Interest Period unless the Borrower shall pay to the Administrative
Agent for the account of the Lenders the additional amount, if any, required
under Section 4.4. All prepayments of Revolving Loans made by the Borrower
shall be upon not less than three (3) Business Days prior written notice to the
Administrative Agent, effective upon receipt, and shall be in the amount of
$5,000,000 or such greater amount which is an
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integral multiple of $500,000, or the amount equal to all Revolving Credit
Outstandings, or such other amount as necessary to comply with Section 2.1(b)
or Article IV.
2.5. Manner of Payment. (a) Each payment of principal (including
any prepayment) and payment of interest and fees, and any other amount required
to be paid to the Lenders with respect to the Loans, shall be made to the
Administrative Agent at the Principal Office, for the account of each Lender,
in Dollars and in immediately available funds before 12:30 P.M. on the date
such payment is due. The Administrative Agent may, but shall not be obligated
to, debit the amount of any such payment which is not made by such time to any
ordinary deposit account, if any, of the Borrower with the Administrative
Agent.
(b) The Administrative Agent shall deem any payment made by or on
behalf of the Borrower hereunder that is not made both in Dollars and in
immediately available funds and prior to 12:30 P.M. to be a non-conforming
payment. Any such payment shall not be deemed to be received by the
Administrative Agent until the later of (i) the time such funds become
available funds and (ii) the next Business Day. Any non-conforming payment may
constitute or become a Default or Event of Default. Interest shall continue to
accrue on any principal as to which a non-conforming payment is made until the
later of (x) the date such funds become available funds or (y) the next
Business Day at the Default Rate from the date such amount was due and payable.
(c) In the event that any payment hereunder or under the Notes
becomes due and payable on a day other than a Business Day, then such due date
shall be extended to the next succeeding Business Day unless provided otherwise
in the definition of "Interest Period"; provided that interest shall continue
to accrue during the period of any such extension and provided further, that in
no event shall any such due date be extended beyond the Revolving Credit
Termination Date.
2.6. Notes. (a) Revolving Loans made by each Lender shall be
evidenced by the Revolving Note payable to the order of such Lender in the
respective amount of its Applicable Commitment Percentage of the Revolving
Credit Commitment, which Revolving Note shall be dated the Closing Date and
shall be duly completed, executed and delivered by the Borrower.
(b) Competitive Bid Loans made by each Lender shall be evidenced
by the Competitive Bid Note payable to the order of such Lender and
representing the obligation of the Borrower to pay the lesser of (a) the
aggregate amount of the Total Revolving Credit Commitment and (b) the unpaid
principal amount of all Competitive Bid Loans made by such Lender, with
interest on the unpaid principal amount from time to time outstanding of each
Competitive Bid Loan evidenced thereby as prescribed in Section 2.3. Each
Lender is hereby authorized to record the date and amount of each Competitive
Bid Loan made by such Lender, the maturity date thereof, the date and amount of
each payment of principal thereof and the interest rate with respect thereto on
the schedule attached to and constituting part of its Competitive Bid Note, and
any such recordation shall constitute prima facie evidence of the accuracy of
the information so recorded; provided, however, that the failure to make any
such recordation shall not affect the obligations of the Borrower hereunder or
under any Competitive
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Bid Note. Each Competitive Bid Note shall be dated the Closing Date or a later
date pursuant to an Assignment and Acceptance and shall be duly completed,
executed and delivered by the Borrower.
2.7. Pro Rata Payments. Except as otherwise provided herein, (a)
each payment on account of the principal of and interest on the Revolving Loans
and the fees described in Sections 2.11 and 3.3 shall be made to the
Administrative Agent for the account of the Lenders pro rata based on their
Applicable Commitment Percentages, (b) all payments to be made by the Borrower
for the account of each of the Lenders on account of principal, interest and
fees, shall be made without diminution, setoff, recoupment or counterclaim, and
(c) the Administrative Agent will promptly distribute to the Lenders in
immediately available funds payments received in fully collected, immediately
available funds from the Borrower.
2.8. Reductions. The Borrower shall, by notice from an Authorized
Representative, have the right from time to time (but not more frequently than
once during each fiscal quarter), upon not less than three (3) Business Days'
written notice to the Administrative Agent, effective upon receipt, to reduce
the Total Revolving Credit Commitment. The Administrative Agent shall give each
Lender, within one (1) Business Day of receipt of such notice, telefacsimile
notice, or telephonic notice (confirmed in writing), of such reduction. Each
such reduction shall be in the aggregate amount of $25,000,000 or such greater
amount which is in an integral multiple of $5,000,000, or the entire remaining
Total Revolving Credit Commitment, and shall permanently reduce the Total
Revolving Credit Commitment. No such reduction shall result in the payment of
any Fixed Rate Loan other than on the last day of the Interest Period of such
Loan unless such prepayment is accompanied by amounts due, if any, under
Section 4.4. Each reduction of the Total Revolving Credit Commitment shall be
accompanied by payment of the Loans to the extent that the principal amount of
Revolving Credit Outstandings plus Letter of Credit Outstandings plus Swing
Line Outstandings plus outstanding Competitive Bid Loans exceeds the Total
Revolving Credit Commitment after giving effect to such reduction, together
with accrued and unpaid interest on the amounts prepaid.
2.9. Conversions and Elections of Subsequent Interest Periods.
Provided that no Default or Event of Default shall have occurred and be
continuing, the Borrower may:
(a) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Administrative Agent on or
before 11:00 A.M. on any Business Day, convert all or a part of Fixed Rate
Loans to Base Rate Loans on the last day of the Interest Period for such Fixed
Rate Loans; and
(b) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Administrative Agent on or
before 11:00 A.M. three (3) Business Days' prior to the date of such election
or conversion:
(i) elect a subsequent Interest Period for all or
a portion of Eurodollar Rate Loans to begin on the last day of
the then current Interest Period for such Eurodollar Rate
Loans; and
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(ii) convert Base Rate Loans under the Revolving
Credit Facility to Eurodollar Rate Loans on any Business Day,
or convert any other Fixed Rate Loan to a Eurodollar Rate Loan
on the last day of the Interest Period for such Fixed Rate
Loan.
Each election and conversion pursuant to this Section 2.9 shall be
subject to the limitations on Eurodollar Rate Loans set forth in the definition
of "Interest Period" herein and in Sections 2.1 and 2.2 and Article IV. Notice
of receipt of each such notice of election or conversion shall be provided by
the Administrative Agent to each Lender by telefacsimile transmission with
reasonable promptness, but (provided the Administrative Agent shall have
received such notice by 11:00 A.M. and if not so received, such notice shall be
deemed to have been received by the Administrative Agent on the next succeeding
Business Day) not later than 1:00 P.M. on the same Business Day as the
Administrative Agent's receipt of such notice. All such continuations or
conversions of Loans shall be effected pro rata based on the Applicable
Commitment Percentages of the Lenders.
2.10. Increase and Decrease in Amounts. The amount of the Total
Revolving Credit Commitment which shall be available to the Borrower as
Advances shall be reduced by the aggregate amount of Outstanding Letters of
Credit and Outstanding Swing Line Loans.
2.11. Unused Fee. For the period beginning on the Closing Date and
ending on the Revolving Credit Termination Date, the Borrower agrees to pay to
the Administrative Agent, for the benefit of the Lenders based on their
Applicable Commitment Percentages, an unused fee equal to, as to each Lender,
the Applicable Unused Fee multiplied by the average daily amount by which the
Revolving Credit Commitment of such Lender (calculated without giving effect to
clause (i) of the definition of "Total Revolving Credit Commitment") exceeds
the sum of (i) such Lender's pro rata share of (x) Revolving Credit
Outstandings (without giving effect to Swing Line Outstandings or outstanding
Competitive Bid Loans) plus (y) Letter of Credit Outstandings plus (ii) the
outstanding principal amount of all Competitive Bid Loans then held by such
Lender; provided that in no event shall such amount as to any Lender be a
negative number. Such fees shall be due in arrears on the last Business Day of
each March, June, September and December commencing September 30, 1996 to and
on the Revolving Credit Termination Date. Notwithstanding the foregoing, so
long as any Lender fails to make available any portion of its Revolving Credit
Commitment when required to do so in accordance with this Agreement, such
Lender shall not be entitled to receive payment of its pro rata share of such
fee until such Lender shall make available such portion. Such fee shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed.
2.12. Deficiency Advances. No Lender shall be responsible for any
default of any other Lender in respect to such other Lender's obligation to
make any Loan or fund its purchase of any Participation hereunder nor shall the
Revolving Credit Commitment of any Lender hereunder be increased as a result of
such default of any other Lender. Without limiting the generality of the
foregoing, in the event any Lender shall fail to advance funds to the Borrower
as herein provided, the Administrative Agent may in its discretion, but shall
not be obligated to, advance under the Revolving Note in its favor as a Lender
all or any portion of such amount or amounts
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(each, a "deficiency advance") and shall thereafter be entitled to payments of
principal of and interest on such deficiency advance in the same manner and at
the same interest rate or rates to which such other Lender would have been
entitled had it made such advance under its Revolving Note; provided that, upon
payment to the Administrative Agent from such other Lender of the entire
outstanding amount of each such deficiency advance, together with accrued and
unpaid interest thereon, from the most recent date or dates interest was paid
to the Administrative Agent by the Borrower on each Revolving Loan comprising
the deficiency advance at the interest rate per annum for overnight borrowing
by the Administrative Agent from the Federal Reserve Bank of Richmond,
Virginia, then such payment shall be credited against the applicable Revolving
Note of the Administrative Agent in full payment of such deficiency advance and
the Borrower shall be deemed to have borrowed the amount of such deficiency
advance from such other Lender as of the most recent date or dates, as the case
may be, upon which any payments of interest were made by the Borrower thereon.
2.13. Use of Proceeds. The proceeds of the Loans made pursuant to
the Revolving Credit Facility hereunder shall be used by the Borrower to repay
in full the Closing Date Prepayable Debt, for working capital and general
corporate needs of the Borrower, including the funding of Acquisitions
permitted hereunder and Capital Expenditures, and to fund Indenture Note
Purchases to the extent permitted hereunder.
2.14. Swing Line. (a) Notwithstanding any other provision of this
Agreement to the contrary, in order to administer the Revolving Credit Facility
in an efficient manner and to minimize the transfer of funds between the
Administrative Agent and the Lenders, NationsBank shall make available Swing
Line Loans to the Borrower from the Closing Date and prior to the Revolving
Credit Termination Date. NationsBank shall not make any Swing Line Loan
pursuant hereto (i) if to the actual knowledge of NationsBank the Borrower is
not in compliance with all the conditions to the making of Revolving Loans set
forth in this Agreement, (ii) if after giving effect to such Swing Line Loan,
the Swing Line Outstandings exceed $25,000,000, or (iii) if after giving effect
to such Swing Line Loan, the sum of the Swing Line Outstandings, Revolving
Credit Outstandings, Letter of Credit Outstandings and outstanding Competitive
Bid Loans exceeds the Total Revolving Credit Commitment. The Company may
borrow, repay and reborrow under this Section 2.14. Unless notified to the
contrary by NationsBank, borrowings under the Swing Line shall be made in the
minimum amount of $1,000,000 or, if greater, in amounts which are integral
multiples of $100,000, or in the amount necessary to effect a Base Rate
Refunding Loan, upon written request by telefacsimile transmission, effective
upon receipt, by an Authorized Representative of the Borrower made to
NationsBank not later than 12:30 P.M. on the Business Day of the requested
borrowing. Each such Borrowing Notice shall specify the amount of the
borrowing and the date of borrowing, and shall be in the form of Exhibit D-2,
with appropriate insertions. Unless notified to the contrary by NationsBank,
each repayment of a Swing Line Loan shall be in an amount which is an integral
multiple of $100,000 or the aggregate amount of all Swing Line Outstandings.
If the Borrower instructs NationsBank to debit any demand deposit account of
the Borrower in the amount of any payment with respect to a Swing Line Loan, or
NationsBank otherwise receives repayment, after 12:30 P.M. on a Business Day,
such payment shall be deemed received on the next Business Day.
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(b) Swing Line Loans shall bear interest at the Base Rate or at such
other rate or rates as the Borrower and NationsBank may agree from time to
time, the interest payable on Swing Line Loans is solely for the account of
NationsBank, and all accrued and unpaid interest on Swing Line Loans shall be
payable on the dates and in the manner provided in Sections 2.3 with respect to
interest on Base Rate Loans (except as NationsBank and the Borrower may
otherwise agree in connection with any particular Swing Line Loan). The Swing
Line Loans shall be evidenced by the Swing Line Note.
(c) Upon the making of a Swing Line Loan, each Lender shall be deemed
to have purchased from NationsBank a Participation therein in an amount equal
to that Lender's Applicable Commitment Percentage of such Swing Line Loan.
Upon demand made by NationsBank, each Lender shall, according to its Applicable
Commitment Percentage of such Swing Line Loan, promptly provide to NationsBank
its purchase price therefor in an amount equal to its Participation therein
and, upon any such demand by NationsBank, such Swing Line Loan shall without
further action be converted to a Base Rate Loan. Any Advance made by a Lender
pursuant to demand of NationsBank of the purchase price of its Participation
shall be deemed (i) provided that the conditions to making Revolving Loans
shall be satisfied, a Base Rate Refunding Loan under Section 2.1 until the
Borrower converts such Base Rate Loan in accordance with the terms of Section
2.9, and (ii) in all other cases, the funding by each Lender of the purchase
price of its Participation in such Swing Line Loan. The obligation of each
Lender to so provide its purchase price to NationsBank shall be absolute and
unconditional and shall not be affected by the occurrence of an Event of
Default or any other occurrence or event.
The Borrower, at its option and subject to the terms hereof, may
request an Advance pursuant to and of a denomination permitted under Section
2.1 in an amount sufficient to repay Swing Line Outstandings on any date and
the Administrative Agent shall provide from the proceeds of such Advance to
NationsBank the amount necessary to repay such Swing Line Outstandings (which
NationsBank shall then apply to such repayment) and credit any balance of the
Advance in immediately available funds in the manner directed by the Borrower
pursuant to Section 2.1(c)(ii). The proceeds of such Advances shall be paid to
NationsBank for application to the Swing Line Outstandings and the Lenders
shall then be deemed to have made Loans in the amount of such Advances. The
Swing Line shall continue in effect until the Revolving Credit Termination
Date, at which time all Swing Line Outstandings and accrued interest thereon
shall be due and payable in full.
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ARTICLE III
Letters of Credit
3.1. Letters of Credit. The Issuing Bank agrees, subject to the
terms and conditions of this Agreement, upon request of the Borrower to issue
from time to time for the account of the Borrower Letters of Credit upon
delivery to the Issuing Bank of an Application and Agreement for Letter of
Credit relating thereto in form and content acceptable to the Issuing Bank;
provided, that (i) the Letter of Credit Outstandings shall not exceed the Total
Letter of Credit Commitment and (ii) no Letter of Credit shall be issued if,
after giving effect thereto, (A) Letter of Credit Outstandings plus Revolving
Credit Outstandings plus Swing Line Outstandings plus outstanding Competitive
Bid Loans shall exceed the Total Revolving Credit Commitment, or (B) until the
Guaranty Limitation Release Date, Letter of Credit Outstandings plus Revolving
Credit Outstandings plus Swing Line Outstandings plus outstanding Competitive
Bid Loans (excluding Advances, Loans and Letters of Credit used directly or
indirectly to effect the Indenture Note Purchases) shall exceed the Total
Revolving Credit Commitment minus the Indenture Notes Purchase Sublimit. No
Letter of Credit shall have an expiry date (including all rights of the
Borrower or any beneficiary named in such Letter of Credit to require renewal)
or payment date occurring later than the earlier to occur of one year after the
date of its issuance or the fifth Business Day prior to the Stated Termination
Date. The First National Bank of Chicago shall act as Issuing Bank only with
respect to Existing Letters of Credit as in effect as of the Closing Date, but
excluding any renewals or reissuances thereof, whether or not permitted by the
terms of the Existing Letters of Credit as in effect on the Closing Date.
3.2. Reimbursement.
(a) The Borrower hereby unconditionally agrees to pay to
the Issuing Bank immediately on demand at the Principal Office all amounts
required to pay all drafts drawn or purporting to be drawn under the Letters of
Credit and all reasonable administrative expenses incurred by the Issuing Bank
in connection with the Letters of Credit, and in any event and without demand
to place in possession of the Issuing Bank (which shall include Advances under
the Revolving Credit Facility if permitted by Section 2.1 and Swing Line Loans
if permitted by Section 2.14) sufficient funds to pay all debts and liabilities
arising under any Letter of Credit. The Issuing Bank agrees to give the
Borrower prompt notice of any request for a draw under a Letter of Credit. The
Issuing Bank may charge any account the Borrower may have with it for any and
all amounts the Issuing Bank pays under a Letter of Credit, plus charges and
reasonable expenses as from time to time agreed to by the Issuing Bank and the
Borrower; provided that to the extent permitted by Section 2.1(c)(iv) and
Section 2.14, amounts shall be paid pursuant to Advances under the Revolving
Credit Facility or, if the Borrower shall elect, by Swing Line Loans. The
Borrower agrees to pay the Issuing Bank interest on any Reimbursement
Obligations not paid when due hereunder at the Base Rate plus two percentage
points (2.0%), or the maximum rate permitted by applicable law, if lower, such
rate to be calculated on the basis of a year of 360 days for actual days
elapsed.
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(b) In accordance with the provisions of Section 2.1(c),
the Issuing Bank shall notify the Administrative Agent of any drawing under any
Letter of Credit promptly following the receipt by the Issuing Bank of such
drawing.
(c) Each Lender (other than the Issuing Bank) shall
automatically acquire on the date of issuance thereof (or as to the Existing
Letters of Credit, on the Closing Date), a Participation in the liability of
the Issuing Bank in respect of each Letter of Credit in an amount equal to such
Lender's Applicable Commitment Percentage of such liability, and to the extent
that the Borrower is obligated to pay the Issuing Bank under Section 3.2(a),
each Lender (other than the Issuing Bank) thereby shall absolutely,
unconditionally and irrevocably assume, and shall be unconditionally obligated
to pay to the Issuing Bank as hereinafter described, its Applicable Commitment
Percentage of the liability of the Issuing Bank under such Letter of Credit.
(i) Each Lender (including the Issuing Bank in its
capacity as a Lender) shall, subject to the terms and conditions of
Article II, pay to the Administrative Agent for the account of the
Issuing Bank at the Principal Office in Dollars and in immediately
available funds, an amount equal to its Applicable Commitment
Percentage of any drawing under a Letter of Credit, such funds to be
provided in the manner described in Section 2.1(c)(iv).
(ii) Simultaneously with the making of each payment
by a Lender to the Issuing Bank pursuant to Section 2.1(c)(iv)(B),
such Lender shall, automatically and without any further action on the
part of the Issuing Bank or such Lender, acquire a Participation in an
amount equal to such payment (excluding the portion thereof
constituting interest accrued prior to the date the Lender made its
payment) in the related Reimbursement Obligation of the Borrower. The
Reimbursement Obligations of the Borrower shall be immediately due and
payable whether by Advances made in accordance with Section
2.1(c)(iv), Swing Line Loans made in accordance with Section 2.14, or
otherwise.
(iii) Each Lender's obligation to make payment to
the Administrative Agent for the account of the Issuing Bank pursuant
to Section 2.1(c)(iv) and this Section 3.2(c), and the right of the
Issuing Bank to receive the same, shall be absolute and unconditional,
shall not be affected by any circumstance whatsoever and shall be made
without any offset, abatement, withholding or reduction whatsoever.
If any Lender is obligated to pay but does not pay amounts to the
Administrative Agent for the account of the Issuing Bank in full upon
such request as required by Section 2.1(c)(iv) or this Section 3.2(c),
such Lender shall, on demand, pay to the Administrative Agent for the
account of the Issuing Bank interest on the unpaid amount for each day
during the period commencing on the date of notice given to such
Lender pursuant to Section 2.1(c) until such Lender pays such amount
to the Administrative Agent for the account of the Issuing Bank in
full at the interest rate per annum for overnight borrowing by the
Administrative Agent from the Federal Reserve Bank of Richmond,
Virginia.
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(iv) In the event the Lenders have purchased
Participations in any Reimbursement Obligation as set forth in clause
(ii) above, then at any time payment (in fully collected, immediately
available funds) of such Reimbursement Obligation, in whole or in
part, is received by the Issuing Bank from the Borrower, the Issuing
Bank shall promptly pay to each Lender an amount equal to its
Applicable Commitment Percentage of such payment from the Borrower.
(d) Promptly following the end of each calendar quarter,
the Issuing Bank shall deliver to the Administrative Agent a notice describing
the aggregate undrawn amount of all Letters of Credit at the end of such
quarter. Upon the request of any Lender from time to time, the Issuing Bank
shall deliver to the Administrative Agent, and the Administrative Agent shall
deliver to such Lender, any other information reasonably requested by such
Lender with respect to each Letter of Credit outstanding.
(e) The issuance by the Issuing Bank of each Letter of
Credit shall, in addition to the conditions precedent set forth in Article V,
be subject to the conditions that such Letter of Credit be in such form and
contain such terms as shall be reasonably satisfactory to the Issuing Bank
consistent with the then current practices and procedures of the Issuing Bank
with respect to similar letters of credit, and the Borrower shall have executed
and delivered such other instruments and agreements relating to such Letters of
Credit as the Issuing Bank shall have reasonably requested consistent with such
practices and procedures. All Letters of Credit shall be issued pursuant to
and subject to the Uniform Customs and Practice for Documentary Credits, 1993
revision, International Chamber of Commerce Publication No. 500 and all
subsequent amendments and revisions thereto.
(f) The Borrower agrees that Issuing Bank may, in its
sole discretion, accept or pay, as complying with the terms of any Letter of
Credit, any drafts or other documents otherwise in order which may be signed or
issued by an administrator, executor, trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, liquidator, receiver,
attorney in fact or other legal representative of a party who is authorized
under such Letter of Credit to draw or issue any drafts or other documents.
(g) Without limiting the generality of the provisions of
Section 11.9, the Borrower hereby agrees to indemnify and hold harmless the
Issuing Bank, each other Lender and the Administrative Agent from and against
any and all claims and damages, losses, liabilities, reasonable costs and
expenses which the Issuing Bank, such other Lender or the Administrative Agent
may incur (or which may be claimed against the Issuing Bank, such other Lender
or the Administrative Agent) by any Person by reason of or in connection with
the issuance or transfer of or payment or failure to pay under any Letter of
Credit; provided that the Borrower shall not be required to indemnify the
Issuing Bank, any other Lender or the Administrative Agent for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only to the
extent, (i) caused by the willful misconduct or gross negligence of the party
to be indemnified or (ii) caused by the failure of the Issuing Bank to pay
under any Letter of Credit after the presentation to it of a request for
payment strictly complying with the terms and conditions of such Letter of
Credit, unless such payment is prohibited by any law, regulation,
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court order or decree. The indemnification and hold harmless provisions of this
Section 3.2(g) shall survive the Facility Termination Date.
(h) Without limiting Borrower's rights as set forth in
Section 3.2(g), the obligation of the Borrower to immediately reimburse the
Issuing Bank for drawings made under Letters of Credit and the Issuing Bank's
right to receive such payment shall be absolute, unconditional and irrevocable,
and such obligations of the Borrower shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit and the related
Applications and Agreement for any Letter of Credit, under all circumstances
whatsoever, including the following circumstances:
(i) any lack of validity or enforceability of the
Letter of Credit, the obligation supported by the Letter of Credit or
any other agreement or instrument relating thereto (collectively, the
"Related LC Documents");
(ii) any amendment or waiver of or any consent to or
departure from all or any of the Related LC Documents;
(iii) the existence of any claim, setoff, defense
(other than the defense of payment in accordance with the terms of
this Agreement) or other rights which the Borrower may have at any
time against any beneficiary or any transferee of a Letter of Credit
(or any persons or entities for whom any such beneficiary or any such
transferee may be acting), the Administrative Agent, the Lenders or
any other Person, whether in connection with the Loan Documents, the
Related LC Documents or any unrelated transaction;
(iv) any breach of contract or other dispute between
the Borrower and any beneficiary or any transferee of a Letter of
Credit (or any persons or entities for whom such beneficiary or any
such transferee may be acting), the Administrative Agent, the Lenders
or any other Person;
(v) any draft, statement or any other document
presented under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;
(vi) any delay, extension of time, renewal,
compromise or other indulgence or modification granted or agreed to by
the Administrative Agent, with or without notice to or approval by the
Borrower in respect of any of Borrower's Obligations under this
Agreement; or
(vii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing;
provided, however, that nothing contained in this Section 3.2(h) shall be
deemed to release NationsBank or any other Lender from any liability for actual
loss arising as a result of its gross
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negligence or willful misconduct or out of the wrongful dishonor by NationsBank
of a proper demand for payment made under and strictly complying with the terms
of any Letter of Credit.
3.3. Letter of Credit Facility Fees. The Borrower shall pay to the
Administrative Agent, for the pro rata benefit of the Lenders based on their
Applicable Commitment Percentages, a fee on the aggregate amount available to
be drawn on each outstanding Letter of Credit at a rate equal to the Applicable
Margin for Eurodollar Rate Loans. Such payment of fees shall be due with
respect to each Letter of Credit quarterly in arrears on the last Business Day
of each March, June, September and December, the first such payment to be made
on the first such date occurring after the date of issuance of a Letter of
Credit. The fees described in this Section 3.3 shall be calculated on the
basis of a year of 360 days for the actual number of days elapsed.
3.4. Administrative Fees. The Borrower shall pay to the Issuing Bank
such administrative fee and other fees, if any, in connection with the Letters
of Credit in such amounts and at such times as the Issuing Bank and the
Borrower shall agree from time to time.
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ARTICLE IV
Yield Protection and Illegality
4.1. Additional Costs. (a) The Borrower shall promptly pay to the
Administrative Agent for the account of a Lender from time to time, without
duplication, such amounts as such Lender may reasonably determine to be
necessary to compensate it for any costs incurred by such Lender which it
determines are attributable to its making or maintaining any Loan or its
obligation to make any Loans, or the issuance or maintenance by the Issuing
Bank of or any other Lender's Participation in any Letter of Credit issued or
Swing Line Loan extended hereunder, or any reduction in any amount receivable
by such Lender under this Agreement or the Notes in respect of any of such
Loans or the Letters of Credit, including reductions in the rate of return on a
Lender's capital (such increases in costs and reductions in amounts receivable
and returns being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or the Notes in respect of any of
such Loans or the Letters of Credit (other than taxes imposed on or measured by
the income, revenues or assets of such Lender); or (ii) imposes or modifies any
reserve, special deposit, or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, such
Lender (other than any such reserve, deposit or requirement reflected in the
Eurodollar Rate); or (iii) has or would have the effect of reducing the rate of
return on capital of any such Lender to a level below that which the Lender
could have achieved but for such Regulatory Change (taking into consideration
such Lender's policies with respect to capital adequacy); or (iv) imposes any
other condition adversely affecting the Administrative Agent or the Lenders
under this Agreement, the Notes or the issuance or maintenance of, or any
Lender's Participation in, the Letters of Credit or Swing Line Loans (or any of
such extensions of credit or liabilities). Each Lender will notify the
Authorized Representative and the Administrative Agent of any event occurring
after the Closing Date which would entitle it to compensation pursuant to this
Section 4.1(a) as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation.
(b) Without limiting the effect of the foregoing
provisions of this Section 4.1, in the event that, by reason of any Regulatory
Change, any Lender either (i) incurs Additional Costs based on or measured by
the excess above a specified level of the amount of a category of deposits or
other liabilities of the Lender which includes deposits by reference to which
the interest rate on Eurodollar Rate Loans or Eurodollar Market Loans is
determined as provided in this Agreement or a category of extensions of credit
or other assets of any Lender which includes Eurodollar Rate Loans or
Eurodollar Market Loans or (ii) becomes subject to restrictions on the amount
of such a category of liabilities or assets which it may hold, then, if the
Lender so elects by notice to the other Lenders, the obligation hereunder of
such Lender to make, and to convert Base Rate Loans into, Fixed Rate Loans that
are the subject of such restrictions shall be suspended until the date such
Regulatory Change ceases to be in effect and the Borrower shall, on the last
day(s) of the then current Interest Period(s) for outstanding Eurodollar Rate
Loans or Eurodollar Market Loans convert such Fixed Rate Loans into Base Rate
Loans or other Fixed Rate Loans not then subject to such restrictions;
provided, however, that the suspension of such obligation and the conversion of
any Fixed Rate Loans into Base
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Rate Loans or other Fixed Rate Loans not then subject to such restrictions
shall apply only to any Lender who is affected by such restrictions and who has
provided such notice to the other Lenders, and the obligation of the other
Lenders to make, and to convert Base Rate Loans into, Fixed Rate Loans shall
not be affected by such restrictions. In the event that the obligation of
some, but not all, of the Lenders to make, or to convert Base Rate Loans into,
Eurodollar Rate Loans is suspended, then any request by the Borrower during the
pendency of such suspension for a Eurodollar Rate Loan shall be deemed a
request for such Eurodollar Rate Loan from the Lender(s) not subject to such
suspension and for a Base Rate Loan from the Lender(s) who are subject to such
suspension, in each case in the respective amounts based on the Lenders'
respective Applicable Commitment Percentages.
(c) Determinations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of making or
maintaining, or being committed to make Loans, or by NationsBank as issuer of
any Letter of Credit of the effect of any Regulatory Change on its costs in
connection with the issuance or maintenance of, or any other Lender's
Participation in, any Letter of Credit issued or Swing Line Loan extended
hereunder, or the effect of any Regulatory Change on amounts receivable by any
Lender in respect of Loans or Letters of Credit, and of the additional amounts
required to compensate the Lender in respect of any Additional Costs, shall be
made taking into account such Lender's policies, or the policies of the parent
corporation of such Lender, as to the allocation of capital, costs and other
items and shall be conclusive absent manifest error. The Lender requesting
such compensation shall furnish to the Authorized Representative and the
Administrative Agent within one hundred eighty (180) days of the incurrence of
any Additional Costs for which compensation is sought, and at or prior to its
request for a specific amount of compensation under this Section 4.1, an
explanation of the Regulatory Change and calculations, in reasonable detail,
setting forth such Lender's determination of any such Additional Costs.
4.2. Suspension of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any interest rate for
any Eurodollar Rate Loan or Eurodollar Market Loan for any Interest Period, the
Administrative Agent determines (which determination made on a reasonable basis
shall be conclusive absent manifest error) that:
(a) quotations of interest rates for the relevant
deposits referred to in the definition of "Interbank Offered Rate" in
Section 1.1 are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the rate of interest
for such Fixed Rate Loan as provided in this Agreement; or
(b) the relevant rates of interest referred to in the
definition of "Interbank Offered Rate" in Section 1.1 upon the basis
of which the Eurodollar Rate for such Interest Period is to be
determined do not adequately reflect the cost to the Lenders of making
or maintaining such Fixed Rate Loan for such Interest Period;
then the Administrative Agent shall give the Authorized Representative prompt
notice thereof, and so long as such condition remains in effect, the Lenders
shall be under no obligation to make Eurodollar Rate Loans that are subject to
such condition, or to convert Base Rate Loans
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or other Loans into Eurodollar Rate Loans, and the Borrower shall on the last
day(s) of the then current Interest Period(s) for outstanding Eurodollar Rate
Loans or Eurodollar Market Loans, as applicable, convert such Loans into
another Fixed Rate Loan if such Fixed Rate Loan is not subject to the same or
similar condition, or Base Rate Loans, if available hereunder. The
Administrative Agent shall give the Authorized Representative notice describing
in reasonable detail any event or condition described in this Section 4.2
promptly following the determination by the Administrative Agent that the
availability of Eurodollar Rate Loans or Eurodollar Market Loans is, or is to
be, suspended as a result thereof.
4.3. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender to honor its
obligation to make or maintain Eurodollar Rate Loans or Eurodollar Market Loans
hereunder, then such Lender shall promptly notify the Borrower thereof (with a
copy to the Administrative Agent) and such Lender's obligation to make or
continue Eurodollar Rate Loans or Eurodollar Market Loans, or to convert Base
Rate Loans or other Loans into Eurodollar Rate Loans, shall be suspended until
such time as such Lender may again make and maintain Eurodollar Rate Loans or
Eurodollar Market Loans, and such Lender's outstanding Eurodollar Rate Loans or
Eurodollar Market Loans shall be converted into Base Rate Loans or other Type
of Loan not subject to such restrictions in accordance with Section 2.9 or
earlier if required by applicable law. The conversion of any Eurodollar Rate
Loans or Eurodollar Market Loan into Base Rate Loans or other Type of Loan
shall apply only to any Lender who is affected by such restrictions and who has
provided written notice thereof to the Borrower and the Administrative Agent,
and the obligation of the other Lenders to make, and to convert Base Rate Loans
or other Loans into, Eurodollar Rate Loans shall not be affected by such
restrictions. In the event that the obligation of some, but not all, of the
Lenders to make, or to convert Base Rate Loans or other Loans into, Eurodollar
Rate Loans is so suspended, then any request by the Borrower during the
pendency of such suspension for a Revolving Loan that is a Eurodollar Rate
Loan shall be deemed a request for such Eurodollar Rate Loan from the Lender(s)
not subject to such suspension and for a Base Rate Loan from the Lender(s) who
are subject to such suspension, in each case in the respective amounts based on
the Lenders' respective Applicable Commitment Percentages.
4.4. Compensation. The Borrower shall promptly pay to each Lender,
upon the request of such Lender, such amount or amounts as shall be sufficient
(in the reasonable determination of such Lender) to compensate it for any loss,
cost or expense incurred by it as a result of:
(a) any payment, prepayment or conversion of a Fixed Rate
Loan on a date other than the last day of the Interest Period for such
Fixed Rate Loan, including without limitation any conversion required
pursuant to Sections 4.1, 4.2 or 4.3; or
(b) any failure by the Borrower to borrow or convert a
Fixed Rate Loan on the date for such borrowing or conversion specified
in the relevant Borrowing Notice, Interest Rate Selection Notice, or
acceptance of any Competitive Bid Quote under Article II;
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such compensation to include, without limitation, an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount so paid, prepaid or converted or not borrowed for the period
from the date of such payment, prepayment or conversion or failure to borrow or
convert to the last day of the then current Interest Period for such Loan (or,
in the case of a failure to borrow or convert, the Interest Period for such
Loan which would have commenced on the date scheduled for such borrowing or
conversion) at the applicable rate of interest for such Fixed Rate Loan
provided for herein over (ii) the Interbank Offered Rate (as to Eurodollar Rate
Loans or Eurodollar Market Loans) or other appropriate cost of funds (in the
case of Absolute Rate Loans), in each case as reasonably determined by such
Lender, for Dollar deposits of amounts comparable to such principal amount and
maturities comparable to such period. A determination of a Lender as to the
amounts payable pursuant to this Section 4.4 shall be conclusive, provided that
such determinations are made on a reasonable basis. The Lender requesting
compensation under this Section 4.4 shall promptly furnish to the Authorized
Representative and the Administrative Agent calculations in reasonable detail
setting forth such Lender's determination of the amount of such compensation.
4.5. Alternate Loan and Lender. In the event any Lender suspends the
making of any Eurodollar Rate Loan or Eurodollar Market Loan pursuant to this
Article IV (herein a "Restricted Lender"), the Restricted Lender's Commitment
Percentage of any Eurodollar Rate Loan shall bear interest at the Base Rate
until the Restricted Lender once again makes available the applicable
Eurodollar Rate Loan. Notwithstanding the provisions of Sections 2.3, interest
shall be payable to the Restricted Lender in respect of Loans to which the
suspension applies at the time and manner as paid to those Lenders making
available Eurodollar Rate Loans.
4.6. Taxes. (a) All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future excise, stamp
or other taxes, fees, duties, levies, imposts, charges, deductions,
withholdings or other charges of any nature whatsoever imposed by any taxing
authority, but excluding (i) franchise taxes, (ii) any taxes (other than
withholding taxes) that would not be imposed but for a connection between a
Lender or the Administrative Agent and the jurisdiction imposing such taxes
(other than a connection arising solely by virtue of the activities of such
Lender or the Administrative Agent pursuant to or in respect of this Agreement
or any other Loan Document), (iii) any taxes imposed on or measured by any
Lender's assets, net income, receipts or branch profits, and (iv) any taxes
arising after the Closing Date solely as a result of or attributable to a
Lender changing its designated lending office after the date such Lender
becomes a party hereto (such non-excluded items being collectively called
"Taxes"). In the event that any withholding or deduction from any payment to
be made by the Borrower hereunder is required in respect of any Taxes pursuant
to any applicable law, rule or regulation, then the Borrower will (after
written notice thereof together with an explanation of the nature of such
Taxes):
(x) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
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(y) promptly forward to the Administrative Agent an
official receipt or other documentation satisfactory to the
Administrative Agent evidencing such payment to such authority; and
(z) pay to the Administrative Agent for the account of
each Lender such additional amount or amounts as is necessary to
ensure that the net amount actually received by each Lender will equal
the full amount such Lender would have received had no such
withholding or deduction been required.
(b) Prior to the date that any Lender or participant organized under
the laws of a jurisdiction outside the United States becomes a party hereto,
such Person shall deliver to the Borrower and the Administrative Agent such
certificates, documents or other evidence, as required by the Code or Treasury
Regulations issued pursuant thereto (including Internal Revenue Service Forms
4224 or 1001, as applicable, or appropriate successor forms), properly
completed, currently effective and duly executed by such Lender or participant
establishing that payments to it hereunder and under the Notes are (i) not
subject to United States Federal backup withholding tax or (ii) not subject to
United States Federal withholding tax under the Code because such payment is
either effectively connected with the conduct by such Lender or participant of
a trade or business in the United States or totally exempt from United States
Federal withholding tax by reason of the application of the provisions of a
treaty to which the United States is a party or such Lender is otherwise
exempt.
(c) If the Borrower fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent, for
the account of the respective Lender, the required receipts or other required
documentary evidence, the Borrower shall indemnify the Lenders for any
incremental Taxes, interest or penalties that may become payable by any Lender
as a result of any such failure. For purposes of this Section 4.6, a
distribution hereunder by the Administrative Agent or any Lender to or for the
account of any Lender shall be deemed a payment by or on behalf of the
Borrower.
4.7. Certain Assignments. In the event that any Lender shall make a
demand for compensation for Additional Costs (in a non-deminimis amount)
pursuant to Section 4.1 or shall not be obligated to make or maintain
Eurodollar Rate Loans or Eurodollar Market Loans pursuant to Section 4.3 (a
"Qualified Lender"), then, so long as such Lender is a Qualified Lender and
provided that a Default or Event of Default shall not exist, the Borrower, with
the consent of the Administrative Agent (which consent shall not be
unreasonably withheld) and on not less than three (3) Business Days prior
written notice to the Administrative Agent and the Qualified Lender, may demand
that the Qualified Lender assign, and subject to the terms hereof the Qualified
Lender shall assign, to another bank or financial institution specified by the
Borrower in such notice, all (but not less than all) of the Qualified Lender's
right and obligations under the Loan Documents in accordance with Section 11.1;
provided, however: (i) the obligation of the Qualified Lender to assign its
rights under this Section 4.7 shall be subject to receipt by the Qualified
Lender of payment of all outstanding principal and accrued interest owing to
such Qualified Lender in respect of Loans and Participations hereunder, (ii)
the proposed assignee shall satisfy the requirements of a Lender, including
those set forth in Sections
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11.1 and 4.6, and (iii) the Borrower shall remain obligated to the Qualified
Lender for all Obligations, including Additional Costs and amounts required to
be paid under Section 4.4 (the assignment of any Fixed Rate Loan constituting a
prepayment thereof) allocable to the period prior to the assignment by the
Qualified Lender.
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ARTICLE V
Conditions to Execution of Loan Documents,
Making Loans and Issuing Letters of Credit
5.1. Conditions to Execution of Loan Documents, Making Loans and
Issuing Letters of Credit. As conditions precedent to the execution and
delivery by the Agents and the Lenders of this Agreement and the other Loan
Documents to which they are a party, and to the obligations of the Lenders to
make the initial extension of credit hereunder, whether in the form of an
initial Advance by the Lenders, the initial Letter of Credit issued by the
Issuing Bank or the initial Swing Line Loan by NationsBank:
(a) the Administrative Agent shall have received on the
Closing Date, in form and substance satisfactory to the Administrative
Agent and the Lenders, the following:
(i) executed originals of each of this Agreement,
the Notes, the initial Guaranties, the LC Account Agreement
and the other Loan Documents, together with all schedules and
exhibits thereto;
(ii) the favorable written opinion or opinions
with respect to the Loan Documents, the Related Acquisition
Transaction Documents and the respective transactions
contemplated thereby of counsel (which may be or include
special counsel) to the Borrower and the other Credit Parties
dated the Closing Date, addressed to the Administrative Agent
and the Lenders and satisfactory to the Administrative Agent
and Smith Helms Mulliss & Moore, L.L.P., special counsel to
the Administrative Agent, substantially in the form of Exhibit
K;
(iii) the favorable written opinion or opinions
with respect to the Related Acquisition Transaction Documents
and the respective transactions contemplated thereby of
counsel (which may be or include special counsel) to the
Borrower and the other Credit Parties and Caremark Counsel
dated the Closing Date, addressed to the Administrative Agent
and the Lenders (or expressly stating therein, or in a
separate letter of even date with such opinion and addressed
to the Administrative Agent and the Lenders, that the
Administrative Agent and the Lenders may rely on such opinion
as if they were addressees thereof), and satisfactory to the
Administrative Agent and Smith Helms Mulliss & Moore, L.L.P.,
special counsel to the Administrative Agent;
(iv) resolutions of the boards of directors or
other appropriate governing body (or of the appropriate
committee thereof) of each Credit Party certified by its
secretary or assistant secretary as of the Closing Date,
approving and adopting the Loan Documents to be executed by
such Person, and authorizing the execution and delivery
thereof;
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(v) executed originals, or copies of executed
originals certified by the secretary or assistant secretary of
the Borrower, of the Related Acquisition Agreement and all
other material Related Acquisition Transaction Documents,
which shall evidence the corporate (and shareholder, if any)
authorization for and consummation of the Related Acquisition
as of the Closing Date on the terms provided in the Related
Acquisition Agreement and the Registration Statement;
(vi) specimen signatures of officers of each
Credit Party executing the Loan Documents on behalf of such
Credit Party, certified by the secretary or assistant
secretary of such Credit Party;
(vii) the charter documents of each Credit Party
certified as of a recent date by the Secretary of State of its
state of organization;
(viii) the bylaws of each Credit Party certified as
of the Closing Date as true and correct by its secretary or
assistant secretary;
(ix) certificates issued as of a recent date by
the Secretaries of State of the respective jurisdictions of
formation of each Credit Party as to the due existence and
good standing of each Credit Party;
(x) appropriate certificates of qualification to
do business, good standing and, where appropriate, authority
to conduct business under assumed name, issued in respect of
each Credit Party as of a recent date by the Secretary of
State or comparable official of each jurisdiction in which the
failure to be qualified to do business or authorized so to
conduct business would reasonably be expected to have a
Material Adverse Effect;
(xi) notice of appointment of the initial
Authorized Representative(s);
(xii) evidence of all insurance required by the
Loan Documents;
(xiii) a certificate of Borrower's President, chief
executive officer, Treasurer or chief financial officer dated
the Closing Date certifying that (A) as of the Closing Date
there does not exist any default or event of default under any
Indebtedness of the Borrower or any Subsidiary or any Assumed
Debt or under any of the Existing Settlement Agreements, (B)
as of the Closing Date and immediately after giving effect to
the Related Acquisition and all Advances made and Letters of
Credit issued as of the Closing Date (1) there does not exist
any Default or Event of Default or any default or event of
default under any Assumed Debt or under any of the Existing
Settlement Agreements and (2) the Borrower and each of the
other Credit Parties is Solvent;
(xiv) Pro Forma Historical Statements;
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(xv) Compliance Certificate of an Authorized
Representative dated the Closing Date demonstrating compliance
as at June 30, 1996 on a pro forma basis (giving effect to the
Related Acquisition) with the financial covenants contained in
Sections 8.1(a) through 8.1(c);
(xvi) an initial Borrowing Notice, if any, and, if
elected by the Borrower, an initial Interest Rate Selection
Notice;
(xvii) evidence satisfactory to the Administrative
Agent that all fees payable by the Borrower on the Closing
Date to the Administrative Agent, NCMI and the Lenders have
been paid in full;
(xviii) evidence satisfactory to the Administrative
Agent (which may include the appropriate written request or
direction of the Borrower to the Agent delivered as of the
Closing Date) of the use of Advances, together with other
funds supplied by the Borrower (if any), to the repayment in
full of the Closing Date Prepayable Debt (other than the
continuation hereunder of Reimbursement Obligations in respect
of the Existing Letters of Credit), and the making of
satisfactory arrangements for the effective release and
termination of all Liens securing any Closing Date Prepayable
Debt substantially simultaneously with such payment; and
(xix) evidence satisfactory to the Administrative
Agent that (A) the Borrower's name has been changed from
"MedPartners/Mullikin, Inc." to "MedPartners, Inc." and (B)
the Material Subsidiary whose name was "MedPartners, Inc."
prior to the Closing Date has been changed to "MP of Delaware,
Inc.";
(xx) such other documents, instruments,
certificates and opinions as the Administrative Agent or any
Lender may reasonably request on or prior to the Closing Date
in connection with the Related Acquisition or the transactions
contemplated hereby; and
(b) In the good faith judgment of the Administrative
Agent and the Lenders:
(i) there shall not have occurred or become known
to the Administrative Agent or the Lenders any event,
condition, situation or status (including any change in the
status of any Designated Caremark Litigation) since the date
of the information contained in the financial and business
projections, budgets, pro forma data and forecasts concerning
the Borrower and its Subsidiaries, including any member of the
Caremark Group, delivered to the Administrative Agent and the
Lenders prior to the Closing Date that has had or could
reasonably be expected to result in a Material Adverse Effect
or materially adversely affect the business, properties,
operations or condition, financial or otherwise, of the
Caremark Group, taken as a whole;
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(ii) no litigation, action, suit, investigation or
other arbitral, administrative or judicial proceeding shall be
pending or threatened which could reasonably be expected to
(x) result in a Material Adverse Effect or materially
adversely affect the business, properties, operations or
condition, financial or otherwise, of the Caremark Group,
taken as a whole, or (y) restrain or enjoin, impose materially
burdensome conditions on, or otherwise materially and
adversely affect the ability of any Person to fulfill their
respective obligations under the Related Acquisition
Transaction Documents;
(iii) the Borrower, its Subsidiaries, and the
Caremark Group shall have received all approvals, consents and
waivers (including the expiration or early termination of any
waiting period without notice of intent to challenge or
request for further information by any Governmental
Authority), and shall have made or given all necessary filings
and notices as shall be required to consummate the
transactions contemplated hereby and by the Related
Acquisition Transaction Documents without the occurrence of
any default under, conflict with or violation of (A) any
applicable law, rule, regulation, order or decree of any
Governmental Authority or arbitral authority or (B) any
agreement, document or instrument to which the Borrower or any
Subsidiary or any member of the Caremark Group is a party or
by which any of them or their respective properties is bound,
except for such approvals, consents, waivers, filings and
notices the receipt, making or giving of which would not
reasonably be likely to (A) have a Material Adverse Effect or
materially adversely affect the business, properties,
operations or condition, financial or otherwise, of the
Caremark Group, taken as a whole, or (B) restrain or enjoin,
impose materially burdensome conditions on, or otherwise
materially and adversely affect the ability of any Person to
fulfill its obligations under the Related Acquisition
Transaction Documents; and
(iv) there shall not have occurred or exist (A) an
engagement in hostilities by the United States of America or
other national or international emergency or calamity, (B) a
general suspension of or material limitation on trading on the
New York Stock Exchange or other national securities exchange,
(C) the declaration of a general banking moratorium by any
applicable Governmental Authority or the imposition by any
applicable Governmental Authority of any material limitation
on transactions of the type contemplated by the Loan
Documents, or (D) any other material disruption of financial
or capital markets that could reasonably be expected to
materially and adversely affect the transactions contemplated
under the Loan Documents.
5.2. Conditions of Revolving Loans and Letter of Credit. The
obligations of the Lenders to make any Revolving Loans or Competitive Bid
Loans, the Issuing Bank to issue Letters of Credit, and NationsBank to make
Swing Line Loans, hereunder on or subsequent to the Closing Date are subject to
the satisfaction of the following conditions:
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(a) the Administrative Agent or, in the case of Swing
Line Loans, NationsBank shall have received a Borrowing Notice if
required by Article II;
(b) the representations and warranties of the Borrower
and each Subsidiary set forth in Article VI and in each of the other
Loan Documents shall be true and correct in all material respects on
and as of the date of such Advance, Swing Line Loan, Competitive Bid
Loan or Letter of Credit issuance or renewal, as the case may be, with
the same effect as though such representations and warranties had been
made on and as of such date, except to the extent that such
representations and warranties expressly relate solely to an earlier
date (in which case such representations and warranties shall be true
and correct in all material respects on and as of such earlier date)
and except that the financial statements referred to in Section 6.6(a)
shall be deemed to be those financial statements most recently
delivered to the Administrative Agent and the Lenders pursuant to
Section 7.1 from the date financial statements are delivered to the
Administrative Agent and the Lenders in accordance with such Section;
(c) in the case of the issuance of a Letter of Credit,
the Borrower shall have executed and delivered to the Issuing Bank an
Application and Agreement for Letter of Credit in form and content
acceptable to the Issuing Bank together with such other instruments
and documents as it shall reasonably request;
(d) at the time of (and after giving effect to) each
Advance, Swing Line Loan, Competitive Bid Loan or the issuance or
renewal of a Letter of Credit, no Default or Event of Default
specified in Article IX shall have occurred and be continuing; and
(e) immediately after giving effect to:
(i) a Revolving Loan, the aggregate principal
balance of all outstanding Revolving Loans for each
Lender, together with all Participations of such
Lender, shall not exceed such Lender's Revolving
Credit Commitment;
(ii) a Letter of Credit or renewal thereof, the
aggregate principal balance of all outstanding
Participations in Letters of Credit and Reimbursement
Obligations (or in the case of the Issuing Bank, its
remaining interest after deduction of all
Participations in Letters of Credit and Reimbursement
Obligations of other Lenders) for each Lender and in
the aggregate shall not exceed, respectively, (X)
such Lender's Letter of Credit Commitment or (Y) the
Total Letter of Credit Commitment;
(iii) a Swing Line Loan, the Swing Line Outstandings
shall not exceed $25,000,000; and
(iv) a Revolving Loan, Swing Line Loan, Competitive
Bid Loan, or a Letter of Credit or renewal thereof,
the sum of Letter of Credit Outstandings plus
Revolving Credit Outstandings plus Swing Line
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Outstandings plus outstanding Competitive Bid Loans (i) shall not
exceed the Total Revolving Credit Commitment and (ii) prior to the
Guaranty Limitation Release Date and excluding Advances, Loans and
Letters of Credit used directly or indirectly to effect Indenture Note
Purchases, shall not exceed the Total Revolving Credit Commitment
minus the Indenture Notes Purchase Sublimit.
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ARTICLE VI
Representations and Warranties
The Borrower represents and warrants with respect to itself and to its
Subsidiaries (which representations and warranties shall survive the delivery
of the documents mentioned herein and the making of Loans) after giving effect
to the Related Acquisition (except where expressly otherwise provided), that:
6.1. Organization and Authority.
(a) The Borrower is a corporation duly organized and
validly existing under the laws of the jurisdiction of its
incorporation, and each Subsidiary is a corporation or partnership
duly organized and validly existing under the laws of the jurisdiction
of its formation;
(b) The Borrower and each Subsidiary (x) has the
requisite power and authority to own its properties and assets and to
carry on its business as now being conducted and as contemplated in
the Loan Documents, and (y) is qualified to do business in every
jurisdiction in which failure so to qualify would have a Material
Adverse Effect;
(c) The Borrower has the power and authority to execute,
deliver and perform this Agreement and the Notes, and to borrow
hereunder, and to execute, deliver and perform each of the other Loan
Documents and each of the Related Acquisition Transaction Documents to
which it is a party;
(d) Each Subsidiary has the power and authority to execute,
deliver and perform the Guaranty and each of the other Loan Documents
and each of the Related Acquisition Transaction Documents to which it
is a party; and
(e) When executed and delivered, each of the Loan Documents
and the Related Acquisition Transaction Documents to which the
Borrower or any Subsidiary is a party will be the legal, valid and
binding obligation or agreement, as the case may be, of the Borrower
or such Subsidiary, enforceable against the Borrower or such
Subsidiary in accordance with its terms, subject to the effect of any
applicable bankruptcy, moratorium, insolvency, reorganization or other
similar law affecting the enforceability of creditors' rights
generally and to the effect of general principles of equity (whether
considered in a proceeding at law or in equity);
6.2. No Conflict. The execution, delivery and performance by the
Borrower and each Subsidiary of each of the Loan Documents and Related
Acquisition Transaction Documents to which it is a party:
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(a) have been duly authorized by all requisite corporate
or partnership action (including any required shareholder or partner
approval) of the Borrower and each other Credit Party required for the
lawful execution, delivery and performance thereof;
(b) do not violate any provisions of (i) applicable law, rule
or regulation, (ii) any judgment, writ, order, determination, decree
or arbitral award of any Governmental Authority or arbitral authority
binding on the Borrower or any Subsidiary or its properties, or (iii)
the charter documents, partnership agreement or bylaws of the Borrower
or any Subsidiary;
(c) do not and will not be in conflict with, result in a
breach of or constitute an event of default, or an event which, with
notice or lapse of time or both, would constitute an event of default,
under any contract, indenture, agreement or other instrument or
document to which Borrower or any Subsidiary is a party, or by which
the properties or assets of Borrower or any Subsidiary are bound which
conflict, breach, event or default or default could reasonably be
expected to have a Material Adverse Effect; and
(d) do not and will not result in the creation or imposition
of any Lien upon any of the properties or assets of Borrower or any
Subsidiary except any Liens in favor of the Administrative Agent and
the Lenders created by the Loan Documents;
6.3. Solvency. The Borrower and each Subsidiary is Solvent after
giving effect to the transactions contemplated by the Loan Documents and the
Related Acquisition Transaction Documents;
6.4. Subsidiaries and Stockholders. The Borrower has no Subsidiaries
other than those Persons listed as Subsidiaries in Schedule 6.4 and additional
Subsidiaries created or acquired after the Closing Date in compliance with
Section 7.19; Schedule 6.4 states as of the date hereof and after giving effect
to the Related Acquisition the organizational form of each entity, the
authorized and issued capitalization of each Subsidiary listed thereon, the
number and/or percentage of outstanding shares or other equity interest
(including options, warrants and other rights to acquire any interest) of each
such class of capital stock or other equity interest owned by Borrower or by
any such Subsidiary, whether such Subsidiary is a Caremark Subsidiary, and
whether such Subsidiary is a Material Subsidiary; the outstanding shares or
other equity interests of each such Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable; and Borrower and each such
Subsidiary owns beneficially and of record all the shares and other interests
it is listed as owning in Schedule 6.4, free and clear of any Lien;
6.5. Ownership Interests. Borrower owns no interest in any Person
other than the Persons listed in Schedule 6.4, equity investments in Persons
not constituting Subsidiaries permitted under Section 8.6 and additional
Subsidiaries created or acquired after the Closing Date in compliance with
Section 7.19;
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6.6. Financial Condition.
(a) The Registration Statement contains therein the
financial statements described on pages F-4 through F-56. Such
financial statements (including the notes thereto) present fairly the
financial condition of (i) the Borrower and its Subsidiaries (before
giving effect to the Related Acquisition) and (ii) the Caremark Group
as of the end of the Fiscal Years and six month periods set forth and
results of their operations and the changes in their stockholders'
equity and cash flow for the Fiscal Years and six month periods then
ended, all in conformity with Generally Accepted Accounting Principles
applied on a Consistent Basis;
(b) since December 31, 1995 there has been no material
adverse change in the condition, financial or otherwise, of (i) the
Borrower or any of its Subsidiaries (before giving effect to the
Related Acquisition) or (ii) any member of the Caremark Group, or in
the businesses, properties, performance, prospects or operations of
(x) the Borrower or any of its Subsidiaries (before giving effect to
the Related Acquisition) or (y) any member of the Caremark Group, nor
have such businesses or properties been materially adversely affected
as a result of any fire, explosion, earthquake, accident, strike,
lockout, combination of workers, flood, embargo or act of God;
(c) except as set forth in the financial statements
referred to in Section 6.6(a) or in Schedule 6.6 or permitted by
Section 8.4, neither Borrower nor any Subsidiary has incurred, other
than in the ordinary course of business, any material Indebtedness or
other commitment or liability which remains outstanding or
unsatisfied;
(d) the Pro Forma Historical Statements provided to the
Administrative Agent and the Lenders accurately reflect in accordance
with GAAP the historical pro forma financial condition and results of
operations of the Borrower and its Subsidiaries for the respective
periods covered thereby, after giving pro forma effect to the Related
Acquisition; and
(e) the Pro Forma Projections provided to the
Administrative Agent and the Lenders were prepared by the Borrower in
good faith and are based upon assumptions which the Borrower believes
to have been reasonable as of the time of preparation thereof and as
of the Closing Date;
6.7. Title to Properties. The Borrower and each of its Subsidiaries
has good and marketable title to all its real and personal properties, subject
to no transfer restrictions or Liens of any kind, except for the transfer
restrictions and Liens described in Schedule 6.7 and Liens permitted by Section
8.3;
6.8. Taxes. Except as set forth in Schedule 6.8, the Borrower and
each of its Subsidiaries has filed or caused to be filed all federal, state and
local tax returns which are required to be filed by it and, except for taxes
and assessments being contested in good faith by appropriate proceedings
diligently conducted and against which reserves reflected in the financial
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statements described in Section 6.6(a) and satisfactory to the Borrower's
independent certified public accountants have been established, have paid or
caused to be paid all taxes as shown on said returns or on any assessment
received by it, to the extent that such taxes have become due;
6.9. Other Agreements. Neither the Borrower nor any Subsidiary is
(a) a party to or subject to any judgment, order, decree,
agreement, lease or instrument (including the Existing Settlement
Agreements), or subject to other restrictions, which individually or
in the aggregate could reasonably be expected to have a Material
Adverse Effect; or
(b) in default in the performance, observance or fulfillment
of any of the obligations, covenants or conditions contained in any
agreement or instrument (including the Existing Settlement Agreements)
to which the Borrower or any Subsidiary is a party, which default has,
or if not remedied within any applicable grace period could reasonably
be likely to have, a Material Adverse Effect;
6.10. Litigation. Except as set forth in Schedule 6.10, there is no
action, suit, investigation or proceeding (including the Designated Caremark
Litigation) at law or in equity or by or before any governmental
instrumentality or agency or arbitral body pending, or, to the knowledge of the
Borrower, threatened by or against the Borrower or any Subsidiary or affecting
the Borrower or any Subsidiary or any properties or rights of the Borrower or
any Subsidiary, which could reasonably be expected to result in an Exclusion
Event or otherwise to have a Material Adverse Effect;
6.11. Margin Stock. The proceeds of the borrowings made hereunder
will be used by the Borrower only for the purposes expressly authorized herein.
None of such proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry
margin stock or for any other purpose which might constitute any of the Loans
under this Agreement a "purpose credit" within the meaning of said Regulation U
or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrower nor
any agent acting in its behalf has taken or will take any action which might
cause this Agreement or any of the documents or instruments delivered pursuant
hereto to violate any regulation of the Board or to violate the Securities
Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or
any state securities laws, in each case as in effect on the date hereof;
6.12. Investment Company. Neither the Borrower nor any other
Subsidiary is an "investment company," or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C.
Section 80a-1, et seq.). The application of the proceeds of the Loans and
Letters of Credit and repayment thereof by the Borrower and the performance by
the Borrower and the other Credit Parties of the transactions contemplated by
the Loan Documents will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission
thereunder, in each case as in effect on the date hereof;
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6.13. Patents, Etc. The Borrower and each Subsidiary owns or has the
right to use, under valid license agreements or otherwise, all material
patents, licenses, franchises, trademarks, trademark rights, trade names, trade
name rights, trade secrets and copyrights necessary to or used in the conduct
of its businesses as now conducted and as contemplated by the Loan Documents,
without known conflict with any patent, license, franchise, trademark, trade
secret, trade name, copyright, or other proprietary right of any other Person;
6.14. No Untrue Statement. Neither (a) this Agreement nor any other
Loan Document or certificate or document executed and delivered by or on behalf
of the Borrower or any other Credit Party in accordance with or pursuant to any
Loan Document nor (b) any statement, representation, or warranty provided to
the Administrative Agent in connection with the negotiation or preparation of
the Loan Documents (including such items pertaining to the Related Acquisition)
contains any misrepresentation or untrue statement of material fact or omits to
state a material fact necessary, in light of the circumstance under which it
was made, in order to make any such warranty, representation or statement
contained therein not misleading;
6.15. No Consents, Etc. Neither the respective businesses or
properties of the Borrower or any Subsidiary, nor any relationship between the
Borrower or any Subsidiary and any other Person, nor any circumstance in
connection with the execution, delivery and performance of the Loan Documents
and the Related Acquisition Transaction Documents and the transactions
contemplated thereby, is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
Governmental Authority or any other Person on the part of the Borrower or any
Subsidiary as a condition to the execution, delivery and performance of, or
consummation of the transactions contemplated by the Loan Documents or the
Related Acquisition Transaction Documents which, if not obtained or effected,
would be reasonably likely to have a Material Adverse Effect or to materially
impair or impose materially burdensome conditions on the consummation of the
Related Acquisition in accordance with the Related Acquisition Transaction
Documents, or if so, such consent, approval, authorization, filing,
registration or qualification has been duly obtained or effected, as the case
may be;
6.16. Employee Benefit Plans.
(a) The Borrower and each ERISA Affiliate is in compliance
with all applicable provisions of ERISA and the regulations and
published interpretations thereunder and in compliance with all
Foreign Benefit Laws 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 is so qualified, and each trust related to such
plan is exempt under Section 501(a) of the Code. No material
liability has been incurred by the Borrower or any ERISA Affiliate
which remains unsatisfied for any taxes or penalties with respect to
any Employee Benefit Plan or any Multiemployer Plan;
(b) Neither the Borrower nor any ERISA Affiliate has (i)
engaged in a nonexempt prohibited transaction described in Section
4975 of the Code or Section 406
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of ERISA affecting any of the Employee Benefit Plans or the trusts
created thereunder which could subject any such Employee Benefit Plan
or trust to a material tax or penalty on prohibited transactions
imposed under Internal Revenue Code Section 4975 or ERISA, (ii)
incurred any accumulated funding deficiency with respect to any
Employee Benefit Plan, whether or not waived, or any other liability
to the PBGC which remains outstanding other than the payment of
premiums and there are no premium payments which are due and unpaid,
(iii) failed to make a required contribution or payment to a
Multiemployer Plan, or (iv) failed to make a required installment or
other required payment under Section 412 of the Code, Section 302 of
ERISA or the terms of such Employee Benefit Plan;
(c) No Termination Event has occurred or is reasonably
expected to occur with respect to any Pension Plan or Multiemployer
Plan, and neither the Borrower nor any ERISA Affiliate has incurred
any unpaid withdrawal liability with respect to any Multiemployer
Plan;
(d) The present value of all vested accrued benefits under
each Employee Benefit Plan which is subject to Title IV of ERISA, did
not, as of the most recent valuation date for each such plan, exceed
the then current value of the assets of such Employee Benefit Plan
allocable to such benefits;
(e) To the best of the Borrower's knowledge, each Employee
Benefit Plan subject to Title IV of ERISA, maintained by the Borrower
or any ERISA Affiliate, has been administered in accordance with its
terms in all material respects and is in compliance in all material
respects with all applicable requirements of ERISA and other
applicable laws, regulations and rules;
(f) The consummation of the Loans and the issuance of the
Letters of Credit provided for herein will not involve any prohibited
transaction under ERISA which is not subject to a statutory or
administrative exemption; and
(g) No material proceeding, claim, lawsuit and/or
investigation exists or, to the best knowledge of the Borrower after
due inquiry, is threatened concerning or involving any Employee
Benefit Plan;
6.17. No Default. As of the date hereof, there does not exist any
Default or Event of Default hereunder;
6.18. Hazardous Materials. The Borrower and each Subsidiary is in
compliance with all applicable Environmental Laws in all material respects, and
has been issued and maintains all required federal, state and local permits,
licenses, certificates and approvals pertaining to Hazardous Materials that are
germane to the conduct of its business. Neither the Borrower nor any
Subsidiary has been notified of any pending or threatened action, suit,
proceeding or investigation which, and no Designated Officer of either the
Borrower or any Subsidiary is aware of any facts, which (i) calls into
question, or could reasonably be expected to call into
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question, compliance by the Borrower or any Subsidiary with any Environmental
Laws, (ii) seeks, or could reasonably be expected to form the basis of a
meritorious proceeding to seek, to suspend, revoke or terminate any material
license, permit, certification or approval pertaining to Hazardous Material
that is germane to the conduct of its business, or (iii) seeks to cause, or
could reasonably be expected to form the basis of a meritorious proceeding to
cause, any property of the Borrower or any Subsidiary to be subject to any
restrictions on ownership, use, occupancy or transferability under any
Environmental Law, and which in any such case could reasonably be expected to
have a Material Adverse Effect;
6.19. Employment Matters. (a) Except as described on Schedule 6.19,
none of the employees of the Borrower or any Subsidiary is subject to any
collective bargaining agreement and there are no strikes, work stoppages,
election or decertification petitions or proceedings, unfair labor charges,
equal opportunity proceedings, or other material labor/employee related
controversies or proceedings pending or, to the best knowledge of the Borrower,
threatened against the Borrower or any Subsidiary or between the Borrower or
any Subsidiary and any of its employees, other than employee grievances arising
in the ordinary course of business which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; and
(b) Except to the extent a failure to maintain compliance would not
have a Material Adverse Effect, the Borrower and each Subsidiary is in
compliance in all respects with all applicable laws, rules and regulations
pertaining to labor or employment matters, including without limitation those
pertaining to wages, hours, occupational safety and taxation and there is
neither pending or threatened any litigation, administrative proceeding nor, to
the knowledge of the Borrower, any investigation, in respect of such matters
which, if decided adversely, could reasonably be likely, individually or in the
aggregate, to have a Material Adverse Effect;
6.20. Compliance with Laws. Other than as to certain conduct giving
rise to the OIG Settlement Agreements, the Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, having jurisdiction over the conduct of their respective
businesses or the ownership of their respective property where non-compliance
could reasonably be expected to have a Material Adverse Effect. No Exclusion
Event has occurred and is continuing;
6.21. Existing Settlement Agreements. (a) The OIG Proceedings with
the federal governmental entities, state governmental entities and the District
of Columbia involved have been fully and finally settled through the OIG
Settlement Agreements. All claims and potential claims of other Persons a
party to or otherwise bound by any of the other Existing Settlement Agreements
which purport to be resolved by such other Existing Settlement Agreements have
been fully and finally settled through such Existing Settlement Agreements.
All actual or, to the knowledge of Borrower's officers, all threatened actions
by any federal governmental authority and, by any State (including the District
of Columbia) Governmental Authority which have been or could be brought based
upon the allegations which form the basis of the OIG Proceedings have been
fully and finally settled through the OIG Settlement Agreements. The Existing
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Settlement Agreements are in the respective forms thereof as furnished to the
Agents prior to the Closing Date, have not been terminated, revoked or
rescinded by any party thereto and remain in full force and effect. Neither the
Borrower nor any Subsidiary has defaulted in the performance, observance or
fulfillment of any of the terms or conditions of any of the Existing Settlement
Agreements;
(b) To the knowledge of the Borrower's officers, no events or facts
have occurred with respect to the Borrower or any of its Subsidiaries which
could give rise to review (other than in the ordinary course of business) by
any federal, state or local regulatory, enforcement or governmental body or
authority (i) of a nature similar to that involved with the OIG Proceedings or
similar to the claims and potential claims settled under the other Existing
Settlement Agreements and (ii) the outcome of which could reasonably be
expected to subject the Borrower and/or its Subsidiaries to liabilities,
individually or in the aggregate, in excess of $25,000,000;
6.22. Related Acquisition. The Related Acquisition, as described in
the Registration Statement, has been fully consummated in accordance with the
Related Acquisition Transaction Documents;
6.23. Representations and Warranties from the Related Acquisition
Transaction Documents. As of the Closing Date (and immediately prior to giving
effect to the Related Acquisition), each of the representations and warranties
made by the Borrower or any Subsidiary in the Related Acquisition Transaction
Documents are true and correct in all material respects as of the date hereof,
and the Borrower is not aware of any facts or circumstances indicating that any
of the representations or warranties of any member of the Caremark Group
contained in the Related Acquisition Transaction Documents are not true and
correct in all material respects as of the date hereof;
For purposes of this Article VI, the phrase "to the knowledge of
Borrower's officers" shall mean to the actual knowledge of any of (i) the
following officers of Borrower: (1) President or Chief Executive Officer, (2)
Executive Vice Presidents, (3) General Counsel, (4) Vice President of Legal
Services, (5) Regional Vice Presidents, (6) Treasurer, (7) Assistant Treasurer,
or (8) any successor position or title of (1) through (7), and (ii) with
respect to Sections 6.20, 6.21 and 6.22, (1) any officer of the Borrower
described in clause (i) or (2) any General Counsel of Caremark.
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ARTICLE VII
Affirmative Covenants
Until the Facility Termination Date, unless the Required Lenders shall
otherwise consent in writing, the Borrower will, and where applicable will
cause each Subsidiary to:
7.1. Financial Reports, Etc. (a) As soon as practical and in any
event within 95 days after the end of each Fiscal Year of the Borrower, deliver
or cause to be delivered to the Administrative Agent and each Lender (i) the
consolidated balance sheet of the Borrower and its Subsidiaries as at the end
of such Fiscal Year, and the notes thereto, and the related consolidated
statements of income, stockholders' equity and cash flows, and the respective
notes thereto, for such Fiscal Year, setting forth comparative financial
statements for the preceding Fiscal Year, all prepared in accordance with GAAP
applied on a Consistent Basis and containing, with respect to the consolidated
financial statements, opinions of Ernst & Young, or such other independent
certified public accountants as are selected by the Borrower and approved by
the Administrative Agent, which are unqualified as to the scope of the audit
performed and as to the "going concern" status of the Borrower and without any
exception not acceptable to the Lenders, and (ii) a Compliance Certificate of
an Authorized Representative demonstrating compliance with Sections 8.1;
(b) as soon as practical and in any event within 50 days after the
end of each fiscal quarter (except the last fiscal quarter of the Fiscal Year
of the Borrower), deliver to the Administrative Agent and each Lender (i) the
consolidated balance sheet of the Borrower and its Subsidiaries as at the end
of such fiscal quarter, and the related consolidated statements of income,
stockholders' equity and cash flows for such fiscal quarter and for the period
from the beginning of the then current Fiscal Year through the end of such
reporting period, setting forth comparative financial statements for the
comparable period in the preceding Fiscal Year, and accompanied by a
certificate of an Authorized Representative to the effect that such financial
statements present fairly the financial position of the Borrower and its
Subsidiaries as of the end of such fiscal period and the results of their
operations and cash flows for such fiscal period, in conformity with the
standards set forth in Section 6.6(a) with respect to interim financial
statements, and (ii) a Compliance Certificate of an Authorized Representative
containing computations for such quarter comparable to that required pursuant
to Section 7.1(a)(ii);
(c) together with each delivery of the financial statements
required by Section 7.1(a)(i), deliver to the Administrative Agent and each
Lender a letter from the Borrower's accountants specified in Section 7.1(a)(i)
stating that in performing the audit necessary to render an opinion on the
financial statements delivered under Section 7.1(a)(i), they obtained no
knowledge of any Default or Event of Default by the Borrower in the fulfillment
of the terms and provisions of this Agreement insofar as they relate to
financial matters (which at the date of such statement remains uncured); or if
the accountants have obtained knowledge of such Default or Event of Default, a
statement specifying the nature and period of existence thereof;
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(d) together with the financial statements required under Section
7.1(a), the Borrower shall deliver to the Administrative Agent and to
independent counsel for the Administrative Agent a current Compliance Report.
Such independent legal counsel shall promptly deliver to the Administrative
Agent (which the Administrative Agent shall promptly deliver to each Lender)
and Borrower (other than such portions thereof which are privileged or attorney
work product) an assessment report, in form and substance and containing such
detail as shall be acceptable to the Administrative Agent, of any matters
disclosed in such Compliance Report which such independent legal counsel, in
consultation with the Administrative Agent shall determine to be material.
Copies of the Compliance Reports will be maintained for review by any Lender at
the office of such independent counsel.
(e) promptly upon their becoming available to the Borrower, the
Borrower shall deliver to the Administrative Agent and each Lender a copy of
(i) all regular or special reports or effective registration statements which
the Borrower or any Subsidiary shall file with the Securities and Exchange
Commission (or any successor thereto) or any securities exchange, including
without limitation all reports on Form 10-K, 10-Q and 8-K, (ii) any proxy
statement distributed by the Borrower or any Subsidiary to its shareholders,
bondholders or the financial community in general, (iii) any management letter
submitted to the Borrower or any Subsidiary by independent accountants in
connection with any annual, interim or special audit of the Borrower or any
Subsidiary, and (iv) all material reports and other statements (other than
routine reports and other statements prepared in the ordinary course of
business that would not result in adverse action) that the Borrower or any
Subsidiary may render to or file with any Governmental Authority, including
without limitation such matters as pertain to compliance by any Person with
obligations or fulfillment or nonfulfillment of conditions under any of the
Existing Settlement Agreements;
(f) on a monthly basis not later than the fifth (5th) Business Day of
each month, the Borrower shall deliver to the Administrative Agent, the Lenders
and independent counsel for the Administrative Agent a report, in form and
substance and containing such detail as shall be acceptable to the
Administrative Agent, identifying all filings, all rulings and all depositions
which have occurred since the date of the last such monthly report in
connection with the Coram Litigation. At the request of the Administrative
Agent or any of the Lenders, the Borrower shall provide copies of any of such
publicly available pleadings filed or rulings issued. The Administrative Agent
may request from time to time that its independent counsel provide to it and
each of the Lenders such assessment of the status of the Coram Litigation as
may be derived by independent counsel from the information furnished to it
pertaining to the Coram Litigation.
(g) as soon as possible and in any event within 5 Business Days after
receipt by the Borrower or any Subsidiary, the Borrower shall deliver to the
Administrative Agent and each Lender a copy of any notice (issued by the OIG or
any other applicable Governmental Authority) of proposal or intent to exclude
the Borrower or any Subsidiary from participation in any Medicare or Medicaid
program or any comparable program administered by any Governmental Authority of
any State or the District of Columbia, or of any Exclusion Event;
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(h) as soon as possible and in any event within 5 Business Days after
the entry, filing or consummation of any award, judgment or settlement giving
rise to any Designated Caremark Litigation Costs, deliver to the
Administrative Agent (i) a copy of such award, judgment or settlement, and (ii)
a Compliance Certificate duly completed and executed by an Authorized
Representative and containing calculations with respect to financial covenant
compliance giving effect (in the manner specified in the definition of
"Consolidated Indebtedness" in Section 1.1) to such award, judgment or
settlement (together with all other awards, judgments and settlements then
affecting the computation of Consolidated Indebtedness) as of the most recent
fiscal quarter of the Borrower then ended; and
(i) promptly, from time to time, deliver or cause to be delivered to
the Administrative Agent and each Lender such other information regarding
Borrower's and any Subsidiary's operations, business affairs (including
litigation, subject to applicable privileges) and financial condition as the
Administrative Agent or such Lender may reasonably request;
The Administrative Agent and the Lenders are hereby authorized to
deliver a copy of any such financial or other information delivered hereunder
to the Lenders (or any affiliate of any Lender) or to the Administrative Agent,
to any Governmental Authority having jurisdiction over the Administrative Agent
or any of the Lenders pursuant to any written request therefor or in the
ordinary course of examination of loan files, or to any other Person who shall
acquire or consider the assignment of, or acquisition of any participation
interest in, any Obligation permitted by this Agreement;
7.2. Maintain Properties. Maintain all properties necessary to its
operations in good working order and condition, make all needed repairs,
replacements and renewals to such properties, and maintain free from Liens all
trademarks, trade names, patents, copyrights, trade secrets, know-how, and
other intellectual property and proprietary information (or adequate licenses
thereto), in each case to the extent reasonably necessary to conduct its
business as currently conducted or as contemplated hereby, all in accordance
with customary and prudent business practices;
7.3. Existence, Qualification, Etc. Except as otherwise expressly
permitted under Section 8.7, do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and all material
rights and franchises, and maintain its license or qualification to do business
as a foreign corporation and good standing in each jurisdiction in which its
ownership or lease of property or the nature of its business makes such license
or qualification necessary;
7.4. Regulations and Taxes. Comply in all material respects with or
contest in good faith all statutes and governmental regulations and pay all
taxes, assessments, governmental charges, claims for labor, supplies, rent and
any other obligation which, if unpaid, would become a Lien against any of its
properties except liabilities being contested in good faith by appropriate
proceedings diligently conducted and against which adequate reserves acceptable
to the Borrower's independent certified public accountants have been
established unless and until
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any Lien resulting therefrom attaches to any of its property and becomes
enforceable against its creditors;
7.5. Insurance. (a) Keep all of its insurable properties adequately
insured at all times with responsible insurance carriers against loss or damage
by fire and other hazards to the extent and in the manner as are customarily
insured against by similar businesses owning such properties similarly
situated, (b) maintain general public liability insurance and medical
malpractice insurance at all times with responsible insurance carriers against
liability on account of damage to persons and property and (c) maintain
insurance under all applicable workers' compensation laws (or in the
alternative, maintain required reserves if self-insured for workers'
compensation purposes), such policies of insurance to have such limits,
deductibles, exclusions, co-insurance and other provisions providing no less
coverages than that specified in Schedule 7.5, such insurance policies to be in
form reasonably satisfactory to the Administrative Agent. Each of the
policies of insurance described in this Section 7.5 shall provide that the
insurer shall give the Administrative Agent not less than thirty (30) days'
prior written notice before any such policy shall be terminated, lapse, or
altered in any manner so as to decrease coverage or increase deductible amounts
or copayment or similar obligations of any insured;
7.6. True Books. Keep true books of record and account in which
full, true and correct entries will be made of all of its dealings and
transactions, and set up on its books such reserves as may be required by GAAP
with respect to doubtful accounts and all taxes, assessments, charges, levies
and claims and with respect to its business in general, and include such
reserves in interim as well as year-end financial statements;
7.7. Right of Inspection. Permit any Person designated by any Lender
or the Administrative Agent to visit and inspect any of the properties,
corporate books and financial reports of the Borrower or any Subsidiary and to
discuss its affairs, finances and accounts with its principal officers and
independent certified public accountants, all at reasonable times, at
reasonable intervals and with reasonable prior notice;
7.8. Observe all Laws. Conform to and duly observe in all material
respects all laws, rules and regulations and all other valid requirements of
any Governmental Authority with respect to the conduct of its business,
including without limitation Titles XVIII and XIX of the Social Security Act,
regulations applicable to the Medicare and Medicaid programs and any comparable
programs of any State or the District of Columbia, and all laws, rules and
regulations of Governmental Authorities pertaining to the licensing of
professional and other health care providers;
7.9. Governmental Licenses. Obtain and maintain all licenses,
permits, certifications and approvals of all applicable Governmental
Authorities as are required for the conduct of its business as currently
conducted and as contemplated by the Loan Documents, in each case or
cumulatively where the failure to do so could reasonably be expected to have a
Material Adverse Effect;
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7.10. Covenants Extending to Other Persons. Cause each of its
Subsidiaries to do with respect to itself, its business and its assets, each of
the things required of the Borrower in Sections 7.2 through 7.9, and 7.18
inclusive;
7.11. Officer's Knowledge of Default. As promptly as practicable but
in any event within five (5) Business Days of any of the President, any Senior
or Executive Vice President, the Treasurer or any Assistant Treasurer, the
General Counsel, or any Vice President of Legal Services (or Person in any
successor position or title), or Authorized Representative of the Borrower
(each, a "Designated Officer") obtaining knowledge of (i) any Default or Event
of Default hereunder or under any other obligation of the Borrower or any
Subsidiary to any Lender, (ii) the failure of any Person party to or otherwise
bound by any of the Existing Settlement Agreements to observe, perform or
fulfill the obligations or conditions contained in any of the Existing
Settlement Agreements or the occurrence of any other default or event of
default thereunder, or (iii) any notice, claim or assertion by any Person party
to or otherwise bound by any of the Existing Settlement Agreements seeking the
revocation, termination or rescission of any of the Existing Settlement
Agreements, cause such officer or an Authorized Representative to promptly
notify the Administrative Agent of the nature thereof, the period of existence
thereof, and what action the Borrower or such Subsidiary proposes to take with
respect thereto;
7.12. Suits or Other Proceedings. Upon any Designated Officer
obtaining knowledge of any litigation or other proceedings being instituted
against the Borrower or any Subsidiary, or any attachment, levy, execution or
other process being instituted against any assets of the Borrower or any
Subsidiary, (i) which constitutes Designated Caremark Litigation within the
meaning of clause (iii) of the definition of such term in Section 1.1, (ii) an
adverse result in which could reasonably be expected to result in an Exclusion
Event, or (iii) making a claim or claims in any single litigation, proceeding
or other such process in an aggregate amount greater than $10,000,000 not
otherwise covered by insurance, promptly (or, in the case of any matter
described in clause (iii) of this Section 7.12, as promptly as practicable but
in any event within thirty (30) days) deliver to the Administrative Agent
written notice thereof stating the nature and status of such litigation,
dispute, proceeding, levy, execution or other process;
7.13. Notice of Discharge of Hazardous Material or Environmental
Complaint. Promptly provide to the Administrative Agent true, accurate and
complete copies of any and all notices, complaints, orders, directives, claims,
or citations received by the Borrower or any Subsidiary relating to any
material (a) violation or alleged violation by the Borrower or any Subsidiary
of any applicable Environmental Law; (b) release or threatened release by the
Borrower or any Subsidiary, or at any facility or property owned or leased or
operated by the Borrower or any Subsidiary, of any Hazardous Material, except
where occurring legally; or (c) liability or alleged liability of the Borrower
or any Subsidiary for the costs of cleaning up, removing, remediating or
responding to a release of Hazardous Materials;
7.14. Environmental Compliance. If the Borrower or any Subsidiary
shall receive any letter, notice, complaint, order, directive, claim or
citation alleging that the Borrower or any Subsidiary (i) has violated any
Environmental Law, (ii) has released or is about to release any
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Hazardous Material other than in compliance with all Environmental Laws (or
suffered or permitted such action by any other Person or in respect of property
owned or operated by the Borrower or any Subsidiary), or (iii) is liable for
the costs of cleaning up, removing, remediating or responding to a release of
Hazardous Materials, the Borrower shall within the time period permitted by the
applicable Environmental Law or the Governmental Authority responsible for
enforcing such Environmental Law, remove or remedy, or cause the applicable
Subsidiary to remove or remedy, such violation or release or satisfy such
liability, unless and only during the period that the applicability of the
Environmental Law, the fact of such violation or liability or what is required
to remove or remedy such violation is being contested by the Borrower or the
applicable Subsidiary by appropriate proceedings diligently conducted and all
reserves with respect thereto as may be required under Generally Accepted
Accounting Principles, if any, have been made, and no Lien in connection
therewith shall have attached to any property of the Borrower or the applicable
Subsidiary which shall have become enforceable against creditors of such
Person;
7.15. Indemnification. Without limiting the generality of Section
11.9, the Borrower hereby agrees to indemnify and hold the Administrative
Agent, the Lenders and NCMI, and their respective officers, directors,
employees and agents, harmless from and against any and all claims, losses,
penalties, liabilities, damages and expenses (including assessment and cleanup
costs and reasonable attorneys', consultants' and other experts' fees and
disbursements) arising directly or indirectly from, out of or by reason of (a)
the violation or alleged violation of any Environmental Law by the Borrower or
any Subsidiary or with respect to any property owned, operated or leased by the
Borrower or any Subsidiary or (b) the use, generation, handling, storage,
transportation, treatment, emission, release, discharge or disposal of any
Hazardous Materials by or on behalf of the Borrower or any Subsidiary or on or
with respect to property owned or leased or operated by the Borrower or any
Subsidiary. The provisions of this Section 7.15 shall survive the Facility
Termination Date and expiration or termination of this Agreement;
7.16. Further Assurances. At the Borrower's cost and expense, upon
request of the Administrative Agent, duly execute and deliver or cause to be
duly executed and delivered, to the Administrative Agent such further
instruments, documents and certificates, and do and cause to be done such
further acts that may be reasonably necessary or advisable in the reasonable
opinion of the Administrative Agent to carry out more effectively the
provisions and purposes of this Agreement and the other Loan Documents;
7.17. Employee Benefit Plans.
(a) Together with the financial statements required to be delivered
pursuant to Section 7.1(a) and 7.1(b), give notice to the Administrative Agent
of (a) the establishment of any new Pension Plan (which notice shall include a
copy of such plan), (b) the commencement of contributions to any Employee
Benefit Plan to which the Borrower or any of its ERISA Affiliates was not
previously contributing, (c) any material increase in the benefits of any
existing Employee Benefit Plan, (d) each funding waiver request filed with
respect to any Employee Benefit Plan and all communications received or sent by
the Borrower or any ERISA Affiliate with respect to such request and (e) the
failure of the Borrower or any ERISA Affiliate to make
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a required installment or payment under Section 302 of ERISA or Section 412 of
the Code by the due date;
(b) Promptly and in any event within fifteen (15) days of becoming
aware of the occurrence or forthcoming occurrence of any (a) Termination Event
or (b) nonexempt "prohibited transaction," as such term is defined in Section
406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan
or any trust created thereunder, deliver to the Administrative Agent a notice
specifying the nature thereof, what action the Borrower or any ERISA Affiliate
has taken, is taking or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service, the Department
of Labor or the PBGC with respect thereto; and
(c) With reasonable promptness but in any event within fifteen (15)
days for purposes of clauses (i) and (ii), deliver to the Administrative Agent
copies of (i) any unfavorable determination letter from the Internal Revenue
Service regarding the qualification of an Employee Benefit Plan under Section
401(a) of the Code, (ii) all notices received by the Borrower or any ERISA
Affiliate of the PBGC's intent to terminate any Pension Plan or to have a
trustee appointed to administer any Pension Plan, and (iii) all notices
received by the Borrower or any ERISA Affiliate from a Multiemployer Plan
sponsor concerning the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA. The Borrower will notify the Administrative Agent in
writing within five (5) Business Days of the Borrower or any ERISA Affiliate
obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate
has filed or intends to file a notice of intent to terminate any Pension Plan
under a distress termination within the meaning of Section 4041(c) of ERISA;
7.18. Continued Operations. Continue at all times to conduct its
business and engage principally in the same line or lines of business
substantially as heretofore conducted;
7.19. New Subsidiaries. As soon as practicable and in any event
within thirty (30) days after the acquisition or creation of any Material
Subsidiary, or upon an existing Subsidiary becoming a Material Subsidiary,
cause to be delivered to the Administrative Agent for the benefit of the
Lenders each of the following:
(i) a Guaranty executed by such Subsidiary substantially in
the form of Exhibit J;
(ii) an opinion of counsel to the Subsidiary dated as of the
date of delivery of the Guaranty provided for in this Section 7.19 and
addressed to the Administrative Agent and the Lenders, in form and
substance reasonably acceptable to the Administrative Agent (which
opinion may include assumptions and qualifications of similar effect
to those contained in the opinions of counsel delivered pursuant to
Section 5.1(a)(ii)), to the effect that:
(A) such Subsidiary is duly organized, validly
existing and in good standing in the jurisdiction of its
formation, has the requisite power and authority
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to own its properties and conduct its business as then
owned and then conducted and proposed to be conducted, and is
duly qualified to transact business and is in good standing as
a foreign corporation or partnership in each other
jurisdiction in which the character of the properties owned or
leased, or the business carried on by it, requires such
qualification and the failure to be so qualified would
reasonably be likely to result in a Material Adverse Effect;
(B) the execution, delivery and performance of
the Guaranty described in this Section 7.19 to which such
Subsidiary is a signatory have been duly authorized by all
requisite corporate or partnership action (including any
required shareholder or partner approval), such agreement has
been duly executed and delivered and constitutes the valid and
binding agreement of such Subsidiary, enforceable against such
Subsidiary in accordance with its terms, subject to the effect
of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the
enforceability of creditors' rights generally and to the
effect of general principles of equity (whether considered in
a proceeding at law or in equity); and
(C) neither the execution or delivery of, nor
performance by such Subsidiary of its obligations under, the
Guaranty described in this Section 7.19 (a) does or will
conflict with, violate or constitute a breach of (i) the
charter, partnership agreement (if any) or bylaws of such
Subsidiary, (ii) any laws, rules or regulations applicable to
such Subsidiary, or (iii) to the knowledge of such counsel,
any contract, agreement, indenture, lease, instrument, other
document, judgment, writ, determination, order, decree or
arbitral award to which such Subsidiary is a party or by which
such Subsidiary or any of its properties is bound, (b)
requires the prior consent of, notice to, license from or
filing with any Governmental Authority which has not been duly
obtained or made on or prior to the date hereof, or (c) does
or will result in the creation or imposition of any lien,
pledge, charge or encumbrance of any nature upon or with
respect to any of the properties of such Subsidiary, except
for the Liens expressly created pursuant to the Loan
Documents;
(iii) current copies of the charter documents, including
partnership agreements and certificate of limited partnership, if
applicable, and bylaws of such Subsidiary, minutes of duly called and
conducted meetings (or duly effected consent actions) of the Board of
Directors, partners, or appropriate committees thereof (and, if
required by such charter documents, bylaws or by applicable law, of
the shareholders) of such Subsidiary authorizing the actions and the
execution and delivery of documents described in this Section 7.19.
7.20. Caremark Excess Cash Flow. Until the Guaranty Limitation
Release Date, cause Caremark to distribute to the Borrower in respect of each
fiscal quarter of each Fiscal Year, the Caremark Excess Cash Flow for such
fiscal quarter, the distribution with respect to each such fiscal quarter to be
made no later than the first date on which financial statements of the Borrower
and its Subsidiaries that include such fiscal quarter are required to be
delivered pursuant to Section 7.1(a) or (b).
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ARTICLE VIII
Negative Covenants
Until the Facility Termination Date, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not, nor will it permit any
Subsidiary to:
8.1. Financial Covenants.
(a) Consolidated Net Worth. Permit Consolidated Net Worth to be less
than (i) $560,000,000 at the Closing Date and through September 29, 1996, and
(ii) as at the last day of each fiscal quarter of the Borrower ending on or
after September 30, 1996 and until (but excluding) the last day of the next
following fiscal quarter of the Borrower, the sum of (A) the amount of
Consolidated Net Worth required to be maintained pursuant to this Section
8.1(a) as at the end of the immediately preceding fiscal quarter, plus (B) 50%
of Consolidated Net Income (with no reduction for net losses during any period)
for the fiscal quarter of the Borrower ending on such day (including in
Consolidated Net Income for purposes of this Section 8.1(a) only any net gain
or credit of an extraordinary nature), plus (C) 100% of the aggregate amount of
all increases in the stated capital and additional paid-in capital accounts of
the Borrower resulting from the issuance of equity securities or other capital
investments.
(b) Consolidated Leverage Ratio. Permit at any time during the
respective periods set forth below the Consolidated Leverage Ratio to be
greater than that set forth opposite each such period:
<TABLE>
<CAPTION>
Consolidated
Period Leverage Ratio
------ --------------
<S> <C>
Closing Date through 3.50 to 1.00
December 31, 1997
January 1, 1998 through 3.25 to 1.00
December 31, 1998
January 1, 1999 and thereafter 3.00 to 1.00
</TABLE>
(c) Consolidated Fixed Charge Ratio. Permit at any time during the
respective periods set forth below the Consolidated Fixed Charge Ratio to be
less than that set forth opposite each such period:
<TABLE>
<CAPTION>
Consolidated
Period Fixed Charge Ratio
------ ------------------
<S> <C>
Closing Date through 2.00 to 1.00
December 31, 1997
</TABLE>
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<TABLE>
<S> <C>
January 1, 1998 through 2.25 to 1.00
December 31, 1998
January 1, 1999 and thereafter 2.50 to 1.00
</TABLE>
8.2. Acquisitions. Permit or effect any Acquisition, unless:
(i) the Person to be (or whose assets are to be) acquired does not
oppose such Acquisition and the line or lines of business of the
Person to be acquired are substantially the same as one or more line
or lines of business conducted by the Borrower and its Subsidiaries,
(ii) no Default or Event of Default shall have occurred and be
continuing either immediately prior to or immediately after giving
effect to such Acquisition,
(iii) if the Cost of Acquisition is in excess of $75,000,000, the
Borrower shall have furnished to the Administrative Agent and the
Lenders (A) pro forma historical financial statements as of the end of
the most recently completed fiscal quarter giving effect to such
Acquisition and (B) a Compliance Certificate prepared on a historical
pro forma basis giving effect to such Acquisition, which certificate
shall demonstrate that no Default or Event of Default would exist
immediately after giving effect thereto,
(iv) the Person acquired shall be a Subsidiary and not less than 80%
of every class of equity interest (on a fully diluted basis) of such
Subsidiary is owned beneficially or of record by the Borrower or a
Subsidiary, or be merged into the Borrower or a wholly-owned
Subsidiary not less than 80% of every class of equity interest (on a
fully diluted basis) of such Subsidiary is owned beneficially or of
record by the Borrower or a Subsidiary, immediately upon consummation
of the Acquisition (or if assets are being acquired, the acquiror
shall be the Borrower or a wholly-owned Subsidiary); provided,
however, that (A) in the event the Person acquired shall be, or shall
be merged into, a Subsidiary other than a wholly-owned Subsidiary of
the Borrower, no Person having minority interests in the resulting
entity shall have rights to control the policies, affairs or business
operations, or rights to representation on any Board of Directors or
similar entity, or any committee thereof, which are disproportionately
greater than its equity interest in the resulting entity, and (B)
until the Coram Litigation shall be fully and finally adjudicated or
settled subject to no further right of appeal, no member of the
Caremark Group shall acquire the equity interests or assets of any
Person pursuant to an Acquisition, except that members of the Caremark
Group can effect Acquisitions (1) of physician practices provided that
the aggregate Costs of Acquisition therefor from the Closing Date do
not exceed $50,000,000, and (2) of other Persons or assets only if the
Person or assets to be so acquired are in the same line of business as
one or more lines of business that is conducted by a member of the
Caremark Group and is not conducted by any other Subsidiary of the
Borrower, and
(v) if (A) the Cost of Acquisition shall exceed $150,000,000 or (B)
the Cost of Acquisition shall exceed $75,000,000 and more than 50% of
such Cost of Acquisition
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consists of property other than Stock Consideration, the Required
Lenders shall consent to such Acquisition in their discretion;
8.3. Liens. Incur, create or permit to exist any Lien, charge or
other encumbrance of any nature whatsoever with respect to any property or
assets now owned or hereafter acquired by the Borrower or any Subsidiary, other
than
(a) Liens existing as of the date hereof and as set forth in
either Schedule 1.1--Assumed Debt or Schedule 6.7;
(b) Liens imposed by law for taxes, assessments or charges of
any Governmental Authority for claims not yet delinquent or which are
being contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP
and which Liens are not yet enforceable against other creditors;
(c) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law or
created in the ordinary course of business and in existence less than
90 days from the date of creation thereof for amounts not yet due or
which are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with
GAAP and which Liens are not yet enforceable against other creditors;
(d) Liens incurred or deposits made in the ordinary course of
business (including, without limitation, surety bonds and appeal
bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, leases, contracts (other than for the
repayment of Indebtedness), statutory obligations and other similar
obligations or arising as a result of progress payments under
government contracts;
(e) easements (including reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges
or encumbrances (whether or not recorded), which do not interfere
materially with the ordinary conduct of the business of the Borrower
or any Subsidiary and which do not materially detract from the value
of the property to which they attach or materially impair the use
thereof to the Borrower or any Subsidiary;
(f) Liens in favor of the Administrative Agent or the Lenders
expressly created under the Loan Documents;
(g) purchase money Liens to secure Indebtedness permitted
under Section 8.4(d) and incurred to purchase fixed assets, provided
such Indebtedness represents not less than 75% of the purchase price
of such assets as of the date of purchase thereof and no property
other than the assets so purchased secures such Indebtedness;
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(h) Liens arising in connection with Capital Leases
permitted under Section 8.4(d); provided that no such Lien shall
extend to any property other than the assets subject to such Capital
Leases;
(i) Liens securing Indebtedness permitted under Section
8.4(g); and
(j) Permitted Receivables Securitization;
8.4. Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, howsoever evidenced, except:
(a) Indebtedness evidenced by the Existing Settlement
Agreements, the Assumed Debt, and other Indebtedness existing as of
the Closing Date as set forth in Schedule 8.4;
(b) Indebtedness owing to the Administrative Agent or any
Lender in connection with this Agreement, any Note or other Loan
Document;
(c) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(d) purchase money Indebtedness and Capital Leases described
in Sections 8.3(g) and 8.3(h) not to exceed an aggregate outstanding
principal amount at any time of $25,000,000;
(e) unsecured intercompany Indebtedness for loans and
advances made by the Borrower or any Subsidiary to the Borrower or any
Subsidiary; provided, however, until the Guaranty Limitation Release
Date, (1) the aggregate amount of advances outstanding from the
Borrower or any other Subsidiary to Caremark Inc., together with the
aggregate amount of any equity investments after the Closing Date by
the Borrower or any Subsidiary in Caremark Inc., shall not at any time
exceed $100,000,000 in the aggregate and (2) all advances to Caremark
Inc. by the Borrower or any Subsidiary shall be evidenced by duly
authorized, executed and delivered promissory notes evidencing such
advances;
(f) Permitted Receivables Securitizations;
(g) Off Balance Sheet Liabilities (other than Permitted
Receivables Securitizations) and other secured Indebtedness not to
exceed an aggregate outstanding principal amount of $25,000,000;
(h) additional unsecured Indebtedness having terms no more
restrictive on the Borrower or any Subsidiary, and no less favorable
to the Administrative Agent and the Lenders, than those contained in
this Agreement:
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(1) of Subsidiaries, provided that the aggregate
principal amount of such Indebtedness, together with
Indebtedness of Subsidiaries (other than Off Balance Sheet
Liabilities and the Indenture Notes) described in clause (a)
and refinancings thereof under clause (j) of this Section 8.4,
shall not exceed at any time 15% of Consolidated Net Worth;
and
(2) of the Borrower, provided that after giving
effect thereto and to any other Indebtedness incurred, assumed
or permitted to exist hereunder, no Default or Event of
Default shall exist, occur or be continuing;
(i) Indebtedness arising from Rate Hedging Obligations
permitted under Section 8.14; and
(j) Indebtedness extending the maturity of, or renewing,
refunding or refinancing, in whole or in part, Indebtedness incurred
under clauses (a) (other than Indebtedness under the Existing
Settlement Agreements), (d), (g) and (h) of this Section 8.4, provided
that the terms of any such extension, renewal, refunding or
refinancing Indebtedness (and of any agreement or instrument entered
into in connection therewith) are no less favorable to the
Administrative Agent and the Lenders than the terms of the
Indebtedness as in effect prior to such action, and provided further
that (1) the aggregate principal amount of or interest rate or rates
and fees payable on such extended, renewed, refunded or refinanced
Indebtedness shall not be increased by such action, (2) the group of
direct or contingent obligors on such Indebtedness or Liens securing
such Indebtedness shall not be expanded as a result of any such
action, and (3) immediately prior to and immediately after giving
effect to any such extension, renewal, refunding or refinancing, no
Default or Event of Default shall have occurred and be continuing;
8.5. Transfer of Assets. Sell, lease, transfer or otherwise dispose
of any assets of the Borrower or any Subsidiary other than (a) dispositions of
inventory in the ordinary course of business, (b) dispositions of property that
is substantially worn, damaged, obsolete or, in the judgment of the Borrower,
no longer best used or useful in its business or that of any Subsidiary, (c)
sale of assets of the Borrower and its Subsidiaries so long as such assets have
an aggregate book value not exceeding (X) two percent (2%) of Consolidated Net
Worth in any single instance or (Y) ten percent (10%) of Consolidated Net Worth
in the aggregate from the Closing Date through the Revolving Credit Termination
Date; provided, however, that Borrower or a Subsidiary may sell all of its
interest in Atlanta Medical Associates and such sale shall be disregarded for
purposes of this clause (c), (d) transfers of assets necessary to give effect
to merger or consolidation transactions permitted by Section 8.7, (e) the
disposition of Eligible Securities in the ordinary course of management of the
investment portfolio of the Borrower and its Subsidiaries, and (f) transfers of
accounts receivable in connection with Permitted Receivables Securitizations;
8.6. Investments. Purchase, own, invest in or otherwise acquire,
directly or indirectly, any stock or other securities, or make or permit to
exist any interest whatsoever in any other
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Person or permit to exist any loans or advances to any Person, except that the
Borrower may maintain investments or invest in:
(a) securities of any Person acquired in an Acquisition
permitted hereunder;
(b) Eligible Securities;
(c) investments existing as of the date hereof and as set
forth in Schedule 6.4;
(d) accounts receivable arising and trade credit granted in
the ordinary course of business and any securities received in
satisfaction or partial satisfaction thereof in connection with
accounts of financially troubled Persons to the extent reasonably
necessary in order to prevent or limit loss;
(e) investments in Subsidiaries, subject to compliance with
the provisions of Section 7.19 and 8.2 with respect thereto; provided,
however, until the Guaranty Limitation Release Date, the aggregate
amount of any equity investments after the Closing Date by the
Borrower or any Subsidiary in Caremark Inc., together with the
aggregate amount of advances outstanding from the Borrower or any
other Subsidiary to Caremark Inc., shall not at any time exceed
$100,000,000 in the aggregate;
(f) loans between the Borrower and the Subsidiaries described
in Section 8.4(e);
(g) additional investments in Persons not constituting
Subsidiaries engaged in the delivery of health care services, which
investments shall at no time exceed $25,000,000 in the aggregate; and
(h) the Borrower or any Guarantor other than Caremark, Inc.
may effect Indenture Note Purchases;
8.7. Merger or Consolidation. (a) Consolidate with or merge into any
other Person, or (b) permit any other Person to merge into it, or (c)
liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose
of all or a substantial part of its assets; provided, however, (i) any
Subsidiary of the Borrower may merge or transfer all or substantially all of
its assets into or consolidate with the Borrower or any wholly-owned Subsidiary
of the Borrower (except that, other than the Related Acquisition, until the
Coram Litigation shall be fully and finally adjudicated or settled subject to
no further right of appeal, no member of the Caremark Group shall merge or
consolidate with, or acquire all or any substantial part of the assets of, the
Borrower or any Subsidiary not a member of the Caremark Group), and (ii) any
other Person may merge into or consolidate with the Borrower or any
wholly-owned Subsidiary and any Subsidiary may merge into or consolidate with
any other Person in order to consummate an Acquisition permitted by Section
8.2, provided further, that (x) any resulting or surviving entity shall execute
and deliver such agreements and other documents, including a Guaranty, and take
such other action as the Administrative Agent may require to evidence or
confirm its express assumption of the obligations and liabilities of its
predecessor entities under the Loan Documents
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and (y) immediately prior to and immediately after giving effect to any
transaction otherwise permitted hereunder, no Default or Event of Default shall
exist or occur;
8.8. Restricted Payments. Declare or pay any dividends (other than
those payable solely in capital stock) or distribute in reduction of capital or
otherwise in respect of any equity interest, or purchase, redeem or otherwise
retire any such equity interest, other than any such payments made by any
Subsidiary solely to the Borrower or another wholly-owned Subsidiary;
8.9. Transactions with Affiliates. Other than transactions permitted
under Sections 8.6 and 8.7, enter into any transaction after the Closing Date,
including, without limitation, the purchase, sale, lease or exchange of
property, real or personal, or the rendering of any service, with any Affiliate
of the Borrower, except (a) that such Persons may render services to the
Borrower or its Subsidiaries for compensation at the same rates generally paid
by Persons engaged in the same or similar businesses for the same or similar
services, and (b) that the Borrower or any Subsidiary may render services to
such Persons for compensation at the same rates generally charged by the
Borrower or such Subsidiary; provided, in either case, in the ordinary course
of business and pursuant to the reasonable requirements of the Borrower's (or
any Subsidiary's) business consistent with past practice of the Borrower and
its Subsidiaries and upon fair and reasonable terms no less favorable to the
Borrower (or any Subsidiary) than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate;
8.10. Compliance with ERISA. With respect to any Pension Plan,
Employee Benefit Plan or Multiemployer Plan:
(a) permit the occurrence of any Termination Event which
would result in a liability on the part of the Borrower or any ERISA
Affiliate to the PBGC; or
(b) permit the present value of all benefit liabilities under
all Pension Plans to exceed by more than $5,000,000 the current value
of the assets of such Pension Plans allocable to such benefit
liabilities; or
(c) permit any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code) with respect to any
Pension Plan, whether or not waived; or
(d) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer
Plan, or any law pertaining thereto; or
(e) engage, or permit the Borrower or any ERISA Affiliate to
engage, in any prohibited transaction under Section 406 of ERISA or
Sections 4975 of the Code for which a civil penalty pursuant to
Section 502(I) of ERISA or a tax pursuant to Section 4975 of the Code
may be imposed; or
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(f) fail, or permit the Borrower or any ERISA Affiliate to
fail, to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with the provisions of ERISA, the
Code, all applicable Foreign Benefit Laws and all other applicable
laws and the regulations and interpretations thereof;
8.11. Fiscal Year. Change its Fiscal Year;
8.12. Dissolution, etc. Wind up, liquidate or dissolve (voluntarily
or involuntarily) or commence or suffer any proceedings seeking any such
winding up, liquidation or dissolution, except in connection with a merger or
consolidation permitted pursuant to Section 8.7;
8.13. Change of Control. Cause, suffer or permit to exist or occur
any Change of Control;
8.14. Rate Hedging Obligations. Incur any Rate Hedging Obligations
or enter into any agreements, arrangements, devices or instruments relating to
Rate Hedging Obligations, except for Rate Hedging Obligations incurred to limit
risks of currency or interest rate fluctuations to which the Borrower and its
Subsidiaries are otherwise subject by virtue of the operations of their
businesses, and not for speculative purposes; provided that the aggregate
notional amount of all such Rate Hedging Obligations shall at no time exceed
$500,000,000;
8.15. Negative Pledge Clauses. Enter into or cause, suffer or permit
to exist any agreement with any Person other than the Administrative Agent and
the Lenders pursuant to this Agreement or any other Loan Documents which
prohibits or limits the ability of the Borrower or any Subsidiary to create,
incur, assume or suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, except (i) the Indenture and
the other Assumed Debt, and (ii) that the Borrower and any Subsidiary may enter
into such an agreement in connection with property acquired with the proceeds
of purchase money Indebtedness or any Capital Lease permitted hereunder, when
such prohibition or limitation is by its terms effective only against the
assets subject to such Lien;
8.16. Prepayments or Amendments of Settlement Agreements. (a)
Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled
maturity thereof in any manner any Indebtedness arising under the Existing
Settlement Agreements; or
(b) amend, modify or change in any manner any term or condition of any
of the Existing Settlement Agreements;
8.17. Dividend Restrictions. Cause, suffer or permit any Subsidiary
to enter into, or be a party to or otherwise become bound by, any agreement
(other than the Loan Documents) which limits or restricts the amounts of
dividends, loans, advances, capital contributions, or other investments which a
Subsidiary can make in or pay to the Borrower or another Subsidiary.
8.18. Indenture Limitations. Cause, suffer or permit (i) any
amendment to the Indenture or the Indenture Notes except in connection with
simultaneous amendments that eliminate the
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Caremark, Inc. Guaranty Limitation or (ii) any event or occurrence that causes
any Material Subsidiary other than Caremark Inc. to become subject to the
restriction contained in Section 4.07 of the Indenture giving rise to the
Caremark Inc. Guaranty Limitation.
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ARTICLE IX
Events of Default and Acceleration
9.1. Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
Governmental Authority), that is to say:
(a) if default shall be made in the due and punctual
payment of the principal of any Loan, Reimbursement Obligation or
other Obligation, when and as the same shall be due and payable
whether pursuant to any provision of Article II or Article III, at
maturity, by acceleration or otherwise; or
(b) if default shall be made in the due and punctual
payment of any amount of interest on any Loan, Reimbursement
Obligation or other Obligation or of any fees or other amounts payable
to any of the Lenders or the Administrative Agent on the date on which
the same shall be due and payable; or
(c) if default shall be made in the performance or
observance of any covenant set forth in Section 7.7, 7.11, 7.12, 7.19
or Article VIII; or
(d) if a default shall be made in the performance or
observance of, or shall occur under, any covenant, agreement or
provision contained in this Agreement or the Notes (other than as
described in clauses (a), (b) or (c) above) and such default shall
continue for 30 or more days after the earlier of receipt of notice of
such default by the Authorized Representative from the Administrative
Agent or any Designated Officer becomes aware of such default, or if a
default shall be made in the performance or observance of, or shall
occur under, any covenant, agreement or provision contained in any of
the other Loan Documents (beyond any applicable grace period, if any,
contained therein) or in any instrument or document evidencing or
creating any obligation, guaranty, or Lien in favor of the
Administrative Agent or any of the Lenders or delivered to the
Administrative Agent or any of the Lenders in connection with or
pursuant to this Agreement or any of the Obligations, or if any Loan
Document ceases to be in full force and effect (other than in
accordance with its terms in the absence of default or with the
consent of the Administrative Agent and the Lenders), or if without
the written consent of the Lenders, this Agreement or any other Loan
Document or the Related Acquisition Transaction Documents shall be
disaffirmed or shall terminate, be terminable or be terminated or
become void or unenforceable for any reason whatsoever (other than in
accordance with its terms in the absence of default or with the
consent of the Administrative Agent and the Lenders); or
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(e) if there shall occur (i) a default in the payment of
any principal, interest, premium or other amount with respect to any
Indebtedness (other than the Loans and other Obligations) of the
Borrower or any Subsidiary in an amount not less than $20,000,000 in
the aggregate outstanding, or (ii) a default in the performance,
observance or fulfillment of any term or covenant contained in any
agreement or instrument under or pursuant to which any such
Indebtedness may have been issued, created, assumed, guaranteed or
secured by the Borrower or any Subsidiary, or (iii) any other event of
default as specified in any agreement or instrument under or pursuant
to which any such Indebtedness may have been issued, created, assumed,
guaranteed or secured by the Borrower or any Subsidiary, and such
default or event of default shall continue for more than the period of
grace, if any, therein specified, or such default or event of default
shall permit the holder of any such Indebtedness (or any agent or
trustee acting on behalf of one or more holders) to accelerate the
maturity thereof or the maturity thereof shall be accelerated; or
(f) if any representation, warranty or other statement of
fact contained in any Loan Document or in any writing, certificate,
report or statement at any time furnished or deemed furnished to the
Administrative Agent or any Lender by or on behalf of the Borrower or
any other Credit Party pursuant to or in connection with any Loan
Document, or otherwise, shall be false or misleading in any material
respect when given or deemed given; or
(g) if the Borrower or any Subsidiary shall be unable to
pay its debts generally as they become due; file a petition to take
advantage of any insolvency statute; make an assignment for the
benefit of its creditors; commence a proceeding for the appointment of
a receiver, trustee, liquidator or conservator of itself or of the
whole or any substantial part of its property; file a petition or
answer seeking liquidation, reorganization or arrangement or similar
relief under the federal bankruptcy laws or any other applicable law
or statute; or
(h) if a court of competent jurisdiction shall enter an
order, judgment or decree appointing a custodian, receiver, trustee,
liquidator or conservator of the Borrower or any Subsidiary or of the
whole or any substantial part of its properties and such order,
judgment or decree continues unstayed and in effect for a period of
sixty (60) days, or approve a petition filed against the Borrower or
any Subsidiary seeking liquidation, reorganization or arrangement or
similar relief under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state, which petition is not dismissed within sixty (60) days; or if,
under the provisions of any other law for the relief or aid of
debtors, a court of competent jurisdiction shall assume custody or
control of the Borrower or any Subsidiary or of the whole or any
substantial part of its properties, which control is not relinquished
within sixty (60) days; or if there is commenced against the Borrower
or any Subsidiary any proceeding or petition seeking reorganization,
arrangement or similar relief under the federal bankruptcy laws or any
other applicable law or statute of the United States of America or any
state which proceeding or petition remains undismissed for a period of
sixty (60) days; or if the
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Borrower or any Subsidiary takes any action to indicate its consent to
or approval of any such proceeding or petition; or
(i) if (i) one or more judgments or orders where the
amount not covered by insurance (or the amount as to which the insurer
denies liability) is in excess of $1,000,000 is rendered against the
Borrower or any Subsidiary, or (ii) there is any attachment,
injunction or execution against any of the Borrower's or Subsidiaries'
properties for any amount in excess of $1,000,000 in the aggregate;
and such judgment, attachment, injunction or execution remains unpaid,
unstayed, undischarged, unbonded or undismissed for a period of thirty
(30) days; or
(j) if the Borrower or any Subsidiary shall, other than
in the ordinary course of business (as determined by past practices),
suspend all or any part of its operations material to the conduct of
the business of the Borrower or such Subsidiary for a period of more
than 60 days, which suspension in the good faith judgment of the
Administrative Agent could reasonably be expected to have a Material
Adverse Effect; or
(k) if the Borrower or any Subsidiary shall breach any of
the material terms or conditions of any agreement under which any Rate
Hedging Obligations permitted hereby is created and such breach shall
continue beyond any grace period, if any, relating thereto pursuant to
the terms of such agreement, or if the Borrower or any Subsidiary
shall disaffirm or seek to disaffirm any such agreement or any of its
obligations thereunder; or
(l) if there shall occur any Exclusion Event; or
(m) if (i) there shall occur a default by any member of the
Caremark Group, which is not waived, in the performance, observance or
fulfillment of any term or covenant contained in any of the Existing
Settlement Agreements, which default shall continue beyond any grace
period, if any, relating thereto, or (ii) any of the Existing
Settlement Agreements shall be revoked, rescinded or disaffirmed, or
shall terminate, be terminable or be terminated or become void or
unenforceable for any reason whatsoever (other than expiration in
accordance with its terms in the absence of default or with the
consent of the Administrative Agent and the Lenders), or (iii) the OIG
or any other Governmental Authority, or any other Person bound by or
otherwise subject to the terms of any of the Existing Settlement
Agreements, shall obtain an indictment or otherwise initiate or
reinstitute any criminal or civil proceeding on the basis (in whole or
in part) of facts, allegations, claims or potential claims which are
the subject of the Existing Settlement Agreements; or
(n) if there shall occur and not be waived an Event of
Default as defined in any of the other Loan Documents;
then, and in any such event and at any time thereafter, if such Event of
Default or any other Event of Default shall have not been waived,
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(A) either or both of the following actions may
be taken: (i) the Administrative Agent, with the consent of
the Required Lenders, may, and at the direction of the
Required Lenders shall, declare any obligation of the Lenders
and the Issuing Bank to make further Revolving Loans and Swing
Line Loans or to issue additional Letters of Credit
terminated, whereupon the obligation of each Lender to make or
participate in further Revolving Loans, Swing Line Loans or
Letters of Credit, of NationsBank to make further Swing Line
Loans, and of the Issuing Bank to issue additional Letters of
Credit, hereunder shall terminate immediately, and (ii) the
Administrative Agent shall at the direction of the Required
Lenders, at their option, declare by notice to the Borrower
any or all of the Notes and other Obligations to be
immediately due and payable, and the same, including all
interest accrued thereon and all other obligations of the
Borrower to the Administrative Agent and the Lenders, shall
forthwith become immediately due and payable without
presentment, demand, protest, notice or other formality of any
kind, all of which are hereby expressly waived, anything
contained herein or in any instrument evidencing the
Obligations to the contrary notwithstanding; provided,
however, that notwithstanding the above, if there shall occur
an Event of Default under clause (g) or (h) above, then the
obligation of the Lenders to make or participate in Revolving
Loans, Swing Line Loans or Letters of Credit, of NationsBank
to make Swing Line Loans, and of the Issuing Bank to issue
Letters of Credit hereunder shall automatically terminate and
any and all of the Obligations shall be immediately due and
payable without the necessity of any action by the
Administrative Agent or the Required Lenders or notice to the
Administrative Agent or the Lenders;
(B) the Borrower shall, upon demand of the
Administrative Agent or the Required Lenders, deposit cash
with the Administrative Agent in an amount equal to the amount
of any Letter of Credit Outstandings, as collateral security
for the repayment of any future drawings or payments under
such Letters of Credit, and such amounts shall be held by the
Administrative Agent pursuant to the terms of the LC Account
Agreement; and
(C) the Administrative Agent and each of the
Lenders shall have all of the rights and remedies available
under the Loan Documents or under any applicable law.
9.2. Administrative Agent to Act. In case any one or more Events of
Default shall occur and not have been waived, the Administrative Agent may, and
at the direction of the Required Lenders shall, proceed to protect and enforce
their rights or remedies either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, agreement or other
provision contained herein or in any other Loan Document, or to enforce the
payment of the Obligations or any other legal or equitable right or remedy.
9.3. Cumulative Rights. No right or remedy conferred upon the
Lenders or the Administrative Agent herein or in any other Loan Document is
intended to be exclusive of any
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other rights or remedies contained herein or in any other Loan Document, and
every such right or remedy shall be cumulative and shall be in addition to
every other such right or remedy contained herein and therein or now or
hereafter existing at law or in equity or by statute, or otherwise.
9.4. No Waiver. No course of dealing between the Borrower and any
Lender or the Administrative Agent or any failure or delay on the part of any
Lender or either Agent in exercising any rights or remedies under any Loan
Document or otherwise available to it shall operate as a waiver of any rights
or remedies and no single or partial exercise of any rights or remedies shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder or of the same right or remedy on a future occasion.
9.5. Allocation of Proceeds. If an Event of Default has occurred and
not been waived, and the maturity of the Notes has been accelerated pursuant to
Article IX, all payments received by the Administrative Agent hereunder, in
respect of any principal of or interest on the Obligations or any other amounts
payable by the Borrower hereunder, shall be applied by the Administrative Agent
in the following order:
(a) amounts due to the Lenders pursuant to Sections 2.11,
3.3, 3.4 and 11.5;
(b) amounts due to the Administrative Agent pursuant to
Section 10.11;
(c) payments of interest on Loans and Reimbursement
Obligations, to be applied for the ratable benefit of the Lenders
(with amounts payable in respect of Swing Line Outstandings being
included in such calculation and paid to NationsBank);
(d) payments of principal of Loans and Reimbursement
Obligations, to be applied for the ratable benefit of the Lenders
(with amounts payable in respect of Swing Line Outstandings being
included in such calculation and paid to NationsBank);
(e) payments of cash amounts to the Administrative Agent
in respect of outstanding Letters of Credit pursuant to Section
9.1(B);
(f) amounts due to the Lenders pursuant to Sections
3.2(g), 7.15 and 11.9;
(g) payments of all other amounts due under any of the
Loan Documents, if any, to be applied for the ratable benefit of the
Lenders;
(h) amounts due to any of the Lenders in respect of
Obligations consisting of liabilities under any Swap Agreement with
any of the Lenders on a pro rata basis according to the amounts owed;
and
(i) any surplus remaining after application as provided
for herein, to the Borrower or otherwise as may be required by
applicable law.
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ARTICLE X
The Administrative Agent
10.1. Appointment. Each Lender hereby irrevocably designates and
appoints NationsBank as the Administrative Agent for the Lenders under this
Agreement, and each of the Lenders hereby irrevocably authorizes NationsBank as
the 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 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. The Administrative Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any of the Lenders, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or otherwise exist
against the Administrative Agent.
10.2. Attorneys-in-fact. The Administrative Agent may execute any of
its duties under the 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, gross negligence or willful misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3. Limitation on Liability. Neither the Administrative Agent nor
any of its officers, directors, employees, agents or attorneys-in-fact shall be
liable to the Lenders for any action lawfully taken or omitted to be taken by
it or them under or in connection with the Loan Documents except for its or
their own gross negligence or willful misconduct. Neither the Administrative
Agent nor any of its affiliates shall be responsible in any manner to any of
the Lenders for any recitals, statements, representations or warranties made by
the Borrower, any other Credit Party or any officer or representative thereof
contained in any Loan Document, 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 any Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any Loan
Document, or for any failure of the Borrower or any other Credit Party to
perform its obligations under any Loan Document, or for any recitals,
statements, representations or warranties made, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of any collateral.
The Administrative Agent shall not be under any obligation to any of the
Lenders to ascertain or to inquire as to the observance or performance of any
of the terms, covenants or conditions of any Loan Document on the part of the
Borrower or any Subsidiary or to inspect the properties, books or records of
the Borrower or its Subsidiaries.
10.4. Reliance. 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,
telefacsimile or telex message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including,
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without limitation, counsel to any Credit Party), 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 an Assignment and Acceptance shall have been filed with and accepted by
the Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under the Loan Documents unless it shall
first receive advice or concurrence of the Lenders or the Required Lenders as
provided in this Agreement 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. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under the Loan Documents in accordance with a request
of the Required Lenders, and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Lenders and all present and
future holders of the Notes.
10.5. 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 the Administrative Agent has received notice from a
Lender, the Authorized Representative 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, the Administrative Agent 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 Event of Default as it shall deem advisable in the best
interests of the Lenders.
10.6. No Representations. Each Lender expressly acknowledges that
neither the Administrative Agent nor any of its affiliates has made any
representations or warranties to it and that no act by the Administrative Agent
hereafter taken, including any review of the affairs of the Borrower, its
Subsidiaries or any other Guarantor, 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 financial condition, creditworthiness,
affairs, status and nature of the Borrower and each other Credit Party and made
its own decision to 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 the Loan
Documents and to make such investigation as it deems necessary to inform itself
as to the status and affairs, financial or otherwise, of the Borrower and its
Subsidiaries. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
the Administrative Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower and its Subsidiaries which may
come into the possession of the Administrative Agent or any of its affiliates.
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10.7. Indemnification. Each of the Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower or any other Credit Party and without limiting any obligations of
the Borrower or any other Credit Party to do so), ratably according to the
respective principal amount of the Notes held by them (or, if no Notes are
outstanding, ratably in accordance with their respective Applicable Commitment
Percentages as then in effect) from and against any and all liabilities,
obligations, losses (excluding any losses suffered by the Administrative Agent
as a result of Borrower's failure to pay any fee owing to the Administrative
Agent), damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may at any time (including
without limitation at any time following the payment of the Notes) be imposed
on, incurred by or asserted against the Administrative Agent in any way
relating to or arising out of any Loan Document or any other document
contemplated by or referred to therein or the transactions contemplated 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
to the Administrative Agent for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. The agreements in this subsection shall
survive the Facility Termination Date.
10.8. Lenders. The Administrative Agent and its affiliates may make
loans to, accept deposits from and generally engage in any kind of business
with the Borrower and its Subsidiaries as though it were not the Administrative
Agent hereunder. With respect to its Loans made or renewed by it and any Note
issued to it, the Administrative Agent shall have the same rights and powers
under this Agreement as any Lender and may exercise the same as though it were
not the Administrative Agent, and the terms "Lender" and "Lenders" shall,
unless the context otherwise indicates, include the Administrative Agent in its
individual capacity.
10.9. Resignation. If the Administrative Agent shall resign as
Administrative Agent under this Agreement, then the Required Lenders may
appoint, with the consent, so long as there shall not have occurred and be
continuing a Default or Event of Default, of the Borrower, which consent shall
not be unreasonably withheld, a successor Administrative Agent for the Lenders,
which successor Administrative Agent shall be a commercial bank organized under
the laws of the United States or any state thereof, having a combined surplus
and capital of not less than $500,000,000, whereupon such successor
Administrative Agent shall succeed to the rights, powers and duties of the
former Administrative Agent and the obligations of the former Administrative
Agent shall be terminated and canceled, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement; provided, however, that the former Administrative Agent's
resignation shall not become effective until such successor Administrative
Agent has been appointed and has succeeded of record to all right, title and
interest in any collateral held by the Administrative Agent; provided, further,
that if the Required Lenders and, if applicable, the Borrower cannot agree as
to a successor Administrative Agent within ninety (90) days after such
resignation, the Administrative Agent shall appoint a successor Administrative
Agent which satisfies the criteria set forth above in this Section 10.9 for a
successor Administrative Agent and the parties hereto agree to execute whatever
documents are necessary to effect such action under this Agreement or any other
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document executed pursuant to this Agreement; provided, however that in such
event all provisions of the Loan Documents, shall remain in full force and
effect. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article X shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
10.10. Sharing of Payments, etc. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, set-off, counterclaim or
otherwise, obtain payment with respect to its Obligations (other than pursuant
to Article IV) which results in its receiving more than its pro rata share of
the aggregate payments with respect to all of the Obligations (other than any
payment expressly provided hereunder to be distributed on other than a pro rata
basis and payments pursuant to Article IV), then (a) such Lender shall be
deemed to have simultaneously purchased from the other Lenders a share in their
Obligations so that the amount of the Obligations held by each of the Lenders
shall be pro rata and (b) such other adjustments shall be made from time to
time as shall be equitable to insure that the Lenders share such payments
ratably; provided, however, that for purposes of this Section 10.10 the term
"pro rata" shall be determined with respect to the Revolving Credit Commitment
of each Lender and to the Total Revolving Credit Commitments after subtraction
in each case of amounts, if any, by which any such Lender has not funded its
share of the outstanding Loans and Obligations. If all or any portion of any
such excess payment is thereafter recovered from the Lender which received the
same, the purchase provided in this Section 10.10 shall be rescinded to the
extent of such recovery, without interest. The Borrower expressly consents to
the foregoing arrangements and agrees that each Lender so purchasing a portion
of the other Lenders' Obligations may exercise all rights of payment
(including, without limitation, all rights of set-off, banker's lien or
counterclaim) with respect to such portion as fully as if such Lender were the
direct holder of such portion.
10.11. Fees. The Borrower agrees to pay to the Administrative Agent,
for its individual account, an annual Administrative Agent's fee as from time
to time agreed to by the Borrower and Administrative Agent in writing.
10.12. Documentation Agent. The First National Bank of Chicago has
been appointed Documentation Agent under this Agreement. Such appointment does
not confer any duties or responsibilities on the Documentation Agent. The
provisions on limitation of liability in Section 10.3 and the indemnification
provisions of Section 10.7 shall, nevertheless, apply to The First National
Bank of Chicago in its capacity as Documentation Agent to the same extent as
they apply to the Administrative Agent.
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ARTICLE XI
Miscellaneous
11.1. Assignments and Participations. (a) At any time after the
Closing Date each Lender may, with the prior consent of the Administrative
Agent and (so long as no Default or Event of Default shall have occurred and be
continuing) the Borrower, which consents shall not be unreasonably withheld, or
as provided in Section 4.7, upon the occurrence of certain events the Borrower
may demand that a Lender, assign to one or more banks or financial institutions
all or a portion of its rights and obligations under the Loan Documents
(including, without limitation, all or a portion of any Note payable to its
order); provided, that (i) each such assignment shall be of a constant and not
a varying percentage of all of the assigning Lender's rights and obligations
under the Revolving Credit Facility and Letter of Credit Facility, (ii) for
each assignment involving the issuance and transfer of a Note, the assigning
Lender shall execute an Assignment and Acceptance and the Borrower hereby
agrees to execute a replacement Note to give effect to the assignment, (iii)
the amount of Revolving Credit Commitment which shall be assigned is a minimum
of $5,000,000, and, if greater, an amount which is (A) an integral multiple of
$1,000,000, or (B) represents all of assigning Lender's Revolving Credit
Commitment, or (C) such other amount to which the Borrower (so long as no
Default or Event of Default shall have occurred and be continuing) and the
Administrative Agent shall consent, and (iv) such assignee shall have an office
located in the United States. Upon such execution, delivery, approval and
acceptance, from and after the effective date specified in each Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder or under any such Note have been
assigned or negotiated to it pursuant to such Assignment and Acceptance, have
the rights and obligations of a Lender hereunder and a holder of such Note and
(y) the assignor thereunder shall, to the extent that rights and obligations
hereunder or under such Note have been assigned or negotiated by it pursuant to
such Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement. Any Lender who makes an assignment (or, in
the case of an assignment effected pursuant to Section 4.7, the Borrower) shall
pay or cause to be paid to the Administrative Agent a one-time administrative
fee of $3,500 which fee (if payable by a Lender) shall not be reimbursed by the
Borrower.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) the assignment
made under such Assignment and Acceptance is made under such Assignment and
Acceptance without recourse; (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or its Subsidiaries or any other Credit Party or the
performance or observance by the Borrower or any other Credit Party of any of
its obligations under any Loan Document or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
delivered pursuant to Section 6.6(a) or Section 7.1, as the case may be, and
such other Loan Documents and other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv)
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such assignee will, independently and without reliance upon the Administrative
Agent, such assigning Lender 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 decisions in taking or not taking action under any Loan Document;
(v) such assignee appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto; and
(vi) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Loan Documents are required to
be performed by it as a Lender and a holder of such Notes.
(c) The Administrative Agent shall maintain at its address
referred to herein a copy of each Assignment and Acceptance delivered to and
accepted by it.
(d) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender, the Administrative Agent shall give prompt notice thereof
to the Borrower.
(e) Nothing herein shall prohibit any Lender from (i) pledging or
assigning, without notice to or consent of the Borrower and without the payment
of the administrative fee referred to in Section 11.1(a), any Note to any
Federal Reserve Bank in accordance with applicable law or to any affiliate of
any such Lender or (ii) assigning, without notice to or consent of the
Borrower, to any other Person who is a Lender before giving effect to such
assignment.
(f) Each Lender may sell participations at its expense to one or
more banks or other entities as to all or a portion of its rights and
obligations under this Agreement; provided, that (i) such Lender's obligations
under this Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any Note issued to it
for the purpose of this Agreement, (iv) such participations shall be of a
constant and not a varying percentage of the selling Lender's rights and
obligations under the Revolving Credit Facility (including Participations), and
shall include an allocable portion of such Lender's Participation, (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 and with regard to any and all payments to
be made or consents to be given under this Agreement; provided, that the
participation agreement between a Lender and its participants may provide that
such Lender will obtain the approval of such participant prior to such Lender's
agreeing to any amendment or waiver of any provisions of any Loan Document
which would (A) extend the maturity of any Note or the time for payment of any
interest or fees hereunder, (B) reduce the interest rates hereunder or (C)
increase the amount of the participant's participation over the amount thereof
then in effect, and (vi) the sale of any such participations which require the
Borrower to file a registration statement with the United States Securities and
Exchange Commission or under the securities regulations or laws of any state
shall not be permitted.
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<PAGE> 105
(g) The Borrower may not assign, nor shall it cause, suffer or
permit any other Credit Party to assign any rights, powers, duties or
obligations under this Agreement or the other Loan Documents without the prior
written consent of all the Lenders.
11.2. Notices. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective (i) on the day on which delivered
in writing (including hand delivery by commercial courier service) to such
party (against receipt therefor), (ii) on the date of receipt at such address,
telefacsimile number or telex number as may from time to time be specified by
such party in written notice to the other parties hereto or otherwise received,
in the case of notice by telegram, telefacsimile or telex, respectively (where
the delivery of such message is verified by manual or electronic confirmation
of transmission or delivery), or (iii) on the fifth Business Day after the day
on which mailed, if sent prepaid by certified or registered mail, return
receipt requested, in each case delivered, transmitted or mailed, as the case
may be, to the address, telex number or telefacsimile number, as appropriate,
set forth below or such other address or number as such party shall specify by
notice hereunder:
(a) if to the Borrower:
MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Attention: Peter J. Clemens, IV
Telephone: 205/733-8996
Telefacsimile: 205/733-9780
with a copy (of any notice of the existence of any
Default or Event of Default only) to:
MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Attn: General Counsel
Telephone: 205/733-8996
Telefacsimile: 205/982-7709
(b) if to the Administrative Agent:
NationsBank, National Association (South)
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telephone: (704) 388-1107
Telefacsimile: (704) 386-9923
99
<PAGE> 106
with a copy to:
NationsBank, National Association (South)
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2213
Attention: Corporate Finance Department
Telephone: 404/607-5529
Telefacsimile: 404/607-6484
(c) if to the Lenders:
At the addresses set forth on the signature pages
hereof and on the signature page of each Assignment
and Acceptance;
(d) if to any other Credit Party, at the address set
forth on the signature page of the Guaranty executed
by such Credit Party.
11.3. Setoff. The Borrower agrees that the Administrative Agent and
each Lender shall have a lien for all the Obligations of the Borrower upon all
deposits or deposit accounts, of any kind, or any interest in any deposits or
deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or
assigned to the Administrative Agent or such Lender or otherwise in the
possession or control of the Administrative Agent or such Lender (other than
for safekeeping) for any purpose for the account or benefit of the Borrower and
including any balance of any deposit account or of any credit of the Borrower
with the Administrative Agent or such Lender, whether now existing or hereafter
established, hereby authorizing the Administrative Agent and each Lender from
and after the occurrence of a Default or Event of Default at any time or times
with or without prior notice to apply such balances or any part thereof to such
of the Obligations of the Borrower to the Administrative Agent or the Lenders
then past due and in such amounts as they may elect, and whether or not the
collateral or the responsibility of other Persons primarily, secondarily or
otherwise liable may be deemed adequate. For the purposes of this paragraph,
all remittances and property shall be deemed to be in the possession of the
Administrative Agent or such Lender as soon as the same may be put in transit
to it by mail or carrier or by other bailee.
11.4. Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the issuance of the Letters of Credit and the execution and delivery to the
Lenders of this Agreement and the Notes and shall continue in full force and
effect so long as any of Obligations remain outstanding or any Lender has any
commitment hereunder or the Borrower has continuing obligations hereunder
unless otherwise provided herein. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and permitted assigns of such party and all covenants, provisions
and agreements by or on behalf of the Borrower which are contained in the Loan
Documents shall inure to the benefit of the successors and permitted assigns of
the Lenders or any of them.
100
<PAGE> 107
11.5. Expenses. The Borrower agrees (a) to pay or reimburse the
Administrative Agent for all of its reasonable out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of, and
any amendment, supplement or modification to, any of the Loan Documents
(including due diligence expenses and travel expenses relating to closing), and
the consummation of the transactions contemplated thereby, including the
reasonable fees and disbursements of counsel to the Administrative Agent, (b)
to pay or reimburse the Administrative Agent and the Lenders for all their
costs and expenses incurred in connection with the enforcement or preservation
of any rights under the Loan Documents, including the reasonable fees and
disbursements of their respective counsel (including the fees and expenses of
in-house counsel) and any payments in indemnification or otherwise payable by
the Lenders to the Administrative Agent pursuant to the Loan Documents, and (c)
to pay, indemnify and hold the Administrative Agent and the Lenders harmless
from any and all recording and filing fees and any and all liabilities with
respect to, or resulting from any failure to pay or delay in paying,
documentary, stamp, excise and other similar taxes, if any, which may be
payable or determined to be payable in connection with the execution and
delivery of any of the Loan Documents, or consummation of any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
any Loan Document.
11.6. Amendments. No amendment, modification or waiver of any
provision of any Loan Document and no consent by the Lenders to any departure
therefrom by the Borrower or any other Credit Party shall be effective unless
such amendment, modification or waiver shall be in writing and signed by the
Administrative Agent, shall have been approved by the Required Lenders through
their written consent, and the same shall then be effective only for the period
and on the conditions and for the specific instances and purposes specified in
such writing; provided, however, that, no such amendment, modification or
waiver
(i) which changes, extends or waives any provision of
Section 2.7, Section 10.9 or this Section 11.6, the amount of or the
due date of any installment of or the rate of interest payable on any
Obligation, which changes the definition of "Required Lenders", which
permits an assignment by any Credit Party of its Obligations under any
Loan Document, which reduces the required consent of Lenders provided
hereunder, which increases, decreases (other than pursuant to the
express terms hereof) or extends the Revolving Credit Commitment or
Letter of Credit Commitment of any Lender or any Lender's commitment
to participate in Swing Line Loans, or which waives any condition to
the making of any Loan or the issuance of any Letter of Credit, shall
be effective unless in writing and signed by each of the Lenders;
(ii) which releases the guaranty obligation under any
Guaranty (other than pursuant to the express terms hereof or thereof)
shall be effective unless with the written consent of each of the
Lenders;
(iii) which affects the rights, privileges or obligations of
NationsBank as provider of Swing Line Loans shall be effective unless
signed in writing by NationsBank;
101
<PAGE> 108
(iv) which affects the rights, privileges or obligations of
the Issuing Bank as issuer of Letters of Credit shall be effective
unless signed in writing by the Issuing Bank; or
(v) which affects the rights, privileges, immunities or
indemnities of the Administrative Agent shall be effective unless in
writing and signed by the Administrative Agent.
Notwithstanding any provision of the other Loan Documents to the contrary, as
between the Administrative Agent and the Lenders, execution by the
Administrative Agent shall not be deemed conclusive evidence that the
Administrative Agent has obtained the written consent of the Required Lenders.
No notice to or demand on the Borrower in any case shall entitle the Borrower
to any other or further notice or demand in similar or other circumstances,
except as otherwise expressly provided herein. No delay or omission on any
Lender's or the Administrative Agent's part in exercising any right, remedy or
option shall operate as a waiver of such or any other right, remedy or option
or of any Default or Event of Default.
11.7. 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 it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
11.8. Termination. The termination of this Agreement shall not
affect any rights of the Borrower, the Lenders or the Administrative Agent or
any obligation of the Borrower, the Lenders or the Administrative Agent,
arising prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered into
or rights created or obligations incurred prior to such termination have been
fully disposed of, concluded or liquidated and the Obligations arising prior to
or after such termination have been irrevocably paid in full. The rights
granted to the Administrative Agent for the benefit of the Lenders under the
Loan Documents shall continue in full force and effect, notwithstanding the
termination of this Agreement, until all of the Obligations have been paid in
full after the termination hereof (other than Obligations in the nature of
continuing indemnities or expense reimbursement obligations not yet due and
payable, which shall continue) or the Borrower has furnished the Lenders and
the Administrative Agent with an indemnification satisfactory to the
Administrative Agent and each Lender with respect thereto. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until payment in full of the Obligations
unless otherwise provided herein. Notwithstanding the foregoing, if after
receipt of any payment of all or any part of the Obligations, the
Administrative Agent or any Lender is for any reason compelled to surrender
such payment to any Person because such payment is determined to be void or
voidable as a preference, impermissible setoff, a diversion of trust funds or
for any other reason, this Agreement shall continue in full force and the
Borrower shall be liable to, and shall indemnify and hold the Administrative
Agent or such Lender harmless for, the amount of such payment surrendered until
the Administrative Agent or such Lender shall have been finally and irrevocably
paid in full. The provisions of the foregoing sentence shall be and remain
effective notwithstanding any
102
<PAGE> 109
contrary action which may have been taken by the Administrative Agent or any
Lender in reliance upon such payment, and any such contrary action so taken
shall be without prejudice to the Administrative Agent's or the Lenders' rights
under this Agreement and shall be deemed to have been conditioned upon such
payment having become final and irrevocable.
11.9. Indemnification; Limitation of Liability. In consideration of
the execution and delivery of this Agreement by the Administrative Agent and
each Lender and the extension of credit under the Loans, the Borrower hereby
indemnifies, exonerates and holds the Administrative Agent, NCMI and each
Lender and each of their respective affiliates, officers, directors, employees,
agents and advisors (collectively, the "Indemnified Parties") free and harmless
from and against any and all claims, actions, causes of action, suits, losses,
costs, liabilities and damages, and expenses incurred in connection therewith
(irrespective of whether any such Indemnified Party is a party to the action
for which indemnification hereunder is sought), including reasonable attorneys'
fees and disbursements (collectively, the "Indemnified Liabilities") that may
be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of, or in connection
with the execution, delivery, enforcement, performance or administration of
this Agreement and the other Loan Documents, or any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
any Loan (including any Swing Line Loan) or Letter of Credit, whether or not
such action is brought against the Administrative Agent or any Lender, the
shareholders or creditors of the Administrative Agent or any Lender or an
Indemnified Party or an Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated herein are consummated, except to
the extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct, and if
and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Borrower agrees that no Indemnified
Party shall have any liability (whether direct or indirect, in contract or tort
or otherwise) to it, any of its Subsidiaries, or any security holders or
creditors thereof arising out of, related to or in connection with the
transactions contemplated herein, except to the extent that such liability is
found in a final non-appealable judgment by a court of competent jurisdiction
to have resulted from such Indemnified Party's gross negligence or willful
misconduct; provided, however, in no event shall any Indemnified Party be
liable for consequential, indirect or special, as opposed to direct, damages.
11.10. Severability. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more
of the parties hereto, then such provision shall remain in effect with respect
to all parties, if any, as to whom such provision is neither illegal nor
invalid, and in any event all other provisions hereof shall remain effective
and binding on the parties hereto.
11.11. Entire Agreement. This Agreement, together with the other
Loan Documents, constitutes the entire agreement among the parties with respect
to the subject matter hereof and
103
<PAGE> 110
supersedes all previous proposals, negotiations, representations, commitments
and other communications between or among the parties, both oral and written,
with respect thereto.
11.12. Agreement Controls. In the event that any term of any of the
Loan Documents other than this Agreement conflicts with any express term of
this Agreement, the terms and provisions of this Agreement shall control to the
extent of such conflict.
11.13. Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged under any of the Notes, including
all charges or fees in connection therewith deemed in the nature of interest
under applicable law shall not exceed the Highest Lawful Rate (as such term is
defined below). If the rate of interest (determined without regard to the
preceding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined below), the outstanding amount of the Loans made hereunder
shall bear interest at the Highest Lawful Rate until the total amount of
interest due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at
all times been in effect. In addition, if when the Loans made hereunder are
repaid in full the total interest due hereunder (taking into account the
increase provided for above) is less than the total amount of interest which
would have been due hereunder if the stated rates of interest set forth in this
Agreement had at all times been in effect, then to the extent permitted by law,
the Borrower shall pay to the Administrative Agent an amount equal to the
difference between the amount of interest paid and the amount of interest which
would have been paid if the Highest Lawful Rate had at all times been in
effect. Notwithstanding the foregoing, it is the intention of the Lenders and
the Borrower to conform strictly to any applicable usury laws. Accordingly, if
any Lender contracts for, charges, or receives any consideration which
constitutes interest in excess of the Highest Lawful Rate, then any such excess
shall be cancelled automatically and, if previously paid, shall at such
Lender's option be applied to the outstanding amount of the Loans made
hereunder or be refunded to the Borrower. As used in this paragraph, the term
"Highest Lawful Rate" means the maximum lawful interest rate, if any, that at
any time or from time to time may be contracted for, charged, or received under
the laws applicable to such Lender which are presently in effect or, to the
extent allowed by law, under such applicable laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
11.14. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER
THAN THOSE SECURITY INSTRUMENTS WHICH EXPRESSLY PROVIDE THAT THEY
SHALL BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION) SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NORTH CAROLINA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY
PERFORMED, IN SUCH STATE.
(B) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES
AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING
104
<PAGE> 111
ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT
SITTING IN THE COUNTY OF MECKLENBURG, STATE OF NORTH CAROLINA, UNITED
STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE BORROWER EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE EXERCISE OF
JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH
SUIT, ACTION OR PROCEEDING, AND THE BORROWER HEREBY IRREVOCABLY
SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING.
(C) THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE
MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR
OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY
REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF THE
BORROWER PROVIDED IN SECTION 11.2, OR BY ANY OTHER METHOD OF SERVICE
PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NORTH
CAROLINA.
(D) NOTHING CONTAINED IN SUBSECTIONS (A) OR (B) HEREOF
SHALL PRECLUDE THE ADMINISTRATIVE AGENT OR ANY LENDER FROM BRINGING
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENT IN THE COURTS OF ANY JURISDICTION WHERE THE BORROWER OR ANY
OF THE BORROWER'S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE
EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, THE
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH
COURT AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING, OBJECTION TO THE EXERCISE OF JURISDICTION OVER IT AND ITS
PROPERTY BY ANY SUCH OTHER COURT OR COURTS WHICH NOW OR HEREAFTER MAY
BE AVAILABLE UNDER APPLICABLE LAW.
(E) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN
THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL
BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY
WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE
105
<PAGE> 112
LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH
ACTION OR PROCEEDING.
106
<PAGE> 113
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
MEDPARTNERS, INC.
WITNESS:
By:
- ------------------------ --------------------------------
Name:
------------------------------
Title:
- ------------------------ -----------------------------
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as
Administrative Agent for the Lenders
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, as
Documentation Agent for the Lenders
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
SIGNATURE PAGE 1 OF 20
<PAGE> 114
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH)
By:
------------------------------------------------
Name: James S. Scully
Title: Vice President
Lending Office:
NationsBank, National Association
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Jeff Strickland
Telephone: (704) 388-1107
Telefacsimile: (704) 386-9923
Wire Transfer Instructions:
NationsBank, National Association (South)
Atlanta, Georgia
ABA# 061000052
Account No.: 1366210109970
Reference: MedPartners, Inc.
Attention: Corporate Credit Support
SIGNATURE PAGE 2 OF 20
<PAGE> 115
THE FIRST NATIONAL BANK OF CHICAGO
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Jay Sepanski
Telephone: (312) 732-6726
Telefacsimile: (312) 732-2016
Wire Transfer Instructions:
The First National Bank of Chicago
Chicago, Illinois 60670
ABA# 071000013
Account No.: DES Clearing A/C 7521-7653
Attention: Ken Fecko
Kathy Blomquist
SIGNATURE PAGE 3 OF 20
<PAGE> 116
CREDIT LYONNAIS NEW YORK BRANCH, Managing Agent
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Farboud Tavangar
Telephone: (212) 261-7832
Telefacsimile: (212) 261-3440
Wire Transfer Instructions:
Credit Lyonnais New York Branch
New York, New York 10019
ABA# 0260-0807-3
Account No.: 01-88179214000001
Reference: MedPartners, Inc.
Attention: Loan Servicing
SIGNATURE PAGE 4 OF 20
<PAGE> 117
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
Managing Agent
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260-0060
Attention: Douglas A. Cruikshank
Telephone: (212) 648-3887
Telefacsimile: (212) 648-5336
Wire Transfer Instructions:
Morgan Guaranty Trust Company of New York
New York, New York
ABA# 021-000-238
For credit to: Loan Department
A/C# 999-99-090
Reference: MedPartners, Inc.
Attention: Corporate Processing
SIGNATURE PAGE 5 OF 20
<PAGE> 118
BANK OF AMERICA NT & SA, Co-Agent
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
Bank of America NT & SA
555 S. Flower Street
11th Floor, Dept. #9173
Los Angeles, California 90071
Attention: Wyatt Ritchie
Telephone: (213) 228-9734
Telefacsimile: (213) 228-2756
Wire Transfer Instructions:
Bank of America NT & SA
Los Angeles, California 90017
ABA# 1210-00358
Account No. 1233-1-83980
Reference: MedPartners, Inc.
Attention: Janice Ozaki
SIGNATURE PAGE 6 OF 20
<PAGE> 119
THE BANK OF NOVA SCOTIA, Co-Agent
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Bank of Nova Scotia
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention: Dana Maloney
Telephone: (404) 877-1524
Telefacsimile: (404) 888-8998
Wire Transfer Instructions:
The Bank of Nova Scotia New York Agency
New York, New York 10008
ABA# 026002532
Credit Atlanta Agency #0606634
Reference: MedPartners, Inc.
Attention: Jeffrey Jones
SIGNATURE PAGE 7 OF 20
<PAGE> 120
THE INDUSTRIAL BANK OF JAPAN, LIMITED, Co-Agent
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Industrial Bank of Japan, Limited
245 Park Avenue
New York, New York 10167
Attention: James Welch
Telephone: (212) 309-6577
Telefacsimile: (212) 682-2870
Wire Transfer Instructions:
The Industrial Bank of Japan, Limited
New York, New York 10167
ABA# 026-008-345
Reference: MedPartners, Inc.
Attention: Credit Administration Department
SIGNATURE PAGE 8 OF 20
<PAGE> 121
THE NIPPON CREDIT BANK, LTD., LOS ANGELES
AGENCY, Co-Agent
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Nippon Credit Bank, Ltd.,
Los Angeles Agency
550 S. Hope Street
Suite 2500
Los Angeles, California 90071
Attention: Helen Rhee
Telephone: (213) 243-5723
Telefacsimile: (213) 892-0111
Wire Transfer Instructions:
Bank of America, San Francisco
Concord, California 94520
ABA# 1210-0035-8
Account No. 62908-31126
Attention: The Nippon Credit Bank, Ltd.,
Los Angeles Agency
SIGNATURE PAGE 9 OF 20
<PAGE> 122
AMSOUTH BANK OF ALABAMA
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
AmSouth Bank of Alabama
1900 5th Avenue, North
7th Floor AST
Birmingham, Alabama 35203
Attention: Timothy L. Vardaman
Telephone: (205) 326-4081
Telefacsimile: (205) 326-4790
Wire Transfer Instructions:
AmSouth Bank of Alabama
Birmingham, Alabama 35203
ABA# 062000019
Account No. 0011 0245 0400 100
Attention: Nancy J. Parsons
SIGNATURE PAGE 10 OF 20
<PAGE> 123
BANKERS TRUST COMPANY
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
Bankers Trust Company
130 Liberty Street, 30th Floor
New York, New York 10006
Attention: Patricia Hogan
Telephone: (212) 250-5175
Telefacsimile: (212) 250-7218
Wire Transfer Instructions:
Bankers Trust Company
New York, New York 10006
ABA# 021 001 033
Account No. 99 401 268
Attention: Commercial Loan Division
SIGNATURE PAGE 11 OF 20
<PAGE> 124
THE DAI-ICHI KANGYO BANK, LIMITED
ATLANTA AGENCY
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Dai-Ichi Kangyo Bank, Limited
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Attention: Michael L. Turner
Telephone: (404) 581-0200
Telefacsimile: (404) 581-9657
Wire Transfer Instructions:
The Dai-Ichi Kangyo Bank, Ltd.
New York, New York
ABA# 0260 0430 7
For credit to: DKB-Atlanta Agency
Account No. H79-740-111250
Reference: MedPartners, Inc.
SIGNATURE PAGE 12 OF 20
<PAGE> 125
DEUTSCHE BANK AG NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
Deutsche Bank AG New York
31 W. 52nd Street
New York, New York 10019
Attention: Colin Taylor
Telephone: (212) 474-7904
Telefacsimile: (212) 474-8212
Wire Transfer Instructions:
Deutsche Bank AG New York Branch
New York, New York
ABA# 026003780
Reference: MedPartners, Inc.
SIGNATURE PAGE 13 OF 20
<PAGE> 126
THE FUJI BANK, LTD. - ATLANTA AGENCY
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Fuji Bank, Ltd. - Atlanta Agency
245 Peachtree Center Avenue
Suite 2100 Marquis 1
Atlanta, Georgia 30303
Attention: Colin Taylor
Telephone: (404) 215-3314
Telefacsimile: (404) 653-2119
Wire Transfer Instructions:
The Fuji Bank, New York
New York, New York 10048
ABA# 026009700
For further credit to: Fuji Bank, Atlanta
A/C #725000
Reference: MedPartners, Inc.
SIGNATURE PAGE 14 OF 20
<PAGE> 127
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Long-Term Credit Bank of Japan, Limited
165 Broadway
New York, New York 10006
Attention: ______________________
Telephone: (212) ___-____
Telefacsimile: (212) ___-____
Wire Transfer Instructions:
Chase Manhattan Bank
New York, New York
ABA# 021-000-021
Name of Account: The Long-Term Credit Bank
of Japan Ltd., New York
Branch
Account No. 544-7-75066
SIGNATURE PAGE 15 OF 20
<PAGE> 128
MELLON BANK, N.A.
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
Mellon Bank, N.A.
Two Mellon Bank Center
Room 152-0270
Pittsburgh, Pennsylvania 15259
Attention: Michael R. Zaksheske
Telephone: (412) 234-6504
Telefacsimile: (412) 234-9010
Wire Transfer Instructions:
Mellon Bank, N.A.
Pittsburgh, Pennsylvania 15259
ABA# 0430-0026-1
Account No. 990873800
Attention: Christine Bissell
Reference: MedPartners, Inc.
SIGNATURE PAGE 16 OF 20
<PAGE> 129
PNC BANK, KENTUCKY, INC.
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
PNC Bank, Kentucky, Inc.
500 W. Jefferson, 8th Floor
Louisville, Kentucky 40296
Attention: Kathryn M. Bohr
Telephone: (502) 581-2995
Telefacsimile: (502) 581-2302
Wire Transfer Instructions:
PNC Bank, Kentucky, Inc.
Louisville, Kentucky 40296
ABA# 083-000-108
Account No. 300099-1434
Attention: Benita Marcum
Mary Jo Trester
SIGNATURE PAGE 17 OF 20
<PAGE> 130
THE SANWA BANK, LIMITED ATLANTA AGENCY
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Sanwa Bank, Limited Atlanta Agency
133 Peachtree Street
Suite 4950
Atlanta, Georgia 30303
Attention: Raymond Hamilton
Telephone: (404) 586-8805
Telefacsimile: (404) 589-1629
Wire Transfer Instructions:
The Sanwa Bank
New York, New York
ABA# 026009823
Account No. 999669
For Account: Sanwa Bank Atlanta
SIGNATURE PAGE 18 OF 20
<PAGE> 131
THE SUMITOMO BANK, LIMITED, ATLANTA AGENCY
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
The Sumitomo Bank, Limited, Atlanta Agency
133 Peachtree Street
Suite 3210
Atlanta, Georgia 30303
Attention: Peter W. Leahy
Telephone: (404) 526-8516
Telefacsimile: (404) 521-1187
Wire Transfer Instructions:
Morgan Guaranty Trust Co.
New York, New York
ABA# 021 000 238
For credit to the account of:
The Sumitomo Bank, New York
Account No. 631-28-256
For further credit to:
The Sumitomo Bank, Atlanta Agency
Account No. 819008
SIGNATURE PAGE 19 OF 20
<PAGE> 132
WACHOVIA BANK OF GEORGIA
By:
------------------------------------------------
Name:
---------------------------------------------
Title:
---------------------------------------------
Lending Office:
Wachovia Bank of Georgia
191 Peachtree Street, N.E.
MC GA 3940
Atlanta, Georgia 30303
Attention: Brad Marcus
Telephone: (404) 332-6483
Telefacsimile: (404) 332-5016
Wire Transfer Instructions:
Wachovia Bank of Georgia
Atlanta, Georgia 30331
ABA# 061 000 010
Account No. 18-800-621
Contact: Francine Smith
SIGNATURE PAGE 20 OF 20
<PAGE> 133
EXHIBIT A
Applicable Commitment Percentages
<TABLE>
<CAPTION>
Lender Revolving* Applicable
- ----- Credit Commitment
Commitment Percentage
---------- ----------
<S> <C> <C>
NationsBank, National
Association (South) $152,500,000 15.25%
The First National Bank
of Chicago 135,500,000 13.55%
Credit Lyonnais New York Branch 118,500,000 11.85%
Morgan Guaranty Trust Company
of New York 118,500,000 11.85%
Bank of America NT & SA 50,000,000 5.00%
The Bank of Nova Scotia 50,000,000 5.00%
The Industrial Bank of Japan,
Limited 50,000,000 5.00%
The Nippon Credit Bank, Ltd.,
Los Angeles Agency 50,000,000 5.00%
AmSouth Bank of Alabama 25,000,000 2.50%
Bankers Trust Company 25,000,000 2.50%
The Dai-Ichi Kangyo Bank,
Limited Atlanta Agency 25,000,000 2.50%
Deutsche Bank AG New York Branch
and/or Cayman Islands Branch 25,000,000 2.50%
The Fuji Bank, Ltd. - Atlanta
Agency 25,000,000 2.50%
The Long-Term Credit Bank of
Japan, Limited 25,000,000 2.50%
</TABLE>
A-1
<PAGE> 134
<TABLE>
<S> <C> <C>
Mellon Bank, N.A. 25,000,000 2.50%
PNC Bank, Kentucky 25,000,000 2.50%
The Sanwa Bank, Limited
Atlanta Agency 25,000,000 2.50%
The Sumitomo Bank, Limited,
Atlanta Agency 25,000,000 2.50%
Wachovia Bank of Georgia 25,000,000 2.50%
_____________ _______
$1,000,000,000 100.00%
</TABLE>
* The amounts in this column are based on a Total Revolving Credit Commitment
of $1,000,000,000 to be in effect, subject to the term hereof, on and after
January 1, 1997. Prior to January 1, 1997, the Revolving Credit Commitment of
each Lender shall be, subject to the terms hereof, an amount equal to such
Lender's Applicable Commitment Percentage of $750,000,000.
A-2
<PAGE> 135
EXHIBIT B
Form of Assignment and Acceptance
DATED _______________, ____
Reference is made to the Credit Agreement dated as of September 5,
1996 (as amended or supplemented from time to time, the "Agreement") among
Medpartners, Inc., a Delaware corporation (the "Borrower"), the Lenders (as
defined in the Agreement), NationsBank, National Association (South), as
Administrative Agent for the Lenders ("Administrative Agent") and The First
National Bank of Chicago, as Documentation Agent for the Lenders
("Documentation Agent" and, together with the Administrative Agent, the
"Agents"). Unless otherwise defined herein, terms defined in the Agreement are
used herein with the same meanings.
________________________ (the "Assignor") and___________________
_______________________________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE, a
_______%(1) interest in and to all of the Assignor's rights and obligations
under the Agreement as of the Effective Date (as defined below), including,
without limitation, such percentage interest in the Loans owing to the Assignor
on the Effective Date, and evidenced by the Revolving Note held by the
Assignor.
2. The Assignor (i) represents and warrants that, as of the date
hereof, (A) the aggregate principal amount of Revolving Loans owing to it
(without giving effect to the assignments thereof which have not yet become
effective) is $__________ under a Revolving Note dated ____________, 19__ in
the principal amount of $_________ and (B) the aggregate principal amount of
the Participations purchased by it (without giving effect to the assignments
thereof which have not yet become effective) is $_________; (ii) represents and
warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any
adverse claim; (iii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Agreement or any of the Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Agreement or any of the Loan Documents or any other instrument or
document furnished pursuant thereto; (iv) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or any Subsidiary or the performance or observance by the Borrower or
any other Credit Party of any of its obligations under any of the Loan
Documents or any other instrument or document furnished pursuant thereto and
(v) attaches hereto the Revolving Note referred to in paragraph 1 above and the
Competitive Bid Note of Assignor and requests that the Administrative Agent
exchange such Notes for replacement Notes (each dated as of the Closing Date)
as follows: a Revolving Note in the principal amount of $________________, and
a
____________________
(1) Specify percentage in no more than 4 decimal points.
B-1
<PAGE> 136
Competitive Bid Note in the principal amount of $__________ each payable to the
order of the Assignor, and a Revolving Note in the principal amount of
$_________________ and a Competitive Bid Note dated in the principal amount of
$___________, each payable to the order of the Assignee.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Section 7.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor, 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 decisions in taking or not taking action
under the Agreement; (iii) appoints and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (iv) will
perform all of the obligations which by the terms of the Agreement are required
to be performed by the Lender; and (v) specifies as its address for notices the
office set forth beneath its name on the signature pages hereof.
4. The effective date for this Assignment and Acceptance shall be
_____________________________ (the "Effective Date"). Following the execution
of this Assignment and Acceptance, it will be delivered to the Administrative
Agent for acceptance and recording by the Administrative Agent.
5. Upon such acceptance and recording, as of the Effective Date,
(i) the Assignee shall be a party to the Agreement and, to the extent provided
in this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the Loan Documents and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Agreement and the other Loan Documents.
6. Upon such acceptance and recording, from and after the
Effective Date, the Administrative Agent shall make all payments under the
Agreement and Notes in respect of the interest assigned hereby (including,
without limitation, all payments of principal, interest, commitment fees and
letter of credit fees with respect thereto) to the Assignee. The Assignor and
Assignee shall make all appropriate adjustments in payments under the Agreement
and the Notes for periods prior to the Effective Date directly between
themselves.
B-2
<PAGE> 137
7. This Assignment and Acceptance shall be governed by and
construed in accordance with, the laws of the State of North Carolina.
[NAME OF ASSIGNOR]
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Notice Address:
---------------------------
----------------
----------------
After the Effective Date
Outstanding Revolving Loans: $
------
Outstanding LC
Participations: $
------------
[NAME OF ASSIGNEE]
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Notice Address/Lending Office
-------------------------
-------------------------
-------------------------
Wire transfer Instructions:
-------------------------
-------------------------
-------------------------
After the Effective Date
Outstanding Revolving Loans: $
--------
Outstanding LC
Participations: $
------------
B-3
<PAGE> 138
Accepted this ____ day of _______, 19___
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH),
as Administrative Agent
By:
----------------------------------------
Name:
------------------------------
Title:
-----------------------------
Consented to:
MEDPARTNERS, INC.
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
B-4
<PAGE> 139
EXHIBIT C
Notice of Appointment (or Revocation) of Authorized
Representative
Reference is hereby made to the Credit Agreement dated as of September
5, 1996 (as amended or supplemented from time to time, the "Agreement") among
Medpartners, Inc., a Delaware corporation (the "Borrower"), the Lenders (as
defined in the Agreement), NationsBank, National Association (South), as
Administrative Agent for the Lenders ("Administrative Agent") and The First
National Bank of Chicago, as Documentation Agent for the Lenders
("Documentation Agent"). Capitalized terms used but not defined herein shall
have the respective meanings therefor set forth in the Agreement.
The Borrower hereby nominates, constitutes and appoints each
individual named below as an Authorized Representative under the Loan
Documents, and hereby represents and warrants that (i) set forth opposite each
such individual's name is a true and correct statement of such individual's
office (to which such individual has been duly elected or appointed), a genuine
specimen signature of such individual and an address for the giving of notice,
and (ii) each such individual has been duly authorized by the Borrower to act
as Authorized Representative under the Loan Documents:
<TABLE>
<CAPTION>
Name and Address Office Specimen Signature
<S> <C> <C>
- ----------------- ------------------- -------------------
- -----------------
- -----------------
- ----------------- ------------------- --------------------
- -----------------
- -----------------
</TABLE>
Borrower hereby revokes (effective upon receipt hereof by the Administrative
Agent) the prior appointment of ________________ as an Authorized
Representative.
This the ___ day of __________________, 19__.
------------------------------------
By:
---------------------------------
Name:
---------------------------------
Title:
-----------------------------
C-1
<PAGE> 140
EXHIBIT D-1
Form of Borrowing Notice
To: NationsBank, National Association (South),
as Administrative Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704)386-9923
Reference is hereby made to the Credit Agreement dated as of
September 5, 1996 (as amended or supplemented from time to time, the
"Agreement") among Medpartners, Inc., a Delaware corporation (the "Borrower"),
the Lenders (as defined in the Agreement), NationsBank, National Association
(South), as Administrative Agent for the Lenders ("Administrative Agent") and
The First National Bank of Chicago, as Documentation Agent for the Lenders
("Documentation Agent"). Capitalized terms used but not defined herein shall
have the respective meanings therefor set forth in the Agreement.
The Borrower through its Authorized Representative hereby gives notice
to the Administrative Agent that Loans of the type and amount set forth below
be made on the date indicated:
<TABLE>
<CAPTION>
Type of Loan Interest Aggregate
(check one) Period(1) Amount(2) Date of Loan(3)
--------- ------ ------ ------------
<S> <C> <C> <C>
Revolving Loan
- --------------
Base Rate Loan ______ _________ ____________
Eurodollar Rate Loan ______ _________ ____________
</TABLE>
- -----------------------
(1) For any Eurodollar Rate Loan, one, two, three or six months.
(2) Must be $5,000,000 or if greater an integral multiple of $500,000,
unless a Base Rate Refunding Loan.
(3) At least three (3) Business Days later if a Eurodollar Rate Loan;
The Borrower hereby requests that the proceeds of Loans described in
this Borrowing Notice be made available to the Borrower as follows: [insert
transmittal instructions].
The undersigned hereby certifies that:
D-1
<PAGE> 141
1. No Default or Event of Default exists either now or after
giving effect to the borrowing described herein; and
2. All the representations and warranties set forth in Article VI
of the Agreement and in the Loan Documents (other than those expressly stated
to refer solely to a particular date, as to which such representations and
warranties shall be true and correct as of such particular date) are true and
correct as of the date hereof except that the reference to the financial
statements in Section 6.6(a) of the Agreement are to those financial statements
most recently delivered to you pursuant to Section 7.1 of the Agreement (it
being understood that any financial statements delivered pursuant to Section
7.1(b) have not been certified by independent public accountants).
3. All conditions contained in the Agreement to the making of any
Loan requested hereby have been met or satisfied in full .
MEDPARTNERS, INC.
BY:
------------------------------------
Authorized Representative
DATE:
------------------------------------
D-2
<PAGE> 142
EXHIBIT D-2
Form of Borrowing Notice--Swing Line Loans
To: NationsBank, National Association (South),
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704)386-9923
Reference is hereby made to the Credit Agreement dated as of
September 5, 1996 (as amended or supplemented from time to time, the
"Agreement") among Medpartners, Inc., a Delaware corporation (the "Borrower"),
the Lenders (as defined in the Agreement), NationsBank, National Association
(South), as Administrative Agent for the Lenders ("Administrative Agent") and
The First National Bank of Chicago, as Documentation Agent for the Lenders
("Documentation Agent"). Capitalized terms used but not defined herein shall
have the respective meanings therefor set forth in the Agreement.
The Borrower through its Authorized Representative hereby gives notice
to NationsBank that a Swing Line Loan of the amount set forth below be made on
the date indicated:
<TABLE>
<S> <C>
Amount(1) Date of Loan
--------- ------------
,
--------- ---------- ----
</TABLE>
_________________
(1) Must be $_________ or if greater an integral multiple of $_______
unless a Base Rate Refunding Loan
The Borrower hereby requests that the proceeds of Swing Line Loans
described in this Borrowing Notice be made available to the Borrower as
follows: [insert transmittal instructions].
The undersigned hereby certifies that:
1. No Default or Event of Default exists either now or after
giving effect to the borrowing described herein; and
2. All the representations and warranties set forth in Article VI
of the Agreement and in the Loan Documents (other than those expressly stated
to refer solely to a particular date, as to which such representations and
warranties shall be true and correct as of such particular date) are true and
correct as of the date hereof except that the reference to the financial
statements in Section 6.6(a) of the Agreement are to those financial statements
most recently delivered to you
D-3
<PAGE> 143
pursuant to Section 7.1 of the Agreement (it being understood that any
financial statements delivered pursuant to Section 7.1(b) have not been
certified by independent public accountants).
3. All conditions contained in the Agreement to the making of any
Loan requested hereby have been met or satisfied in full.
MEDPARTNERS, INC.
BY:
-----------------------------------
Authorized Representative
DATE:
---------------------------------
D-4
<PAGE> 144
EXHIBIT E
Form of Interest Rate Selection Notice
To: NationsBank, National Association
(Carolinas), as Administrative Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704) 386-9923
Reference is hereby made to the Credit Agreement dated as of
September 5, 1996 (as amended or supplemented from time to time, the
"Agreement") among Medpartners, Inc., a Delaware corporation (the "Borrower"),
the Lenders (as defined in the Agreement), NationsBank, National Association
(South), as Administrative Agent for the Lenders ("Administrative Agent") and
The First National Bank of Chicago, as Documentation Agent for the Lenders
("Documentation Agent"). Capitalized terms used but not defined herein shall
have the respective meanings therefor set forth in the Agreement.
The Borrower through its Authorized Representative hereby gives notice
to the Administrative Agent of the following selection of a type of Loan and
Interest Period:
<TABLE>
<CAPTION>
Type of Loan Interest Aggregate
(check one) Period(1) Amount(2) Date of Loan(3)
--------- ------ ------ ------------
<S> <C> <C> <C>
Revolving Loan
- --------------
Base Rate Loan ______ _________ ____________
Eurodollar Rate Loan ______ _________ ____________
</TABLE>
_______________________
(1) For any Eurodollar Rate Loan, one, two, three or six months.
(2) Must be $5,000,000 or if greater an integral multiple of $500,000,
unless a Base Rate Refunding Loan.
(3) At least three (3) Business Days later if a Eurodollar Rate Loan;
MEDPARTNERS, INC.
BY:
---------------------------------
Authorized Representative
DATE:
---------------------------------
E-1
<PAGE> 145
EXHIBIT F-1
Form of Competitive Bid Note
Promissory Note
(Competitive Bid Loan)
$_____________(1) _____________ __, ____
FOR VALUE RECEIVED, MEDPARTNERS, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay to the order of _______________________
____________________________(2) (the "Lender"), for account of its Applicable
Lending Office provided for by the Agreement referred to below, at the office
of NationsBank, National Association (South), One Independence Center, 101
North Tryon Street, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the Administrative Agent may designate in writing) at
the times set forth in the Agreement (as herein defined), the aggregate unpaid
principal amount of the Competitive Bid Loans made by the Lender to the
Borrower under the Agreement, in lawful money of the United States of America
and in immediately available funds, on the dates and in the principal amounts
provided in the Agreement, and to pay interest on the unpaid principal amount
of each such Competitive Bid Loan, at such office, in like money and funds, for
the period commencing on the date of such Competitive Bid Loan until such
Competitive Bid Loan shall be paid in full, at the rates per annum and on the
dates provided in the Agreement.
The date, amount, Type, interest rate and maturity date of each
Competitive Bid Loan made by the Lender to the Borrower, and each payment made
on account of the principal thereof, shall be recorded by the Lender on its
books and, prior to any transfer of this Note, endorsed by the Lender on the
schedule attached hereto or any continuation thereof, provided that the failure
of the Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
under the Agreement or hereunder in respect of the Competitive Bid Loans made
by the Lender.
This Note is one of the Competitive Bid Notes referred to in the
Credit Agreement dated as of September 5, 1996 (as modified and supplemented
from time to time, the "Agreement") among the Borrower, the Lenders named
therein, NationsBank, National Association (South), as Administrative Agent,
and The First National Bank of Chicago, as Documentation Agent, and evidences
Competitive Bid Loans made by the Lender thereunder. Terms used but not
defined in this Note have the respective meanings assigned to them in the
Agreement.
_______________
(1) Insert [the amount of Lender's Revolving Credit Commitment].
(2) Insert name of Lender in capital letters.
F-1
<PAGE> 146
If payment of all sums due hereunder is accelerated under the terms of
the Agreement or under the terms of the other Loan Documents executed in
connection with the Agreement, the then remaining principal amount and accrued
but unpaid interest shall bear interest which shall be payable on demand at the
rates per annum set forth in the proviso to Section 2.3 (a) of the Agreement.
Further, in the event of such acceleration, this Competitive Bid Note shall
become immediately due and payable, without presentation, demand, protest or
notice of any kind, all of which are hereby waived by the Borrower.
Except as permitted by Section 11.1 of the Agreement, this Note may
not be assigned by the Lender to any other Person.
Interest hereunder shall be computed as provided in the Agreement.
This Note shall be governed by, and construed in accordance with, the
law of the State of North Carolina.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby
waive to the full extent permitted by law the benefits of all provisions of law
for stay or delay of execution or sale of property or other satisfaction of
judgment against any of them on account of liability hereon until judgment be
obtained and execution issues against any other of them and returned satisfied
or until it can be shown that the maker or any other party hereto had no
property available for the satisfaction of the debt evidenced by this
instrument, or until any other proceedings can be had against any of them, also
their right, if any, to require the holder hereof to hold as security for this
Competitive Bid Note any collateral deposited by any of said Persons as
security. Protest, notice of protest, notice of dishonor, diligence or any
other formality are hereby waived by all parties bound hereon.
IN WITNESS WHEREOF, the Borrower has caused this Competitive Bid Note
to be made, executed and delivered by its duly authorized representative as of
the date and year first above written, all pursuant to authority duly granted.
WITNESS: MEDPARTNERS, INC.
- ----------------------------- By:
------------------------------
Name:
- ----------------------------- ------------------------------
Title:
-----------------------------
F-2
<PAGE> 147
SCHEDULE OF COMPETITIVE BID LOANS
This Note evidences Competitive Bid Loans made under the
within-described Agreement to the Borrower, on the dates, in the principal
amounts, of the Types, bearing interest at the rates and maturing on the dates
set forth below, subject to the payments and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ---- --------- ---- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
F-1
<PAGE> 148
EXHIBIT F-2
Form of Revolving Note
Promissory Note
(Revolving Loan)
$______________ _________, ______________
______ __, ____
FOR VALUE RECEIVED, _______________________, a ________ corporation
having its principal place of business located in ________, ________ (the
"Borrower"), hereby promises to pay to the order of _______________________
_______________________________________________ (the "Lender"), in its
individual capacity, at the office of NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), as agent for the Lenders (the "Administrative Agent"), located at One
Independence Center, 101 North Tryon Street, NC1-001-15-04, Charlotte, North
Carolina 28255 (or at such other place or places as the Administrative Agent
may designate in writing) at the times set forth in the Credit Agreement dated
as of September 5, 1996 among the Borrower, the financial institutions party
thereto (collectively, the "Lenders"), the Administrative Agent and The First
National Bank of Chicago, as Documentation Agent (the "Agreement" -- all
capitalized terms not otherwise defined herein shall have the respective
meanings set forth in the Agreement), in lawful money of the United States of
America, in immediately available funds, the principal amount of ___________
DOLLARS ($__________) or, if less than such principal amount, the aggregate
unpaid principal amount of all Revolving Loans made by the Lender to the
Borrower pursuant to the Agreement on the Revolving Credit Termination Date or
such earlier date as may be required pursuant to the terms of the Agreement,
and to pay interest from the date hereof on the unpaid principal amount hereof,
in like money, at said office, on the dates and at the rates provided in
Article II of the Agreement. All or any portion of the principal amount of
Loans may be prepaid or required to be prepaid as provided in the Agreement.
If payment of all sums due hereunder is accelerated under the terms of
the Agreement or under the terms of the other Loan Documents executed in
connection with the Agreement, the then remaining principal amount and accrued
but unpaid interest shall bear interest which shall be payable on demand at the
rates per annum set forth in the proviso to Section 2.3(a) of the Agreement.
Further, in the event of such acceleration, this Revolving Note shall become
immediately due and payable, without presentation, demand, protest or notice of
any kind, all of which are hereby waived by the Borrower.
In the event any amount evidenced by this Revolving Note is not paid
when due at any stated or accelerated maturity, the Borrower agrees to pay, in
addition to the principal and interest, all costs of collection, including
reasonable attorneys' fees, and interest due hereunder thereon at the rates set
forth above.
F-2
<PAGE> 149
This Note shall be governed by, and construed in accordance with, the
law of the State of North Carolina.
Interest hereunder shall be computed as provided in the Agreement.
This Revolving Note is one of the Revolving Notes referred to in the
Agreement and is issued pursuant to and entitled to the benefits and security
of the Agreement to which reference is hereby made for a more complete
statement of the terms and conditions upon which the Revolving Loans evidenced
hereby were or are made and are to be repaid. This Revolving Note is subject
to certain restrictions on transfer or assignment as provided in the Agreement.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby
waive to the full extent permitted by law the benefits of all provisions of law
for stay or delay of execution or sale of property or other satisfaction of
judgment against any of them on account of liability hereon until judgment be
obtained and execution issues against any other of them and returned satisfied
or until it can be shown that the maker or any other party hereto had no
property available for the satisfaction of the debt evidenced by this
instrument, or until any other proceedings can be had against any of them, also
their right, if any, to require the holder hereof to hold as security for this
Revolving Note any collateral deposited by any of said Persons as security.
Protest, notice of protest, notice of dishonor, diligence or any other
formality are hereby waived by all parties bound hereon.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be
made, executed and delivered by its duly authorized representative as of the
date and year first above written, all pursuant to authority duly granted.
------------------------------------
WITNESS:
By:
- ---------------------- ---------------------------------
Name:
- ---------------------- -------------------------------
Title:
------------------------------
F-3
<PAGE> 150
EXHIBIT F-3
SWING LINE NOTE
$25,000,000 ______________, ______________
September 5, 1996
FOR VALUE RECEIVED, MEDPARTNERS, INC., a Delaware corporation having
its principal place of business located in Birmingham, Alabama (the
"Borrower"), hereby promises to pay to the order of
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (the "Lender"), in its
individual capacity, at the office of NationsBank, National Association
(South), as administrative agent for the Lender (the "Administrative Agent"),
located at Independence Center, 15th Floor, Charlotte, North Carolina 28255 (or
at such other place or places as the Administrative Agent may designate) at the
times set forth in the Credit Agreement dated as of September 5, 1996 among the
Borrower, the financial institutions party thereto (collectively, the
"Lenders"), the Administrative Agent and The First National Bank of Chicago, as
Documentation Agent (as amended or supplemented, the "Credit Agreement" -- all
capitalized terms not otherwise defined herein shall have the respective
meanings set forth in the Credit Agreement), in lawful money of the United
States of America, in immediately available funds, the aggregate unpaid
principal amount of the Swing Line Loans made by the Lender to the Borrower
pursuant to the Credit Agreement and to pay interest on the unpaid principal
amount of each such Swing Line Loan, in like money, at said office, for the
period commencing on the date of such Swing Line Loan until such Swing Line
Loan shall be paid in full, on the dates and at the rates provided in Article
II of the Credit Agreement. All or any portion of the principal amount of
Swing Line Loans may be prepaid as provided in the Agreement.
In the event this Swing Line Note is not paid when due at any stated
or accelerated maturity, the Borrower agrees to pay, in addition to the
principal and interest, all costs of collection, including reasonable
attorneys' fees, and interest thereon at the rates set forth in the Credit
Agreement.
This Note is the Swing Line Note referred to in the Credit Agreement
and is issued pursuant to and entitled to the benefits and security of the
Credit Agreement to which reference is hereby made for a more complete
statement of the terms and conditions upon which the Swing Line Loans evidenced
hereby were or are made and are to be repaid. This Note is subject to certain
restrictions on transfer or assignment as provided in the Credit Agreement.
This Note shall be governed by, and construed in accordance with, the
law of the State of North Carolina.
Interest hereunder shall be computed as provided in the Agreement.
F-4
<PAGE> 151
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby
waive to the full extent permitted by law the benefits of all provisions of law
for stay or delay of execution or sale of property or other satisfaction of
judgment against any of them on account of liability hereon until judgment be
obtained and execution issues against any other of them and returned satisfied
or until it can be shown that the maker or any other party hereto had no
property available for the satisfaction of the debt evidenced by this
instrument, or until any other proceedings can be had against any of them, also
their right, if any, to require the holder hereof to hold as security for this
Swing Line Note any collateral deposited by any of said Persons as security.
Protest, notice of protest, notice of dishonor, diligence or any other
formality are hereby waived by all parties bound hereon.
IN WITNESS WHEREOF, the Borrower has caused this Swing Line Note to be
made, executed and delivered by its duly authorized representative as of the
date and year first above written, all pursuant to authority duly granted.
MEDPARTNERS, INC.
WITNESS:
- ---------------------- By:
-----------------------------
- ---------------------- Name:
---------------------------
Title:
--------------------------
F-5
<PAGE> 152
EXHIBIT G
Form of Competitive Bid Quote Request
[Date]
To: NationsBank, National Association (South),
as Administrative Agent
From: Medpartners, Inc.
Re: Competitive Bid Quote Request
Pursuant to Section 2.2 of the Credit Agreement dated as of September
5, 1996 (as amended and supplemented from time to time, the "Agreement") among
Medpartners, Inc., the Lenders, NationsBank, National Association (South), as
Administrative Agent, and The First National Bank of Chicago, as Documentation
Agent, we hereby give notice that we request Competitive Bid Quotes for the
following proposed Competitive Bid Borrowing(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date(1) Amount(2) Type(3) Period(4)
- ---------- ---------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
Terms used herein have the meanings assigned to them in the Agreement.
MEDPARTNERS, INC.
By:
-------------------------
Title:
____________________
(1) For use if an Absolute Rate in an Absolute Rate Auction
is requested to be submitted before the Borrowing Date.
(2) Each amount must be $5,000,000 or a larger integral
multiple of $500,000.
(3) Insert either "Eurodollar Margin" (in the case of
Eurodollar Market Loans) or "Absolute Rate" (in the case of
Absolute Rate Loans).
(4) One, two three or six months, in the case of a Eurodollar
Market Loan or, in the case of an Absolute Rate Loan, a period of
not less than 7 nor more that 180 days after the making of such
Absolute Rate Loan and ending on a Business Day.
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<PAGE> 153
EXHIBIT H
Form of Competitive Bid Quote
To: NationsBank, N.A., as Administrative Agent
Attention:
Re: Competitive Bid Quote to Medpartners, Inc. (the "Borrower")
This Competitive Bid Quote is given in accordance with Section 2.2(c)
of the Credit Agreement dated as of September 5, 1996 (as amended and
supplemented from time to time, the "Agreement") among Medpartners, Inc., the
Lenders, NationsBank, National Association (South), as Administrative Agent,
and The First National Bank of Chicago, as Documentation Agent. Terms defined
in the Agreement are used herein as defined therein.
In response to the Borrower's invitation dated __________, ____, we
hereby make the following Competitive Bid Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Competitive Bid Loan(s) in
the following principal amount[s], for the following Interest
Period(s) and at the following rate(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date (1) Amount(2) Type(3) Period (4) Rate(5)
- --------------- --------------- ------ ---- --------------- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
____________________
(1) As specified in the related Competitive Bid Quote Request.
(2) The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000 or a
larger integral multiple of $500,000.
(3) Indicate "Eurodollar Margin" (in the case of Eurodollar Market Loans) or
"Absolute Rate" (in the case of Absolute Rate Loans).
(4) One, two, three or six months, in the case of a Eurodollar Market Loan or,
in the case of an Absolute Rate Loan, a period of not less than 7 nor more than
180 days after the making of such Absolute Rate Loan and ending on a Business
Day, as specified in the related Competitive Bid Quote Request.
(5) For a Eurodollar Market Loan, specify margin over or under the Interbank
Offered Rate adjusted for the Eurodollar Reserve Percentage determined for the
applicable Interest Period. Specify percentage (rounded to the nearest 1/10,000
of 1%) and specify whether "PLUS" or "MINUS". For an Absolute Rate Loan,
specify rate of interest per annum (rounded to the nearest 1/10,000 of 1%).
H-1
<PAGE> 154
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit
Agreement, irrevocably obligate[s] us to make the Competitive Bid Loan(s) for
which any offer(s) (is/are) accepted, in whole or in part (subject to the third
sentence of Section 2.2(e) of the Agreement).
Very truly yours,
[NAME OF BANK]
By:
-------------------------
Authorized Officer
Dated: ,
---------- ----
H-2
<PAGE> 155
EXHIBIT I
Compliance Certificate
NationsBank, National Association,
as Administrative Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704) 386-9923
Reference is hereby made to the Credit Agreement dated as of September
5, 1996 (as amended or supplemented from time to time, the "Agreement") among
MedPartners, Inc., a Delaware corporation (the "Borrower"), the Lenders (as
defined in the Agreement), NationsBank, National Association (South) , as
Administrative Agent for the Lenders ("Administrative Agent") and The First
National Bank of Chicago, as Documentation Agent for the Lenders
("Documentation Agent"). Capitalized terms used but not otherwise defined
herein shall have the respective meanings therefor set forth in the Agreement.
The undersigned, a duly authorized and acting Authorized Representative, hereby
certifies to you as of __________ (the "Determination Date") as follows1:
____________________
(1)Certificate is delivered in connection with an Acquisition pursuant
to Section 8.2 of the Agreement, as indicated by the signature of the
Authorized Representative in the following space: _________________________
_____________________________, then the calculations provided in this
Certificate include applicable financial information and results of operations
on a consolidated historical pro forma basis of both the Person to be acquired,
________________________, [insert name of Person to be acquired] and the
Borrower and its Subsidiaries, all as of and for the period ending on the
Determination Date specified in the compliance certificate most recently
required to be furnished to the Agent pursuant to Section 7.1 of the Agreement.
If this Certificate is either (x) delivered pursuant to Section 7.1(h)
of the Agreement in connection with the incurrence of any Designated
Caremark Litigation Costs (as indicated by the signature of the Authorized
Representative in the following space: _____________________________) or (y)
delivered during any Relevant Period pursuant to any of Section 7.1(a), 7.1(b)
or 8.2 of the Agreement (as indicated by the signature of the Authorized
Representative in the following space: _____________________________), then the
calculations provided in this Certificate include in the determination of
Consolidated Indebtedness the sum of Designated Caremark Litigation Costs plus
$100,000,000, which Designated Caremark Litigation Costs are more particularly
described on the Designated Caremark Litigation Costs Schedule attached hereto.
I-1
<PAGE> 156
1. Calculations:
<TABLE>
<S> <C> <C>
A. Compliance with Section 8.1(a): Consolidated
Net Worth
1. Required Consolidated Net Worth
at beginning of most recent
fiscal quarter $__________
2. Consolidated Net Income x .50 $__________
3. Increases in stated and
paid-in capital $__________
4. Sum of A.1. + A.2. + A.3 = $__________
5. Actual $__________
Required: Amount specified in Section 8.1(a).
B. Compliance with Section 8.1(b): Consolidated
Leverage Ratio
1. Consolidated Indebtedness $__________
2. Consolidated EBITDA $__________
(Four-Quarter Period)
3. Ratio of B.1 to B.2 _ _.__ to 1.00
Required: Line B.3 must not be greater
than the amount specified in Section
8.1(b).
C. Compliance with Section 8.1(c). Fixed Charge
Ratio
1. Consolidated EBITDA $__________
2. Consolidated Lease Payments $__________
3. C.1. + C.2. $__________
4. Consolidated Fixed Charges $__________
</TABLE>
I-2
<PAGE> 157
<TABLE>
<S> <C>
5. Ratio of C.3. to C.4. _.__ to 1.00
Required: Line C.5. must not be less
than the amount specified in Section 8.1(c)
</TABLE>
2. No Default
A. Since __________ (the date of the last
similar certification), (a) the Borrower has not defaulted in
the keeping, observance, performance or fulfillment of its
obligations pursuant to any of the Loan Documents; and (b) no
Default or Event of Default specified in Article IX of the
Agreement has occurred and is continuing.
B. If a Default or Event of Default has occurred
since __________ (the date of the last similar certification),
the Borrower proposes to take the following action with
respect to such Default or Event of Default:
_______________________________________________________________
_______________________________________________________________
_________________________________________.
(Note, if no Default or Event of Default has
occurred, insert "Not Applicable").
3. Caremark Excess Cash Flow
If the Guaranty Limitation Release Date shall not have
occurred, as indicated by the signature of the Authorized
Representative in the following space:
________________________, then (x) the Caremark Designated
Cash Flow Schedule attached hereto contains a true and correct
computation of the calculation of Caremark Excess Cash Flow
for the most recent fiscal quarter of the Borrower, and (y)
the Caremark Excess Cash Flow required to be distributed to
the Borrower pursuant to the Credit Agreement in respect of
such fiscal quarter has been so distributed.
The Determination Date is the date of the last required financial
statements submitted to the Lenders in accordance with Section 7.1 of the
Agreement.
IN WITNESS WHEREOF, I have executed this Certificate this _____ day of
__________, ________.
By:
--------------------------------
Authorized Representative
Name:
------------------------------
Title:
-----------------------------
I-3
<PAGE> 158
DESIGNATED CAREMARK LITIGATION COSTS SCHEDULE
(to Compliance Certificate dated
as of _______________, ________)
I-4
<PAGE> 159
CAREMARK EXCESS CASH FLOW SCHEDULE
(to Compliance Certificate dated
as of ______________, _______)
I-5
<PAGE> 160
EXHIBIT J
Form of Guaranty
THIS GUARANTY AND SURETYSHIP AGREEMENT (the "Guaranty Agreement" or
the "Guaranty"), dated as of _______________, is made by each of the
undersigned (each a "Guarantor" and collectively the "Guarantors") to
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), a national banking association, as
Administrative Agent (together with any successor in such capacity, the
"Administrative Agent") for itself and each of the lenders now or hereafter
party to the Credit Agreement (as defined below) (each a "Lender" and,
collectively, the "Lenders").
W I T N E S S E T H:
WHEREAS, the Administrative Agent, The First National Bank of Chicago,
as Documentation Agent for the Lenders (in such capacity, the "Documentation
Agent") and the Lenders have agreed to provide to MedPartners, Inc.(the
"Borrower") a revolving credit facility and letter of credit and swing line
subfacilities pursuant to the terms of that certain Credit Agreement dated as
of September 5, 1996 among the Borrower, the Administrative Agent, the
Documentation Agent and the Lenders (as from time to time amended, modified or
supplemented, the "Credit Agreement"); and
WHEREAS, each Guarantor is a direct or indirect Subsidiary of the
Borrower; and
WHEREAS, as a condition to entering into the Credit Agreement and
continuing to make any loans or advances or to issue letters of credit
thereunder, each Guarantor is required to guarantee payment of the Borrower's
Liabilities (as hereinafter defined) in accordance with the terms of this
Guaranty; and
WHEREAS, each Guarantor will materially benefit from the loans and
advances to be made, and the letters of credit to be issued, under the Credit
Agreement, and each Guarantor is willing to enter into this Guaranty to provide
an inducement for the Lenders, the Administrative Agent and the Documentation
Agent to execute and deliver the Credit Agreement and continue to make loans
and advances, and to issue letters of credit, under the Credit Agreement.
NOW, THEREFORE, in order to induce the Lenders, the Administrative
Agent and the Documentation Agent to execute and deliver the Credit Agreement
and to make loans and advances to the Borrower, and to issue letters of credit
for the account of the Borrower, under the Credit Agreement, each Guarantor
agrees as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
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<PAGE> 161
2. GUARANTY. Each Guarantor hereby jointly and severally,
unconditionally, absolutely, continually and irrevocably guarantees to the
Administrative Agent and the Lenders the payment and performance in full of the
Borrower's Liabilities (as defined below). For all purposes of this Guaranty
Agreement, "Borrower's Liabilities" means: (a) the Borrower's prompt payment
in full, when due or declared due and at all such times, of all Obligations and
all other amounts pursuant to the terms of the Credit Agreement, the Notes, and
all other Loan Documents executed in connection with the Credit Agreement
heretofore, now or at any time or times hereafter owing, arising, due or
payable from the Borrower to the Lenders, including without limitation
principal, interest, premium or fee (including, but not limited to, loan fees
and attorneys' fees and expenses); and (b) the Borrower's prompt, full and
faithful performance, observance and discharge of each and every agreement,
undertaking, covenant and provision to be performed, observed or discharged by
the Borrower under the Credit Agreement and all other Loan Documents executed
in connection therewith. Each Guarantor's obligations to the Administrative
Agent and the Lenders under this Guaranty Agreement are hereinafter
collectively referred to as the "Guarantors' Obligations"; provided, however,
that the liability of each Guarantor with respect to the Guarantors'
Obligations shall not exceed at any time the Maximum Amount (as hereinafter
defined). The "Maximum Amount" means the greater of (X) the aggregate amount
of all funds advanced to such Guarantor directly or indirectly with the
proceeds of Loans and not theretofore repaid by such Guarantor or (Y) 95% of
(i) the fair salable value of the assets of such Guarantor as of the date
hereof minus (ii) the total liabilities of such Guarantor (including contingent
liabilities, but excluding liabilities of such Guarantor under this Guaranty
and any other Loan Documents executed by such Guarantor) as of the date hereof;
provided further, however, that if the calculation of the Maximum Amount in the
manner provided in clause (Y) above as of the date payment is required of such
Guarantor pursuant to this Guaranty would result in a greater positive number,
then the Maximum Amount as computed under such clause (Y) shall be deemed to be
such greater positive number.
Each Guarantor agrees that it is jointly and severally, directly and
primarily liable for the Borrower's Liabilities.
3. PAYMENT. If the Borrower shall default in payment or
performance of any Borrower's Liabilities, whether principal, interest,
premium, fee (including, but not limited to, loan fees and attorneys' fees and
expenses), or otherwise, when and as the same shall become due, whether
according to the terms of the Credit Agreement, by acceleration, or otherwise,
or upon the occurrence of any other Event of Default under the Credit Agreement
that has not been cured or waived, then each Guarantor, upon demand thereof by
the Administrative Agent or its successors or assigns, will AS OF THE DATE OF
THE ADMINISTRATIVE AGENT'S DEMAND fully pay to the Administrative Agent, for
the benefit of itself and the Lenders, as applicable, subject to any
restriction set forth in Section 2 hereof, an amount equal to all Guarantor's
Obligations then due and owing.
4. UNCONDITIONAL OBLIGATIONS. This is a guaranty of payment and
not of collection. The Guarantors' Obligations under this Guaranty Agreement
shall be joint and several, absolute and unconditional irrespective of the
validity, legality or enforceability of the Credit Agreement, the Notes or any
other Loan Document or any other guaranty of the Borrower's Liabilities, and
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<PAGE> 162
shall not be affected by any action taken under the Credit Agreement, the Notes
or any other Loan Document, any other guaranty of the Borrower's Liabilities,
or any other agreement between the Administrative Agent, the Documentation
Agent or the Lenders and the Borrower or any other person, in the exercise of
any right or power therein conferred, or by any failure or omission to enforce
any right conferred thereby, or by any waiver of any covenant or condition
therein provided, or by any acceleration of the maturity of any of the
Borrower's Liabilities, or by the release or other disposal of any security for
any of the Borrower's Liabilities, or by the dissolution of the Borrower or the
combination or consolidation of the Borrower into or with another entity or any
transfer or disposition of any assets of the Borrower or by any extension or
renewal of the Credit Agreement, any of the Notes or any other Loan Document,
in whole or in part, or by any modification, alteration, amendment or addition
of or to the Credit Agreement, any of the Notes or any other Loan Document, any
other guaranty of the Borrower's Liabilities, or any other agreement between
the Administrative Agent, the Documentation Agent or the Lenders and the
Borrower or any other Person, or by any other circumstance whatsoever (with or
without notice to or knowledge of any Guarantor) which may or might in any
manner or to any extent vary the risks of any Guarantor, or might otherwise
constitute a legal or equitable discharge of a surety or guarantor; it being
the purpose and intent of the parties hereto that this Guaranty Agreement and
the Guarantors' Obligations hereunder shall be absolute and unconditional under
any and all circumstances and shall not be discharged except by payment as
herein provided.
5. CURRENCY AND FUNDS OF PAYMENT. Each Guarantor hereby
guarantees that the Guarantors' Obligations will be paid in lawful currency of
the United States of America and in immediately available funds, regardless of
any law, regulation or decree now or hereafter in effect that might in any
manner affect the Borrower's Liabilities, or the rights of the Administrative
Agent or any Lender with respect thereto as against the Borrower, or cause or
permit to be invoked any alteration in the time, amount or manner of payment by
the Borrower of any or all of the Borrower's Liabilities.
6. EVENTS OF DEFAULT. In the event that (a) any Guarantor shall
file a petition to take advantage of any insolvency statute; (b) any Guarantor
shall commence or suffer to exist a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of itself or of the whole or
substantially all of its property; (c) any Guarantor shall file a petition or
answer seeking reorganization or arrangement or similar relief under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state or similar law of any other country; (d) a court
of competent jurisdiction shall enter an order, judgment or decree appointing a
custodian, receiver, trustee, liquidator or conservator of any Guarantor or of
the whole or substantially all of its properties, or approve a petition filed
against any Guarantor seeking reorganization or arrangement or similar relief
under the Federal bankruptcy laws or any other applicable law or statute of the
United States of America or any state or similar law of any other country, or
if, under the provisions of any other law for the relief or aid of debtors, a
court of competent jurisdiction shall assume custody or control of any
Guarantor or of the whole or substantially all of its properties and such
order, judgment, decree, approval or assumption remains unstayed or undismissed
for a period of thirty (30) consecutive days; (e) there is commenced against
any Guarantor any proceeding or petition seeking reorganization,
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<PAGE> 163
arrangement or similar relief under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state, which
proceeding or petition remains unstayed or undismissed for a period of thirty
(30) consecutive days; (f) there shall occur an Event of Default under the
Credit Agreement; (g) any default shall occur in the payment of amounts due
hereunder; or (h) any other default shall occur hereunder which remains uncured
or unwaived for a period of thirty (30) days (each of the foregoing an "Event
of Default" hereunder); then notwithstanding any collateral that the
Administrative Agent or the Lenders may have available from Borrower or any
Guarantor or any other guarantor of the Borrower's Liabilities, or any other
party, at the Administrative Agent's election and without notice thereof or
demand therefor, so long as such Event of Default shall be continuing, the
Guarantors' Obligations shall immediately become due and payable.
7. SUITS. Each Guarantor from time to time shall pay to the
Administrative Agent for the benefit of the Lenders, on demand, at the
Administrative Agent's place of business set forth in the Credit Agreement or
such other address as the Administrative Agent shall give notice of to the
Guarantor, the Guarantors' Obligations as they become or are declared due, and
in the event such payment is not made forthwith, the Administrative Agent or
the Lenders or any of them may proceed to suit against any one or more or all
of the Guarantors. At the Administrative Agent's election, one or more and
successive or concurrent suits may be brought hereon by the Administrative
Agent against any one or more or all of the Guarantors, whether or not suit has
been commenced against the Borrower, any other guarantor of the Borrower's
Liabilities, or any other Person and whether or not the Administrative Agent or
any Lender has taken or failed to take any other action to collect all or any
portion of the Borrower's Liabilities.
8. SET-OFF AND WAIVER. Each Guarantor waives any right to assert
against the Administrative Agent and the Lenders as a defense, counterclaim,
set-off or cross claim, any defense (legal or equitable) or other claim which
such Guarantor may now or at any time hereafter have against the Borrower, the
Administrative Agent or the Lenders, without waiving any additional defenses,
set-offs, counterclaims or other claims otherwise available to such Guarantor.
If at any time hereafter the Administrative Agent or any Lender employs counsel
for advice or other representation to enforce the Guarantors' Obligations that
arise out of an Event of Default, then, in any of the foregoing events, all of
the reasonable attorneys' fees arising from such services and all expenses,
costs and charges in any way or respect arising in connection therewith or
relating thereto shall be jointly and severally paid by the Guarantors to the
Administrative Agent, for the benefit of the Administrative Agent and the
Lenders, on demand.
9. WAIVER; SUBROGATION.
(a) Each Guarantor hereby waives notice of the following events or
occurrences: (i) the Administrative Agent's or Documentation Agent's
acceptance of this Guaranty Agreement; (ii) the Lenders' heretofore, now or
from time to time hereafter loaning monies or giving or extending credit to or
for the benefit of the Borrower, whether pursuant to the Credit Agreement, the
Notes or the other Loan Documents, or any amendments, modifications, or
supplements thereto, or replacements or extensions thereof; (iii) the
Administrative Agent, the
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<PAGE> 164
Lenders or the Borrower heretofore, now or at any time hereafter, obtaining,
amending, substituting for, releasing, waiving or modifying the Credit
Agreement, the Notes or any other Loan Documents; (iv) presentment, demand,
notices of default, non-payment, partial payment and protest; (v) the
Administrative Agent or the Lenders heretofore, now or at any time hereafter
granting to the Borrower (or any other party liable to the Lenders on account
of the Borrower's Liabilities) any indulgence or extensions of time of payment
of the Borrower's Liabilities; and (vi) the Administrative Agent or the Lenders
heretofore, now or at any time hereafter accepting from the Borrower or any
other person, any partial payment or payments on account of the Borrower's
Liabilities or any collateral securing the payment thereof or the
Administrative Agent settling, subordinating, compromising, discharging or
releasing the same. Each Guarantor hereby (a) agrees that the Administrative
Agent and each Lender may heretofore, now or at any time hereafter do any or
all of the foregoing in such manner, upon such terms and at such times as the
Administrative Agent and each Lender, in its sole and absolute discretion,
deems advisable, without in any way or respect impairing, affecting, reducing
or releasing such Guarantor from the Guarantors' Obligations, (b) consents to
each and all of the foregoing events or occurrences and (c) waives, to the
extent permitted by law, (1) any right of a surety or guarantor to any defense,
discharge, release or diminution of its liabilities hereunder as a result of
any of the foregoing events or occurrences, and (2) any right under N.C.G.S.
Section 26-7 or otherwise to require that resort be had to the Borrower or any
other guarantor of, or any property securing, all or any part of the Borrower's
Liabilities.
(b) Each Guarantor hereby agrees that payment or performance by
such Guarantor of the Guarantors' Obligations under this Guaranty Agreement may
be enforced by the Administrative Agent on behalf of the Lenders upon demand by
the Administrative Agent to such Guarantor without the Administrative Agent
being required, each Guarantor expressly waiving any right it may have to
require the Administrative Agent, to (i) prosecute collection or seek to
enforce or resort to any remedies against the Borrower or any other Guarantor
or any other guarantor of the Borrower's Liabilities, IT BEING EXPRESSLY
UNDERSTOOD, ACKNOWLEDGED AND AGREED TO BY EACH GUARANTOR THAT DEMAND UNDER THIS
GUARANTY AGREEMENT MAY BE MADE BY THE ADMINISTRATIVE AGENT, AND THE PROVISIONS
HEREOF ENFORCED BY THE ADMINISTRATIVE AGENT, EFFECTIVE AS OF THE FIRST DATE ANY
EVENT OF DEFAULT OCCURS AND IS CONTINUING UNDER THE CREDIT AGREEMENT, or (ii)
seek to enforce or resort to any remedies with respect to any security
interests, Liens or encumbrances granted to the Administrative Agent by the
Borrower or any other Person on account of the Borrower's Liabilities or any
guaranty thereof. Neither the Administrative Agent nor any Lender shall have
any obligation to protect, secure or insure any of the foregoing security
interests, Liens or encumbrances on the properties or interests in properties
subject thereto. The Guarantors' Obligations shall in no way be impaired,
affected, reduced, or released by reason of the Administrative Agent's or any
Lender's failure or delay to do or take any of the acts, actions or things
described in this Guaranty Agreement including, without limiting the generality
of the foregoing, those acts, actions and things described in this Section 9.
(c) Each Guarantor further agrees with respect to this Guaranty
Agreement that such Guarantor shall have no right of, and each Guarantor hereby
irrevocably waives all claims in
J-5
<PAGE> 165
the nature of, subrogation, reimbursement or indemnity, nor any right of
recourse to security for the Borrower's Liabilities.
10. EFFECTIVENESS; ENFORCEABILITY. This Guaranty Agreement shall
be effective as of the Closing Date, and shall continue in full force and
effect until the Borrower's Obligations (other than obligations in the nature
of continuing indemnities and liability for expenses which are not yet due and
payable, which shall survive as an obligation guarantied by the Guarantors
hereunder notwithstanding any termination hereof) are fully, finally and
irrevocably paid and satisfied, the Lenders shall be under no further
obligation to advance funds or issue Letters of Credit and there shall be no
Letters of Credit outstanding. The Administrative Agent shall give each
Guarantor written notice of such termination at each Guarantor's address set
forth below such Guarantor's execution hereof on the signature pages of this
Guaranty or such other address for the Guarantor as such Guarantor shall give
notice to the Administrative Agent in the manner provided for the giving of
notices under the Credit Agreement (the "Guarantor's Address"). This Guaranty
Agreement shall be binding upon and inure to the benefit of each Guarantor, the
Administrative Agent and the Lenders and their respective successors and
assigns. Notwithstanding the foregoing, no Guarantor may, without the prior
written consent of the Administrative Agent (which may be withheld in its
discretion), assign any rights, powers, duties or obligations hereunder. Any
claim or claims that the Administrative Agent and the Lenders may at any time
hereafter have against any Guarantor under this Guaranty Agreement may be
asserted by the Administrative Agent or any Lender by written notice directed
to any one or more or all of the Guarantors at the applicable Guarantor's
Address.
11. REPRESENTATIONS AND WARRANTIES. Each Guarantor warrants and
represents to the Administrative Agent for the benefit of the Lenders that it
is duly authorized to execute, deliver and perform this Guaranty Agreement,
that this Guaranty Agreement is legal, valid, binding and enforceable against
such Guarantor in accordance with its terms except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles; and that such Guarantor's execution, delivery and
performance of this Guaranty Agreement do not violate or constitute a breach of
any of its charter or governance documents or any agreement to which such
Guarantor is a party, or any law, order, rule, regulation, decree or award of
any applicable Governmental Authority or arbitral body.
12. EXPENSES. Each Guarantor agrees to be liable for the payment
of all reasonable fees and expenses, including attorney's fees, incurred by the
Administrative Agent or any Lender in connection with the enforcement of this
Guaranty Agreement.
13. REINSTATEMENT. Each Guarantor agrees that this Guaranty
Agreement shall continue to be effective or be reinstated, as the case may be,
at any time payment received by the Administrative Agent or any Lender under
the Credit Agreement or any other Loan Document or this Guaranty Agreement is
rescinded or must be restored for any reason.
J-6
<PAGE> 166
14. COUNTERPARTS. This Guaranty Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
constitute one and the same instrument.
15. RELIANCE. Each Guarantor represents and warrants to the
Administrative Agent, for the benefit of the Administrative Agent and the
Lenders, that: (a) such Guarantor has adequate means to obtain from Borrower,
on a continuing basis, information concerning Borrower and Borrower's financial
condition and affairs and has full and complete access to Borrower's books and
records; (b) such Guarantor is not relying on the Administrative Agent, the
Documentation Agent or any Lender, its or their employees, agents or other
representatives, to provide such information, now or in the future; (c) such
Guarantor is executing this Guaranty Agreement freely and deliberately, and
understands the obligations and financial risk undertaken by providing this
Guaranty; (d) such Guarantor has relied solely on the Guarantor's own
independent investigation, appraisal and analysis of Borrower and Borrower's
financial condition and affairs in deciding to provide this Guaranty and is
fully aware of the same; and (e) such Guarantor has not depended or relied on
the Administrative Agent, the Documentation Agent or any Lender, its or their
employees, agents or representatives, for any information whatsoever concerning
Borrower or Borrower's financial condition and affairs or other matters
material to such Guarantor's decision to provide this Guaranty or for any
counselling, guidance, or special consideration or any promise therefor with
respect to such decision. Each Guarantor agrees that neither the
Administrative Agent, the Documentation Agent nor any Lender has any duty or
responsibility whatsoever, now or in the future, to provide to any Guarantor
any information concerning Borrower or Borrower's financial condition and
affairs, other than as expressly provided herein, and that, if such Guarantor
receives any such information from the Administrative Agent, the Documentation
Agent or any Lender, its or their employees, agents or other representatives,
such Guarantor will independently verify the information and will not rely on
the Administrative Agent, the Documentation Agent or any Lender, its or their
employees, agents or other representatives, with respect to such information.
16. GOVERNING LAW.
(A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA APPLICABLE TO
CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE.
(B) EACH PARTY HEREBY EXPRESSLY AND IRREVOCABLY AGREES
AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN
MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE STATE
OF NORTH CAROLINA, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND
DELIVERY OF THIS AGREEMENT, EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY
HAVE NOW OR HEREAFTER TO THE LAYING OF THE VENUE OR TO THE
JURISDICTION OF ANY SUCH SUIT, ACTION OR
J-7
<PAGE> 167
PROCEEDING, AND IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO
THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR
PROCEEDING.
(C) EACH PARTY AGREES THAT SERVICE OF PROCESS MAY BE MADE
BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER
LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED
OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE GUARANTOR'S ADDRESS (AS
HEREIN DEFINED) FOR EACH GUARANTOR AND AT THE ADDRESS OF SUCH OTHER
PARTY PROVIDED IN SECTION 10.02 OF THE CREDIT AGREEMENT OR BY ANY
OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN
EFFECT IN THE STATE OF NORTH CAROLINA.
(D) NOTHING CONTAINED IN SUBSECTIONS (B) OR (C) HEREOF
SHALL PRECLUDE ANY PARTY FROM BRINGING ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS IN THE COURTS OF ANY PLACE WHERE ANY OTHER PARTY OR ANY OF
SUCH PARTY'S PROPERTY OR ASSETS MAY BE FOUND OR LOCATED. TO THE
EXTENT PERMITTED BY THE APPLICABLE LAWS OF ANY SUCH JURISDICTION, EACH
PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT
AND EXPRESSLY WAIVES, IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING, THE JURISDICTION OF ANY OTHER COURT OR COURTS WHICH NOW OR
HEREAFTER, BY REASON OF ITS PRESENT OR FUTURE DOMICILE, OR OTHERWISE,
MAY BE AVAILABLE TO IT.
(E) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN
THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, EACH PARTY
HEREBY AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY AND EACH PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY HAVE THAT EACH ACTION OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
J-8
<PAGE> 168
IN WITNESS WHEREOF, the parties have duly executed this Guaranty
Agreement on the day and year first written above.
GUARANTORS:
[insert names of Material
Subsidiaries]
WITNESS: By:
----------------------------
Name:
---------------------------
Title:
- ---------------------- --------------------------
- ----------------------
Address for Notices:
3000 Galleria Parkway, Suite 1000
Birmingham, Alabama 35244
Telefacsimile: (205) 733-9780
J-9
<PAGE> 169
ADMINISTRATIVE AGENT:
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), as Administrative Agent
for the Lenders
By:
------------------------------
Name: James S. Scully
Title: Vice President
J-10
<PAGE> 170
EXHIBIT K
Form of Opinion of Borrower's Counsel
(Closing Date)
See attached.
K-1
<PAGE> 171
Schedule 1.1
Assumed Debt
S-1
<PAGE> 172
Schedule 1.1
Closing Date Prepayable Debt
S-2
<PAGE> 173
Schedule 1.1
Designated Caremark Litigation
1. In re Brand Name Prescription Drugs Antitrust Litigation MDL 977:
United States District Court, Northern District of Illinois
2. D.A.B. v. Caremark: United States District Court , Fourth Division of
Minnesota
3. James Russo v. Caremark: United States District Court, Fourth
Division of Minnesota
4. Justen Torrer v. Caremark: United States District Court, Southern
District of South Dakota
5. In re Caremark International Inc. Securities Litigation No. 94 C 4751:
United States District Court, Northern District of Illinois
6. B. Brumberg v. Caremark: United States District Court, Northern
District of Illinois
7. Rebecca Isquith v. Caremark: United States District Court, Northern
District of Illinois
8. Alice Lenzen v. Caremark: Circuit Court, Cook County, Illinois
9. In re Caremark International Inc. Derivative Litigation No. 13670:
United States District Court, District of Delaware
10. Pharmacare, AKA Value Drug, Ltd. et al. v. Caremark: United States
District Court, District of Hawaii
11. Federal Trade Commission Investigation pertaining to pharmaceutical
industry practices, of which Caremark received notice in December
1994.
S-3
<PAGE> 174
Schedule 1.1
Additional Settlement Agreements
None.
S-4
<PAGE> 175
Schedule 1.1
Insurer Settlement Agreements
S-5
<PAGE> 176
Schedule 1.1
OIG Settlement Agreements
S-6
<PAGE> 177
Schedule 1.1
Existing Letters of Credit
S-7
<PAGE> 178
Schedule 6.4
Subsidiaries and Investments in Other Persons
S-8
<PAGE> 179
Schedule 6.6
Other Indebtedness
S-9
<PAGE> 180
Schedule 6.7
Liens
S-10
<PAGE> 181
Schedule 6.8
Tax Matters
S-11
<PAGE> 182
Schedule 6.10
Litigation
None.
S-12
<PAGE> 183
Schedule 6.19
Employment Matters
S-13
<PAGE> 184
Schedule 7.5
Insurance
S-14
<PAGE> 185
Schedule 8.4
Indebtedness at Closing Date
S-15
<PAGE> 1
EXHIBIT 10.17
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AND CONSENT
THIS AMENDMENT AGREEMENT is made and entered into as of this 18th day
of September, 1996, by and among MEDPARTNERS, INC., a Delaware corporation as
Borrower, NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Administrative Agent
for the Lenders, THE FIRST NATIONAL BANK OF CHICAGO, as Documentation Agent for
the Lenders, and the Lenders, as each of such capitalized terms is defined
under the Credit Agreement described below;
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into a Credit Agreement dated
as of September 5, 1996 (the "Credit Agreement") pursuant to which the Lenders
have agreed to make Loans to the Borrower in the principal amount of up to
$1,000,000,000 and to provide certain related credit facilities; and
WHEREAS, the Borrower has requested that certain provisions of the
Credit Agreement be amended, including the requirement that Material
Subsidiaries execute and deliver Guaranties and that the Guaranties of Material
Subsidiaries executed and delivered as of the Closing Date be released; and
WHEREAS, the Agents and the Lenders, subject to the terms and
conditions hereof, are willing to make such amendments and release the
Guaranties, as provided herein;
NOW, THEREFORE, the Borrower, the Agents and the Lenders do hereby
agree as follows:
1. Definitions. The term "Credit Agreement" as used herein and
in the other Loan Documents (as defined in the Credit Agreement) and all other
references to the Credit Agreement shall mean and refer to the Credit Agreement
referred to above, as hereby amended and modified. Unless the context
otherwise requires, all capitalized terms used herein without definition shall
have the definition provided therefor in the Credit Agreement.
2. Certain Amendments to Credit Agreement. Subject to the
conditions hereof, the Credit Agreement is hereby amended as follows:
(a) the following new definitions are added to Section 1.1:
"Indenture Notes Redemption Date" means the date upon
which the Borrower shall furnish to the Administrative Agent
evidence satisfactory to the Administrative Agent that not
less than $51,000,000 aggregate principal amount
<PAGE> 2
of the Indenture Notes shall have been redeemed, defeased, or
otherwise effectively retired and are no longer outstanding."
"Senior 1996 Notes" means the senior unsecured notes
due 2006 issued or to be issued by the Borrower, the
registration statement for which shall be filed with the
Securities and Exchange Commission on or before October 15,
1996."
"Senior 1996 Notes Indenture" means the Indenture
between the Borrower, as issuer and a trustee for the holders
of Senior 1996 Notes, providing for the issuance of the Senior
1996 Notes.";
(b) The definition of "Indenture Note Purchases" in Section
1.1 is amended by deleting the phrase "or any Guarantor other than
Caremark, Inc.";
(c) Sections 2.1(a), 2.1(b), 3.1 and 5.2(e) are amended by
deleting the phrase "Guaranty Limitation Release Date" in each place
it appears and substituting in lieu thereof the phrase "Indenture
Notes Redemption Date";
(d) Section 7.19 and Exhibit J are deleted in their entirety;
(e) Section 7.20 is deleted in its entirety;
(f) Clause (e) of each of Sections 8.4 and 8.6 is amended by
deleting the phrase "until the Guaranty Limitation Release Date," in
each place it appears;
(g) Clause (h) of Section 8.6 is amended by deleting the
phrase "or any Guarantor other than Caremark, Inc.";
(h) Section 8.15 is amended by (x) renumbering clause "(ii)"
as clause "(iii)" and inserting immediately after the phrase "(i) the
Indenture and the other Assumed Debt," the following new clause (ii):
"(ii) the Borrower may enter into the Senior 1996 Notes
Indenture containing the limitations on the creation or
incurrence of Liens in the form attached hereto as Amendment
No. 1 - Exhibit A (provided that this clause (ii) shall not be
deemed to confer any right of the Borrower or any Subsidiary
to incur, create or permit to exist any Lien, charge or other
encumbrance otherwise prohibited by Section 8.3 hereof),";
(i) Amendment No. 1 - Exhibit A in the form attached hereto
is hereby made a part of the Credit Agreement; and
(j) Section 3 of Exhibit I, styled "Caremark Excess Cash
Flow," is deleted in its entirety.
<PAGE> 3
3. Consent to Release and Termination of Guaranties . The
parties hereto hereby consent to the release and termination of all Guaranties
previously delivered to the Administrative Agent or the Lenders under the
Credit Agreement. Upon this Amendment Agreement becoming effective, all such
Guaranties shall be deemed without further action to be released, terminated,
and of no further force or effect.
4. Representations and Warranties. The Borrower hereby
represents and warrants that:
(a) The representations and warranties made by or with
respect to the Borrower and its Subsidiaries in Article VI of the
Credit Agreement are true and correct in all material respects on and
as of the date hereof;
(b) There has been no material change in the business,
properties, prospects or condition, financial or otherwise, of the
Borrower and its Subsidiaries, taken as a whole, since the Closing
Date, other than changes in the ordinary course of business, none of
which could reasonably be expected to have a Material Adverse Effect;
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the Closing Date have not been,
adversely affected in any substantial way as the result of any fire,
explosion, earthquake, accident, strike, lockout, combination of
workers, flood, embargo, riot, activities of armed forces, war or acts
of God or the public enemy, or cancellation or loss of any major
contracts; and
(d) Immediately prior to and immediately after giving
effect to this Amendment, no Default or Event of Default shall exist
or be continuing.
5. Conditions. This Amendment Agreement shall become effective
upon satisfaction of all of the following conditions:
(i) the Borrower shall deliver or cause to be delivered to the Agent,
the following:
(a) counterparts (in number requested by the Administrative
Agent) of this Amendment Agreement duly executed by the Borrower;
(b) an opinion of counsel for the Borrower in form and
content acceptable to the Administrative Agent and its special
counsel, and including without limitation opinions as to the
authorization, execution, delivery and binding effect of this
Amendment Agreement;
(c) payment in full of (i) all fees payable to the
Administrative Agent and the Lenders, and (ii) the fees and expenses
of the Administrative Agent and its special counsel accrued to the
date hereof; and
(d) such other instruments and documents as the
Administrative Agent may reasonably request;
<PAGE> 4
(ii) the Administrative Agent shall receive the written consent to
this Amendment Agreement of the Agents and the Lenders;
(iii) the Senior 1996 Notes shall have been issued pursuant to the
Senior 1996 Notes Indenture in an aggregate principal amount of not
less than $200,000,000; and
(iv) all instruments and documents incident to the consummation of
the transactions contemplated hereby shall be satisfactory in form and
substance to the Administrative Agent and its special counsel; the
Administrative Agent shall have received copies of all additional
agreements, instruments and documents which it may reasonably request
in connection therewith, including evidence of the authority of the
Borrower to enter into the transactions contemplated by this Amendment
Agreement, such documents, when appropriate, to be certified by
appropriate corporate or governmental authorities; and all proceedings
of the Borrower relating to the matters provided for herein shall be
satisfactory to the Administrative Agent and its special counsel; and
6. Entire Agreement. This Amendment Agreement sets forth the
entire understanding and agreement of the parties hereto in relation to the
subject matter hereof, and supersedes any prior negotiations and agreements
among the parties relative to such subject matter. No promise, conditions,
representation or warranty, express or implied, not herein set forth shall bind
any party hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that,
except as in this Amendment Agreement otherwise expressly stated, no
representations, warranties or commitments, express or implied, in connection
herewith have been made by any other party to the other. None of the terms or
conditions of this Amendment Agreement may be changed, modified, waived or
canceled orally or otherwise, except in the manner provided in the Credit
Agreement.
7. Full Force and Effect of Agreement. Except as hereby
specifically amended, modified or supplemented, the Credit Agreement and all of
the other Loan Documents (other than the Guaranties) are hereby confirmed and
ratified in all respects and shall remain in full force and effect according to
their respective terms.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
MEDPARTNERS, INC.
WITNESS:
- --------------------- By:
----------------------------------------
- --------------------- Name:
--------------------------------------
Title:
-------------------------------------
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH),
as Administrative Agent for the Lenders
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, as
Documentation Agent for the Lenders
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 6
NATIONSBANK, NATIONAL ASSOCIATION (SOUTH)
By:
----------------------------------------
Name: James S. Scully
Title: Vice President
<PAGE> 7
THE FIRST NATIONAL BANK OF CHICAGO
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 8
CREDIT LYONNAIS NEW YORK BRANCH, Managing
Agent
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 9
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
Managing Agent
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 10
BANK OF AMERICA NT & SA, Co-Agent
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 11
THE BANK OF NOVA SCOTIA, Co-Agent
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 12
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
Co-Agent
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 13
THE NIPPON CREDIT BANK, LTD., LOS ANGELES
AGENCY, Co-Agent
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 14
AMSOUTH BANK OF ALABAMA
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 15
BANKERS TRUST COMPANY
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 16
THE DAI-ICHI KANGYO BANK, LIMITED
ATLANTA AGENCY
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 17
DEUTSCHE BANK AG NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 18
THE FUJI BANK, LTD. - ATLANTA AGENCY
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 19
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 20
MELLON BANK, N.A.
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 21
PNC BANK, KENTUCKY, INC.
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 22
THE SANWA BANK, LIMITED ATLANTA AGENCY
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 23
THE SUMITOMO BANK, LIMITED, ATLANTA AGENCY
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 24
WACHOVIA BANK OF GEORGIA
By:
----------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
<PAGE> 25
AMENDMENT NO. 1 - EXHIBIT A
<PAGE> 1
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)__
---------------------
THE FIRST NATIONAL BANK OF CHICAGO
(Exact name of trustee as specified in its charter)
A National Banking Association 36-0899825
(I.R.S. employer
identification number)
One First National Plaza, Chicago, Illinois 60670-0126
(Address of principal executive offices) (Zip Code)
The First National Bank of Chicago
One First National Plaza, Suite 0286
Chicago, Illinois 60670-0286
Attn: Lynn A. Goldstein, Law Department (312) 732-6919
(Name, address and telephone number of agent for service)
---------------------
MedPartners, Inc.
(Exact name of obligor as specified in its charter)
Delaware 63-1151076
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244 35244
(Address of principal executive offices) (Zip Code)
Debt Securities
(Title of Indenture Securities)
<PAGE> 2
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C.,
Federal Deposit Insurance Corporation,
Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A
PART OF THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE> 3
7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the trustee, The First National Bank of Chicago, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this Statement of Eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Chicago and State of
Illinois, on the 1st day of October, 1996.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
BY /S/ STEVEN M. WAGNER
----------------------------------
STEVEN M. WAGNER
VICE PRESIDENT AND SENIOR COUNSEL
CORPORATE TRUST SERVICES DIVISION
* EXHIBIT 1, 2 AND 3 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING
IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF
CHICAGO, FILED AS EXHIBIT 26 TO THE REGISTRATION STATEMENT ON FORM S-3 OF THE
CIT GROUP HOLDINGS, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
FEBRUARY 16, 1993 (REGISTRATION NO. 33-58418).
3
<PAGE> 4
EXHIBIT 4
BY-LAWS
OF
THE FIRST NATIONAL BANK OF CHICAGO
AS AMENDED AND RESTATED JULY 12, 1996
4
<PAGE> 5
BY-LAWS
OF
THE FIRST NATIONAL BANK OF CHICAGO
ARTICLE I
CORPORATE GOVERNANCE
To the extent not inconsistent with applicable Federal banking
statutes or regulations, or safe and sound banking practices, the Bank shall
follow the corporate governance procedures of the Delaware General Corporation
Law, as amended.
ARTICLE II
SHAREHOLDERS
SECTION 1. Annual Meeting. The regular annual meeting of shareholders
of the Bank to elect directors and to transact whatever other business may
properly come before the meeting shall be held in its main office on the second
Friday in May if not a legal holiday under the Laws of Illinois, and if a legal
holiday, then on the next business day following, at 11:30 A.M., or on such
other date and time as shall be designated by the Board of Directors. If, for
any cause, the annual election of directors should not be held on that date,
the Board shall order the election to be held on some subsequent day, of which
special notice shall be given.
SECTION 2. Judges of Election. To the extent required by law, the
Board of Directors shall, prior to the time of the election of directors,
appoint three persons to be Judges of Election, who shall hold and conduct the
same, and who shall, after the election has been held, certify under their
hands to the Cashier of the Bank the result thereof and the names of the
directors-elect.
SECTION 3. Notice to Directors-Elect. The Cashier upon receiving the
Certificate of the Judges of Election as aforesaid, shall cause the same to be
recorded upon the minute book of the Bank, and shall notify the directors-elect
of their election and of the time at which they are required to meet at the
main office of the Bank for the purpose of organizing the new Board. If at the
time fixed for the meeting of the directors-elect there should not be a quorum
present, the members present may adjourn from time to time until a quorum is
obtained.
SECTION 4. Special Meetings. Special meetings of the shareholders may
be called in accordance with Article EIGHTH of the Bank's Articles of
Association.
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<PAGE> 6
SECTION 5. Record Date. The Board of Directors may fix in advance a
day not more than sixty (60) or less than ten (10) days prior to the date of
holding any regular or special meeting of shareholders as the day as of which
shareholders entitled to notice of and to vote at such meeting shall be
determined.
SECTION 6. Notice. The Bank shall mail notice of any meeting of
shareholders at least 10 days prior to the meeting by first class mail, unless
the Office of the Comptroller of the Currency determines that an emergency
circumstance exists. If the Bank is a wholly-owned subsidiary of a company,
the sole shareholder may waive notice of the shareholder's meeting.
SECTION 7. Consent of Shareholders in Lieu of Annual or Special
Meeting. Unless otherwise restricted by law or the Articles of Association,
any action which may be taken at any annual or special shareholder meeting may
be taken without a meeting, without prior notice and without a vote, if written
consent setting forth the action so taken shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those shareholders who did not give written consent.
SECTION 8. Minutes. The proceedings of shareholders at all regular
and special meetings or by written consent in lieu of a meeting shall be
recorded in the minute book, together with the Articles of Association of the
Bank and the returns of the Judges of Election. The minutes of each meeting
shall be signed by the Presiding Officer, and attested by the Cashier, or other
officer of the Bank acting in place of the Cashier.
ARTICLE III
DIRECTORS
SECTION 1. Authority. The Board of Directors shall have the power to
manage and administer the business and affairs of the Bank. Except as
expressly limited by law, all corporate powers of the Bank shall be vested in
and may be exercised by the Board of Directors.
SECTION 2. Number. The Board of Directors shall at all times consist
of not less than five nor more than twenty-five individuals. The exact number
within such minimum and maximum limits shall be fixed and determined from time
to time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any meeting thereof; provided, however, that
the Board of Directors may not increase the number of directors to a number
which: (1) exceeds by more than two the number of directors last elected by
shareholders where such number was fifteen or less; or (ii) exceeds by more
than four the number of directors last elected by shareholders where such
number was sixteen or more, but in no event shall the number of directors
exceed twenty-five.
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<PAGE> 7
SECTION 3. Term of Office. Each director shall hold office from the
date of his election or appointment until the next annual shareholder meeting.
Any director ceasing to be the owner of the amount of stock required by law or
in any other manner becoming disqualified shall thereupon vacate his office as
director.
SECTION 4. Compensation. The Board of Directors may provide that a
reasonable fee be paid to any of its members or to the members of any duly
authorized committee for services rendered. No such payment shall preclude any
director from serving the Bank in any other capacity and receiving compensation
therefor.
SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such dates, times and locations as determined by the
Chairman of the Board and communicated in writing to the directors.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President. Such
meetings shall be held at such times and at such places as shall be determined
by the officer calling the meeting. Notice of any special meeting of directors
shall be given to each director at the director's business or residence in
writing by hand delivery, first-class or overnight mail or courier service,
telegram or facsimile transmission, or orally by telephone. If mailed by
first-class mail, such notice shall be deemed adequately delivered when
deposited in the United States mail so addressed, with postage thereon prepaid,
at least two (2) days before such meeting. If by telegram, overnight mail or
courier service, such notice shall be deemed adequately delivered when the
telegram is delivered to the telegraph company or the notice is delivered to
the overnight mail or courier service company at least twenty-four (24) hours
before such meeting. If by facsimile transmission, such notice shall be deemed
adequately delivered when the notice is transmitted at least twelve (12) hours
before such meeting. Such notice need not state the purposes of the meeting.
Any or all directors may waive notice of any meeting, either before or after
the meeting. Attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except when the director attends for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.
SECTION 7. Quorum; Majority Vote. A quorum of directors shall be
required to transact business at any regular or special meeting of the Board of
Directors. A majority of the directors shall constitute a quorum. Each
director shall be entitled to one vote. A vote by a majority of the directors
present at any regular or special meeting of the Board of Directors at which a
quorum is present shall be required to approve any matter or proposal at any
such meeting.
SECTION 8. Vacancies. When any vacancy occurs in the Board of
Directors, a majority of the remaining members of the Board, according to the
laws of the United States, may appoint a director to fill such vacancy at any
regular meeting of the Board of Directors, or at a special meeting called for
that purpose at which a quorum is present, or if the directors remaining in
office constitute fewer than a quorum of the Board of Directors, by the
affirmative vote of a majority of all the directors remaining in office, or by
shareholders at a special meeting called for
7
<PAGE> 8
that purpose. At any such shareholder meeting, each shareholder entitled to
vote shall have the right to multiply the number of votes he or she is entitled
to cast by the number of vacancies being filled and cast the product for a
single candidate or distribute the product among two or more candidates. A
vacancy that will occur at a specific later date (by reason of a resignation
effective at a later date) may be filled before the vacancy occurs but the new
director may not take office until the vacancy occurs.
SECTION 9. Presiding Officer. The Chairman of the Board shall
preside at all meetings of the Board of Directors at which he is present. In
the absence of the Chairman of the Board, the President shall perform the
duties of the Chairman of the Board and shall preside at the meetings of the
Board of Directors. In the absence of the Chairman of the Board and the
President, the Vice Chairman of the Board (or in the event there be more than
one Vice Chairman of the Board, the Vice Chairmen of the Board in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform their duties and shall preside at the meetings of the
Board of Directors.
SECTION 10. Minutes of Meeting. The Cashier shall act as secretary to
the Board of Directors to take minutes at any regular or special meeting of the
Board of Directors. If the Cashier is not present at any such meeting, the
Chairman of the Board may designate a secretary pro tem to take minutes at the
meeting. The Cashier or secretary pro tem shall record the actions and
proceedings at each regular or special meeting of the Board of Directors as
minutes of the meeting and shall maintain such minutes in a minute book of
proceedings of such meetings of the Board of Directors. Minutes of each such
meeting shall be signed by the presiding officer and secretary of each meeting.
SECTION 11. Participation in Meetings by Telephone Unless otherwise
restricted by law or the Articles of Association, members of the Board of
Directors, or of any committee thereof, may participate in a meeting of the
Board of Directors or committee by means of conference telephone or similar
communications equipment which allows each person participating in the meeting
to hear each other. Participation in such a meeting shall constitute presence
in person at such meeting.
SECTION 12. Consent of Directors in Lieu of Meeting. Unless otherwise
restricted by law or the Articles of Association, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 13. Committees. The Board of Directors may, by resolution
passed by a majority of the entire Board, designate one or more committees,
each committee to consist of two or more of the Directors of the Bank. The
Board of Directors may designate one or more Directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. Any such committee, to the extent provided in the
resolution, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the Bank, and may authorize the
seal of the Bank to be affixed to all
8
<PAGE> 9
papers which may require it; provided, however, that in the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors. As used in these By-Laws, "entire Board" means the
total number of Directors the Bank would have if there were no vacancies.
There shall be an Executive Committee composed and created as the Board
of Directors may designate by resolution passed by a majority of the entire
Board. During intervals between the regular meetings of the Board of
Directors, the Executive Committee, to the extent permitted by law, the
Articles of Association of the Bank and the By-Laws, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Bank.
Unless otherwise provided by the Board of Directors, a majority of the
members of any committee appointed by the Board of Directors pursuant to this
Section shall constitute a quorum at any meeting thereof and the act of a
majority of the members present at a meeting at which a quorum is present shall
be the act of such committee. Any such committee shall, subject to any rules
prescribed by the Board of Directors, prescribe its own rules for calling,
giving notice of and holding meetings and its method of procedure at such
meetings and shall keep a written record of all action taken by it. Each
committee shall keep regular minutes of its meetings and report the same to the
Board of Directors when required.
SECTION 14. Honorary Directors. Any person who has at any time been
Chairman of the Board, President or Vice Chairman of the Board of the Bank may,
after retirement from the Board of Directors, be appointed by the Board of
Directors as an Honorary Director on a year-to-year basis. In no case shall an
Honorary Director serve as such for more than five years. Honorary Directors
shall serve in an advisory capacity to the Board of Directors, shall have no
vote and shall not be considered directors for the purpose of determining a
quorum. Honorary Directors shall be reimbursed for their expenses in attending
meetings of the Board of Directors and shall receive such fees, if any, for
attendance at each meeting of the Board of Directors as may be fixed from time
to time by the Board of Directors but shall not receive any other directors'
fees or any other compensation for their services.
ARTICLE IV
OFFICERS
SECTION 1. Officer Titles. The officers of the Bank shall include a
Chairman of the Board and a President and may include one or more Vice Chairmen
of the Board, Executive Vice Presidents, Senior Vice Presidents, First Vice
Presidents, Vice Presidents and Assistant Vice Presidents, a General Auditor, a
General Counsel, a Cashier, and such other officers as may be appropriate for
the prompt and orderly transaction of the business of the Bank. Individuals
9
<PAGE> 10
appointed as Chairman of the Board, President and Vice Chairman of the Board
must be members of the Board. The same person may hold any two or more
offices. The Chairman of the Board shall have such authority to establish
officer titles as from time to time delegated by the Board of Directors and to
delegate such authority further to other officers of the Bank.
SECTION 2. Chief Executive Officer. The Chairman of the Board shall
be the chief executive officer of the Bank. In case of the death or disability
of the Chairman of the Board, his powers shall be exercised and his duties
discharged by the President. In the event of the death or disability of the
Chairman of the Board and the President, the Vice Chairman of the Board (or in
the event there be more than one Vice Chairman of the Board, the Vice Chairmen
of the Board in the order designated, or in the absence of any designation,
then in the order of their election) shall exercise the powers and discharge
the duties of the Chairman of the Board.
SECTION 3. Election of Officers. The Board of Directors of the Bank
shall have authority to appoint the officers of the Bank. The Chairman of the
Board shall have such authority to appoint officers as from time to time
delegated by the Board of Directors, and to delegate such authority further to
other officers of the Bank.
SECTION 4. Authority and Responsibility. The authorities and
responsibilities of all officers, in addition to those specifically prescribed
herein, shall be those usually pertaining to their respective offices, or as
may be designated by the Board of Directors or by the Chairman of the Board or
by the President, or by any officer of the Bank designated by one of the
foregoing.
SECTION 5. Term of Office. Officers shall be appointed for an
indefinite term, and their employment may be terminated or they may be removed
from office at any time. The Board of Directors shall have authority to
terminate or remove officers of the Bank. The Chairman of the Board shall have
such authority to terminate or remove officers as from time to time delegated
by the Board of Directors, and to delegate such authority further to other
officers of the Bank.
SECTION 6. Surety. All officers and employees of the Bank who shall
be responsible for any moneys, funds or valuables of the Bank shall give bond,
or be covered by a blanket bond, in such penal sum and with such security as
shall be approved by the Board, conditioned for the faithful and honest
discharge of their duties as such officers or employees and that they will
faithfully apply and account for all such moneys, funds and valuables and
deliver the same on proper demand to the order of the Board of the Bank, or to
the person or persons authorized to receive the same.
ARTICLE V
SEAL
SECTION 1. Description. The following is a description of the Seal
adopted by the Board of the Bank:
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Female with left arm resting on shield, bale of goods and sheaf of
grain at her side, ship and sea in the distance; the whole surrounded with the
words, "The First National Bank of Chicago".
SECTION 2. Attestation. Any instrument which is executed for and on
behalf of the Bank by its duly authorized officers may, when necessary, be
attested and sealed with the corporate seal by any officer of the Bank other
than the officer who executes such instrument on behalf of the Bank.
ARTICLE VI
TRANSFERS OF REAL ESTATE
Any Vice President or higher ranking officer shall have authority on
behalf of and in the name of the Bank, to execute any document or instrument
and to take action which may be necessary or appropriate to purchase, convey,
lease, or otherwise affect any real estate or interest in real estate owned or
to be owned by the Bank; provided, however, any document or instrument
purchasing, conveying or leasing real estate used or to be used by the Bank as
banking facilities must be executed by a Senior Vice President or higher
ranking officer, or any other officer designated by any of the foregoing. Any
Assistant Vice President or higher ranking officer shall have authority to
execute and deliver on behalf of and in the name of the Bank, releases of
mortgages or trust deeds.
ARTICLE VII
STOCK AND STOCK CERTIFICATES
SECTION 1. Increase of Stock. In the event of any increase in the
capital stock of the Bank the preemptive rights of the shareholders in respect
of any such increased stock shall be as set forth in Article FIFTH of the
Articles of Association.
Any warrants or certificates issuable to shareholders in connection
with any increase of the capital stock of the Bank, shall be delivered to the
respective shareholders entitled thereto, either by hand or by mail,
first-class postage prepaid, addressed to their respective addresses as shown
on the books of the Bank.
If, in the event of a sale of additional shares, any subscription
rights shall not have been exercised at the expiration of the specified
subscription period, such unsubscribed new shares may be issued and sold at
such price, not less than the par value thereof, to such persons and on such
terms as the Board of Directors may determine.
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SECTION 2. Transfers of Stock. The stock of the Bank shall be
assignable only upon the books of the Bank, subject to the restrictions of the
Act, and a transfer book shall be kept in which all assignments and transfers
of stock shall be made. Transfers of stock may be suspended preparatory to any
election or payment of any dividends.
SECTION 3. Certificates of Stock. Certificates of stock signed by any
Vice President or higher ranking officer and the Cashier or any Assistant
Cashier may be issued to shareholders, and the Certificates shall state upon
the face thereof that the stock is transferable only upon the books of the
Bank. If such Certificates are manually countersigned by two other officers of
the Bank, the signatures of the officers designated in the preceding sentence
may be facsimiles, engraved or printed. In case any officer who has signed or
whose facsimile signature has been placed upon such Certificates shall have
ceased to be such officer before such Certificates are issued, they may be
issued by the Bank with the same effect as if such officer had not ceased to be
such at the date of issue.
In case of transfer of stock, new Certificates of stock shall not be
issued until other Certificate or Certificates of stock of an equal amount
shall first have been surrendered and cancelled.
Any one of the following officers of the Bank: the Chairman of the
Board, the President, or any Vice Chairman of the Board is each hereby
authorized to cause new Certificates of stock of the Bank to be issued to
replace Certificates reported to have been lost, stolen or destroyed, upon
receipt of: (a) appropriate affidavit or affidavits setting forth whether the
Certificates were lost, stolen or destroyed and the circumstances thereof, and
(b) a bond or bonds (blanket or otherwise) or an agreement or agreements of
indemnity, sufficient in the opinion of any of such officers to protect the
interests of the Bank issuing such new Certificates.
ARTICLE VIII
BANKING HOURS
The Bank shall be open for business during such days of the year and
for such hours as the Board of Directors or any officer of the Bank designated
by the Board of Directors may from time to time determine.
ARTICLE IX
CONTRACTS, CERTIFICATES OF DEPOSIT AND NOTES
SECTION 1. Execution of Contracts. Any officer of the bank and such
other persons as may be authorized by the Board of Directors are severally and
respectively authorized to execute documents and to take action in the Bank's
name in connection with any and all transactions conducted in the ordinary
course of business of the Bank.
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SECTION 2. Certificates of Deposit and Notes. Notwithstanding the
foregoing, all certificates of deposits and notes evidencing obligations of the
Bank shall be signed either manually or by facsimile signature by any officer
of the Bank, and, if such signature is not a manual signature, shall be
validated by the manual signature of another officer of the Bank whose
signature does not already appear on said certificate of deposit or note or by
the authorized officers of corporate fiduciaries or agents with whom the Board
of Directors may from time to time by resolution authorize the officers of the
Bank to contract for services in connection with the validation and delivery of
certificates of deposit or notes issued by the Bank.
ARTICLE X
VOTING RIGHTS
The vote of the Bank as stockholder in any corporation in which it may
hold stock or upon any securities carrying voting rights which it shall have
the right to vote in its individual capacity as a Bank, shall be cast at any
stockholders' or shareholders' meeting by any Vice President or higher ranking
officer, or the Cashier, in person, or by some person or persons authorized by
written proxy signed by one of said officers.
In all cases where shares of stock or other securities carrying voting
rights and owned by the Bank shall be held in the name of a nominee of the
Bank, any Vice President or higher ranking officer, or the Cashier, may
authorize such nominee to vote such stock or other securities in person, either
unconditionally or upon such terms, limitations, or conditions as such officer
may direct, or any such officer may authorize such nominee to execute a proxy
to vote such shares of stock or other securities carrying voting rights, either
unconditionally or upon such terms, conditions and/or limitations as such
officer shall approve.
ARTICLE XI
EXAMINATIONS
It shall be the duty of the General Auditor to examine, from time to
time, the various operations of the Bank, verify its assets and liabilities,
and perform such other procedures as are required to determine that the
accounting records are accurate and to ascertain whether the Bank is in a sound
and solvent condition. Major discrepancies and defalcations shall be reported
to the Board promptly and other reports shall be made directly to the Board
when deemed appropriate either by the General Auditor or the Board. In the
event of the death, resignation, absence or inability of the General Auditor,
the Board of Directors shall appoint a competent person who shall make such
examinations and reports, pending the election of a successor to the General
Auditor or the return of the General Auditor to his duties.
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ARTICLE XII
BONDS OF INDEMNITY
Bonds of indemnity given to secure the issuance of duplicate or
substitute notes, bonds, stock certificates, checks, debentures or other
securities which may have been lost, destroyed or stolen or to secure the
payment of any such lost, destroyed or stolen securities or to secure the
payment by the Bank of funds deposited by any public authorities, shall be
executed by any Assistant Vice President or higher ranking officer, and, if
required, sealed with the corporate seal and attested by some other officer of
the Bank.
ARTICLE XIII
AUTHORITY TO SELL STOCKS, BONDS, ETC.
SECTION 1. U.S. Obligations. Any Assistant Vice President or higher
ranking officer may at any time, in his discretion, sell, assign and transfer
any and all United States bonds now standing, or which may hereafter stand, in
the name of the Bank, and to appoint one or more attorneys for that purpose.
SECTION 2. Other Obligations. Any Assistant Vice President or higher
ranking officer may at any time, in his discretion, sell, assign and transfer
any and all notes, bonds, certificates of indebtedness or obligations of any
corporation, firm or individual, which said notes, bonds, certificates of
indebtedness or obligations are now registered, or may hereafter be registered,
in the name of, or for the benefit of, the Bank, or are payable or indorsed to
the Bank.
SECTION 3. Stock. Any Assistant Vice President or higher ranking
officer may at any time in his discretion, sell, assign and transfer to any
assignee or transferee, for and on behalf of the Bank and in its name, any and
all shares of capital stock of any corporation or corporations held by the
Bank.
ARTICLE XIV
FIDUCIARY ACTIVITIES
1. Authority to Sign as Registrar, Transfer Agent, etc. Any officer
of the Bank shall have the right to sign, countersign, certify, register,
authenticate and identify all bonds, notes, interim certificates, and
depositary receipts, warrants, participation certificates, certificates of
stock and similar instruments for or in respect of which the Bank may be acting
as Trustee, Registrar, Transfer Agent or otherwise.
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2. Authority to Vote Stock. The vote of the Bank as stockholder in
any corporation or mutual fund in which it may hold capital stock in any
fiduciary capacity, unless the governing instrument directs otherwise, may be
voted by any officer of the Bank in person, electronically or by written proxy
signed by one of said officers.
3. Authority to Sell, Assign and Transfer Stocks, etc. Any officer of
the Bank may sell, assign and transfer to any assignee or transferee for the
Bank and in its name, any and all shares of the capital stock or other
securities and obligations of any individual or entity held by the Bank in any
fiduciary capacity, and sign and deliver any instruments with respect to any
such items.
4. Authority to Sign Checks and Other Instruments. Any officer of the
Bank is authorized to sign for and on behalf of the Bank: checks against any
account or accounts of any organizational unit of the Bank exercising fiduciary
powers; petitions; schedules; accounts; reports; receipts for funds or
securities deposited with the Bank as fiduciary and all instruments or
documents that may be necessary or desirable in connection with the execution
of any fiduciary powers of the Bank.
5. Delegation of Authority. Anything in this Article XIV to the
contrary notwithstanding, the Chairman of the Board is authorized to designate
in writing such persons as shall be authorized in the name of the Bank to sign
or countersign any or all of the documents and instruments enumerated in this
Article XIV relating to transactions conducted in connection with the execution
of any fiduciary powers of the Bank.
ARTICLE XV
AMENDMENT OF BY-LAWS
These By-Laws may be changed or amended by the vote of a majority of
the directors present at any regularly constituted meeting of the Board of
Directors.
ARTICLE XVI
EMERGENCY OPERATION OF BANK
In the event of an emergency declared by the President of the United
States or the person performing his functions, due to threatened or actual
enemy attack or disaster, the officers and employees of the Bank will continue
to conduct the affairs of the Bank under such guidance from the directors as
may be available, except as to matters which by statute require specific
approval of the Board of Directors, and subject to conformance with any
governmental directives during the emergency.
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ARTICLE XVII
DELEGATION OF AUTHORITY
Each of the Chairman of the Board, the President, any Vice Chairman of
the Board and the Cashier of the Bank are severally and respectively authorized
to designate in writing such persons who shall be authorized in the name and on
behalf of the Bank to sign any document or instrument, including certificates
of deposit and notes, and to take action which may be necessary or appropriate
to the conduct of the Bank's business, in its individual capacity or any other
capacity. Any such authorization to sign such document or instrument and to
take any action may be general or limited as is determined in the discretion of
the Chairman of the Board, the President, any Vice Chairman of the Board or the
Cashier.
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EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
October 2, 1996
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of an indenture between MedPartners, Inc.
and The First National Bank of Chicago, the undersigned, in accordance with
Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents
that the reports of examinations of the undersigned, made by Federal or State
authorities authorized to make such examinations, may be furnished by such
authorities to the Securities and Exchange Commission upon its request
therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /s/ Steven M. Wagner
--------------------------------
Steven M. Wagner
Vice President and Senior Counsel
Corporate Trust Services Division
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EXHIBIT 7
<TABLE>
<CAPTION>
Legal Title of Bank: The First National Bank of Chicago Call Date: 06/30/96 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-1
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR JUNE 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount
outstanding of the last business day of the quarter.
SCHEDULE RC--BALANCE SHEET
C400 <-
DOLLAR AMOUNTS IN ------------ ------
THOUSANDS RCFD BIL MIL THOU
------------------ ---- ------------
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule
RC-A):
a. Noninterest-bearing balances and currency and coin(1) ........ 0081 3,572,641 1.a.
b. Interest-bearing balances(2) ................................. 0071 6,958,367 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A) ..... 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) .. 1773 1,448,974 2.b.
3. Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its Edge and Agreement
subsidiaries, and in IBFs:
a. Federal Funds sold ........................................... 0276 5,020,878 3.a.
b. Securities purchased under agreements to resell .............. 0277 918,688 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule
RC-C) ....................................................... RCFD 2122 19,125,160 4.a.
b. LESS: Allowance for loan and lease losses ................ RCFD 3123 379,232 4.b.
c. LESS: Allocated transfer risk reserve ............. RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) ......................... 2125 18,745,928 4.d.
5. Assets held in trading accounts ................................. 3545 9,599,172 5.
6. Premises and fixed assets (including capitalized leases) ........ 2145 623,289 6.
7. Other real estate owned (from Schedule RC-M) .................... 2150 8,927 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) .................................. 2130 57,280 8.
9. Customers' liability to this bank on acceptances outstanding .... 2155 632,259 9.
10. Intangible assets (from Schedule RC-M) .......................... 2143 156,715 10.
11. Other assets (from Schedule RC-F) ............................... 2160 1,592,088 11.
12. Total assets (sum of items 1 through 11) ........................ 2170 49,335,206 12.
</TABLE>
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(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
18
<PAGE> 19
<TABLE>
<CAPTION>
Legal Title of Bank: The First National Bank of Chicago Call Date: 06/30/96 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED DOLLAR AMOUNTS IN
Thousands BIL MIL THOU
--------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E, part 1) ................................ RCON 2200 16,878,870 13.a.
(1) Noninterest-bearing(1) ................................. RCON 6631 7,855,880 13.a.(1)
(2) Interest-bearing ....................................... RCON 6636 9,022,990 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and
IBFs (from Schedule RC-E, part II) ........................ RCFN 2200 12,677,057 13.b.
(1) Noninterest bearing .................................... RCFN 6631 766,936 13.b.(1)
(2) Interest-bearing ...................................... RCFN 6636 11,910,121 13.b.(2)
14. Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of
its Edge and Agreement subsidiaries, and in IBFs:
a. Federal funds purchased .................................... RCFD 0278 1,318,968 14.a.
b. Securities sold under agreements to repurchase ............. RCFD 0279 1,197,589 14.b.
15. a. Demand notes issued to the U.S. Treasury ................... RCON 2840 104,546 15.a.
b. Trading Liabilities......................................... RCFD 3548 6,431,784 15.b.
16. Other borrowed money:
a. With original maturity of one year or less ................. RCFD 2332 4,437,636 16.a.
b. With original maturity of more than one year ............... RCFD 2333 75,308 16.b.
17. Mortgage indebtedness and obligations under capitalized
leases ................................................ RCFD 2910 283,041 17.
18. Bank's liability on acceptance executed and outstanding ....... RCFD 2920 632,259 18.
19. Subordinated notes and debentures ............................. RCFD 3200 1,275,000 19.
20. Other liabilities (from Schedule RC-G) ........................ RCFD 2930 892,947 20.
21. Total liabilities (sum of items 13 through 20) ................ RCFD 2948 46,205,005 21.
22. Limited-Life preferred stock and related surplus .............. RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ................. RCFD 3838 0 23.
24. Common stock .................................................. RCFD 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock) ...... RCFD 3839 2,349,164 25.
26. a. Undivided profits and capital reserves ..................... RCFD 3632 584,878 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities ............................................... RCFD 8434 (3,951) 26.b.
27. Cumulative foreign currency translation adjustments ........... RCFD 3284 (748) 27.
28. Total equity capital (sum of items 23 through 27) ............ RCFD 3210 3,130,201 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28) ......................... RCFD 3300 49,335,206 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the most
comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1995 ........................................RCFD 6724 ........ / N/A / M.1.
</TABLE>
1 = Independent audit of the bank conducted in accordance
with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company
conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which
submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
4 = Directors' examination of the bank performed by other
external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external
auditors
6 = Compilation of the bank's financial statements by external
auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
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(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
19
