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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-27276
MedPartners, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-1151076
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3000 Galleria Tower, Suite 1000 35244
Birmingham, Alabama (Zip Code)
(Address of Principal Executive
Offices)
Registrant's Telephone Number, Including Area Code:
(205) 733-8996
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on which Registered
<S> <C>
Common Stock, par value $.001 per share The New York Stock Exchange
Threshold Appreciation Price Securities(TM) The New York Stock Exchange
Preference Share Purchase Rights The New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 5, 1999: Common Stock, par value $.001 per
share--$995,775,450.
As of March 5, 1999, the Registrant had 199,155,090* shares of Common Stock,
par value $.001 per share, issued and outstanding.
*Includes 8,802,842 shares held in trust to be utilized in employee benefit
plans.
DOCUMENTS INCORPORATED BY REFERENCE
The information set forth under Items 10, 11, 12 and 13 of Part III of this
Annual Report on Form 10-K is incorporated by reference from the Registrant's
definitive proxy statement for its 1999 Annual Meeting of Stockholders that
will be filed no later than April 30, 1999.
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FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS
In passing the Private Securities Litigation Reform Act of 1995 ("the Reform
Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress encouraged
public companies to make "forward-looking statements" by creating a safe
harbor to protect companies from securities law liability in connection with
forward-looking statements. MedPartners, Inc. ("MedPartners" or the "Company")
intends to qualify both its written and oral forward-looking statements for
protection under the Reform Act and any other similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All forward-
looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events, and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of MedPartners. The
Company undertakes no obligation to update or revise this Safe Harbor
Compliance Statement for Forward-Looking Statements (the "Safe-Harbor
Statement") to reflect future developments. In addition, MedPartners
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results over time.
The "forward-looking statements" contained in this document are made under
the captions "Business-- Pharmaceutical Services Industry", "--Information
Systems", "--Competition", "--Government Regulation", "--Corporate Liability
and Insurance", "--Discontinued Operations", "Legal Proceedings",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General" and "--Liquidity and Capital Resources". Moreover, the
Company, through its senior management, may from time to time make "forward-
looking statements" about matters described herein or other matters concerning
the Company.
There are several factors which could adversely affect the Company's
operations and financial results including, but not limited to, the following:
Risks relating to the Company's divestiture of its discontinued operations;
risks relating to the proposed settlement and transition plan to exit its
physician practice management operations in the State of California; risks
relating to the Company's compliance with or changes in government
regulations, including pharmacy licensing requirements and healthcare
reform legislation; risks relating to adverse resolution of lawsuits
pending against the Company and its affiliates; risks relating to declining
reimbursement levels of products distributed; risks relating to
identification of growth opportunities; risks relating to implementation of
the Company's strategic plan; risks relating to liabilities in excess of
insurance risks; risks relating to the Company's liquidity and capital
requirements; and risks relating to the Company's failure to ensure its
information systems are Year 2000 complaint.
A more detailed discussion of certain of these risk factors can be found in
"Business--Government Regulation", "Legal Proceedings", "Management's
Discussion of Analysis of Financial Condition and Results of Operations--
General" and "--Factors That May Affect Future Results".
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PART I
Item 1. Business.
General
MedPartners, Inc., a Delaware corporation ("MedPartners" or the "Company"),
is one of the largest pharmaceutical services companies in the United States,
with net revenue of approximately $2.6 billion for the year ended December 31,
1998. The Company provides prescription benefit management ("PBM"),
therapeutic pharmaceutical services ("Caremark Therapeutic" services or "CT"
services), and associated disease management programs (collectively, "Caremark
Pharmaceutical Group" or "CPG").
The Company provides PBM services for clients throughout the United States,
including corporations, insurance companies, unions, government employee
groups and managed care organizations. During 1998, the Company dispensed
approximately 11 million prescriptions through three mail service pharmacies
and processed approximately 33 million prescriptions through a network of more
than 50,000 retail and other pharmacies.
The Company's CT services are designed to meet the unique healthcare needs
of individuals with certain chronic diseases or conditions. These services
include the design, development and management of comprehensive programs
comprising drug therapy, physician support and patient education. The Company
currently provides CT services for individuals with such conditions as
hemophilia, growth disorders, immune deficiencies, cystic fibrosis, multiple
sclerosis and infants with respiratory difficulties. At December 31, 1998, the
Company was providing therapies and services for approximately 21,000
patients.
The Company's predecessor entity, MedPartners, Inc., was organized in 1993
with the goal of improving the nation's healthcare system by building an
integrated delivery system. The Company grew quickly in pursuit of this goal,
primarily through acquisitions. The Company was incorporated under the laws of
Delaware in August 1995 as "MedPartners/Mullikin, Inc.," the surviving
corporation in the November 1995 combination of the businesses of the original
MedPartners, Inc. and Mullikin Medical Enterprises, L.P. ("MME"), a privately-
held physician management entity based in Long Beach, California. Further
acquisitions by the Company included that of Pacific Physician Services, Inc.
("PPSI"), a publicly-traded physician practice management company based in
Redlands, California which had previously acquired Team Health, Inc. ("Team
Health"). In September 1996, the Company changed its name to "MedPartners,
Inc." and completed the acquisition of Caremark International, Inc. ("CII"), a
publicly-traded physician practice management and pharmaceutical services
company based in Northbrook, Illinois. In June 1997, the Company acquired
InPhyNet Medical Management, Inc. ("InPhyNet"), which, when combined with Team
Health, created one of the largest hospital-based physician groups in the
country.
On October 29, 1997, the Company announced its plan to be acquired by
PhyCor, Inc. in a merger, but the transaction was terminated by mutual
agreement prior to consummation. On January 16, 1998, the Company announced
that Richard M. Scrushy, a Director of the Company and Chairman of the Board
and Chief Executive Officer of HEALTHSOUTH Corporation, had become Chairman of
the Board and Acting Chief Executive Officer of the Company. On March 18,
1998, the Company announced the appointment of E. Mac Crawford, formerly
Chairman of the Board, President and Chief Executive Officer of Magellan
Health Services, Inc., as President, Chief Executive Officer and a Director of
the Company. On the same date, the Company announced a net loss for the fourth
quarter of 1997 of $840.8 million, which included one-time pre-tax charges
totaling $647 million. Upon Mr. Crawford's appointment to the aforementioned
positions, he began to review the executive management of the Company and made
certain changes, including the May 1998 hiring of a new Chief Financial
Officer, James H. Dickerson, Jr.
The new management team immediately began reviewing and assessing the
portfolio of businesses operated by the Company and the Company's balance
sheet, including its leveraged position. Based upon their review and
consultation with investment advisors and consultants, the management team
developed a strategy designed to increase shareholder value. The strategy
includes (1) divesting the physician practice management
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("PPM") operations, (2) divesting the contract services operations consisting
of the government services and hospital-based physician services businesses of
Team Health and InPhyNet, (3) concentrating management efforts on growing CPG
and (4) using the cash proceeds from the dispositions to reduce the
outstanding indebtedness of the Company. Accordingly, on November 11, 1998,
the Company announced that CPG, which includes its PBM business, would become
its core operating unit. The Company also announced its intention to divest
its other businesses. As a result, the Company has restated its prior period
financial statements to reflect the appropriate accounting for these
discontinued operations. Additionally, a loss from discontinued operations of
$1.226 billion was recorded during the fourth quarter of 1998. In January
1999, the Company completed the sale of its government services business for
$67 million, less certain working capital adjustments, and on March 12, 1999
completed the sale of its Team Health business for $318.9 million, less
certain expenses, including expenses associated with insuring Team Health
physicians for certain medical malpractice liabilities. The Company retained
approximately 7.3% of the equity of the recapitalized company. The Company is
treating these businesses as discontinued operations, and accordingly, this
Form 10-K has been prepared on that basis.
The executive offices of the Company are located at 3000 Galleria Tower,
Suite 1000, Birmingham, Alabama 35244, and its telephone number is (205) 733-
8996.
Pharmaceutical Services Industry
PBM companies initially emerged in the early 1980s, primarily to provide
cost-effective drug distribution and claims processing for the healthcare
industry. In the mid-1980s they evolved to include pharmacy networks and drug
utilization review to address the need to manage the total cost of
pharmaceutical services. Through volume discounts, retail pharmacy networks,
mail pharmacy services, formulary administration, claims processing and drug
utilization review, PBM companies created an opportunity for health benefit
plan sponsors to deliver drugs to their members in a more cost-effective
manner, while improving physician and patient compliance with recommended
guidelines for safe and effective drug use.
PBM companies have focused on cost containment by: (i) negotiating
discounted prescription services through retail pharmacy networks; (ii)
purchasing discounted products from drug wholesalers and manufacturers and
dispensing maintenance prescriptions by mail; (iii) establishing drug
utilization review and clinical programs to encourage appropriate drug use and
reduce potential risk for complications; and (iv) encouraging the use of
generic rather than branded medications. Over the last several years, in
response to increasing payor demand, PBM companies have begun to develop
sophisticated formulary management capabilities and comprehensive, on-line
customer decision support tools in an attempt to better manage the delivery of
healthcare and, ultimately, costs. Simultaneously, to lower overall healthcare
costs, health benefit plan sponsors have begun to focus on the quality and
efficiency of care, emphasizing disease prevention, or wellness, and care
management. This has resulted in a rapidly growing demand among payors for
comprehensive disease management programs. By effectively managing appropriate
prescription use, PBM companies can positively affect both overall medical
costs and improve clinical outcomes.
The Company believes that future growth in the PBM industry will be driven
by (i) the increased frequency of new drugs coming on the market; (ii)
expansion in new biotech and injectable therapies; (iii) the aging of the
population, as older population segments have higher drug utilization; (iv) a
continuing trend toward outsourcing of pharmacy management services by
corporations, insurance companies, unions, government employee groups, and
managed care entities; (v) increased penetration by managed care entities,
which are large consumers of PBM services, into the growing Medicare and
Medicaid market; and (vi) increased demand for comprehensive pharmacy benefit,
medication management and disease management services as healthcare service
providers and physician practice management entities assume pharmacy care risk
from managed care entities.
The distribution of prescription drug therapies to patients with certain,
long-term chronic diseases, which is the focus of the CT business, is another
area where the competitive forces in the healthcare environment
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are challenging providers. In addition to the Company, home healthcare
companies, hospitals and other providers offer disease management services and
programs to these patients. Competitive pricing, customer service and patient
education are factors influencing the competition for these patients.
Strategy. The Company's strategy is to provide innovative pharmaceutical
solutions and quality customer service in order to enhance patient outcomes
and better manage overall healthcare costs. The Company intends to increase
its market share and extend its leadership in the pharmaceutical services
industry. The Company believes that its independence from ownership by any
pharmaceutical manufacturer is a competitive advantage differentiating it from
competitors owned by pharmaceutical manufacturers.
Operations. The Company manages outpatient prescription benefit management
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 aimed at reducing the costs and improving the safety, effectiveness
and convenience of prescription drug use. The Company dispenses prescription
drugs to patients through a network of more than 50,000 pharmacies
(approximately 96% of all retail pharmacies in the United States) and through
three mail service pharmacies. The Company negotiates arrangements with
pharmaceutical manufacturers and drug wholesalers for the cost effective
purchase of prescription drug products. Through clinical review, the Company
compiles a preferred product list, or formulary, which supports client goals
of cost management and quality of care for plan participants. The Company's
Pharmacy and Therapeutics Committee, which is comprised of a number of
physician specialists, pharmacy representatives, and a medical ethicist,
participates in this clinical review.
All prescriptions are analyzed, processed and documented by the Company's
proprietary prescription management information system and database. This
system assists staff and network pharmacists in processing prescription
requests for member eligibility, authorization, early refills, duplicate
dispensing, appropriateness of dosage, drug interactions or allergies, over-
utilization or potential fraud, and other information. The system, through
secured systems and confidential screenings, collects comprehensive
prescription utilization information which is valuable to pharmaceutical
manufacturers, managed care payors and customers. With this information, the
Company offers a full range of drug cost reporting services, including
clinical case management, drug utilization review, formulary management and
customized prescription programs for senior citizens.
The retail pharmacy program allows members to obtain prescriptions at more
than 50,000 pharmacies nationwide. When a member submits a prescription
request, the network pharmacist sends prescription data electronically to the
Company, which verifies relevant patient data and co-payment information and
confirms that the pharmacy will receive payment for the prescription. In 1998,
the Company processed approximately 33 million retail prescriptions.
The Company operates three mail service pharmacies in San Antonio, Texas,
Lincolnshire, Illinois and Ft. Lauderdale, Florida. Patients send original
prescriptions via mail and order refills via mail, telephone and fax to staff
pharmacists who review them with the assistance of the prescription management
information system. This review may involve a call to the prescribing
physician and can result in generic substitution or other actions to affect
cost or to improve quality of treatment. In 1998, the Company filled
approximately 11 million mail service prescriptions.
Under the Company's PBM quality assurance program, the Company maintains
rigorous quality assurance and regulatory policies and procedures. Each mail
service prescription undergoes a sequence of safety and accuracy checks and is
reviewed and verified by a registered pharmacist before shipment. The Pharmacy
and Therapeutic Committee assists in the selection of preferred products for
inclusion on the Company's formulary and analyzes drug related outcomes to
identify opportunities to improve patient quality of care.
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The Company's CT business provides services including comprehensive long-
term support for high-cost, chronic illnesses in an effort to improve outcomes
for patients and to lower costs. The Company provides therapies and services
to patients with such conditions as hemophilia, growth disorders, immune
deficiencies, cystic fibrosis, multiple sclerosis, and infants with
respiratory difficulties. These services generally include the provision of
injectable bio-pharmaceutical drugs and supplies and associated patient
support services. These drugs are distributed from the Company's national
network of 22 specialty pharmacies accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") and one retail pharmacy.
These services utilize advanced protocols and offer the patient and care
providers greater convenience in working with insurers. Extensive education is
provided to patients through individual instruction and monitoring, written
materials, and around-the-clock availability of customer assistance via toll-
free telephone. Major initiatives such as Care Patterns(R) for disease state
management and Caremark Connect(TM) for quick and easy patient enrollment
strengthen the Company's leadership position in these markets.
Information Systems
The Company's PBM information system incorporates integrated architecture
which allows all requests for service (mail order prescription, retail
pharmacy claim or customer service contact) to operate against a complete
history of the patient's prescription activity. Information from this system
is then integrated into a data repository, which is used for patient research
and studies on an anonymous basis. The Company has developed a tool, Rx
Navigator, that enables its clients to conduct customized claims analysis.
The Company utilizes a number of different computer software programs and
environments in its business, many of which were designed and developed
without considering the impact of the upcoming turn of the century (the "Y2K
Problem"). MedPartners has assessed the potential impact and costs of
addressing the Y2K Problem and is in the process of implementing a plan of
action to address the issue. With respect to the Company's PBM information
system, the inventory and assessment is 100% complete, renovation is 75%
complete and testing is 33% complete. All phases of addressing the Y2K problem
for this system are projected to be completed by the end of 1999. Rx Navigator
is Year 2000 compliant. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Competition
The Company competes with a number of large, national companies, including
Express Scripts, Inc. (an affiliate of New York Life Insurance Co.), Merck-
Medco Managed Care, LLC, (a subsidiary of Merck & Co., Inc.), PCS Health
Systems, Inc. (a subsidiary of Rite Aid Corporation), and Advance Paradigm,
Inc. These competitors are large and may possess greater financial, marketing
and other resources than the Company. To the extent that competitors are owned
by pharmaceutical manufacturers, they may have pricing advantages that are
unavailable to the Company and other independent PBM companies.
The Company believes the primary competitive factors in the PBM industry
include: the degree of independence from drug manufacturers and payors; the
quality, scope and costs of products and services offered to insurance
companies, HMOs, employers and other sponsors of health benefit plans and plan
participants; responsiveness to customers' demands; the ability to negotiate
favorable volume discounts from drug manufacturers; the ability to identify
and apply effective cost containment programs utilizing clinical strategies;
the ability to develop formularies; the ability to market PBM products and
services; and the commitment to provide flexible, clinically oriented services
to customers. The Company considers its principal competitive advantages to be
its independence from drug manufacturers and payors, strong customer retention
rate, broad service offering in CT service capabilities, high quality customer
service, and commitment to providing flexible, clinically-oriented services to
its customers.
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Government Regulation
General. As a participant in the healthcare industry, the Company's
operations and relationships are subject to federal and state laws and
regulations and enforcement by federal and state governmental
agencies. Various federal and state regulations govern the purchase,
distribution and management of prescription drugs and affect or may affect
CPG. Sanctions may be imposed for violation of these laws. The Company
believes its operations are in substantial compliance with existing laws which
are material to its operations. Any failure or alleged failure to comply with
applicable laws and regulations could have a material adverse effect on the
Company's operating results and financial condition.
In their corporate integrity agreement with the Office of Inspector General
(the "OIG") within the Department of Health and Human Services (the "HHS") and
in connection with the related plea agreement and settlement agreement to
which Caremark Inc. ("Caremark") and CII are parties, (collectively, the
"Settlement Agreement"), Caremark and CII agreed to continue to maintain
certain compliance-related oversight procedures through June 2000. Should the
oversight procedures reveal credible evidence of any violation of federal law,
CII and Caremark are required to report such potential violations to the OIG
and the Department of Justice ("DOJ"). CII and Caremark are therefore subject
to increased regulatory scrutiny and, if CII and Caremark commit legal or
regulatory violations, they may be subject to an increased risk of sanctions
or penalties, including exclusion from participation in the Medicare or
Medicaid programs.
The Anti-Remuneration Laws. Medicare and Medicaid law prohibits, among other
things, an entity from paying or receiving, subject to certain exceptions and
"safe harbors," any remuneration to induce the referral of Medicare or
Medicaid beneficiaries or the purchase (or the arranging for or recommending
of the purchase) of items or services for which payment may be made under
Medicare, Medicaid, or other federally-funded healthcare programs. Several
states have similar laws which are not limited to services for which Medicare
or Medicaid payment may be made. State laws and exceptions or safe harbors
vary and have been infrequently interpreted by courts or regulatory agencies.
Sanctions for violating these federal and state anti-remuneration laws may
include imprisonment, criminal and civil fines, and exclusion from
participation in the Medicare and Medicaid programs or other applicable
programs.
The federal anti-remuneration law has been interpreted broadly by courts,
the OIG and administrative bodies. Because of the federal statute's broad
scope, federal regulations establish certain safe harbors from liability. Safe
harbors exist for certain properly reported discounts received from vendors,
certain investment interests, and certain properly disclosed payments made by
vendors to group purchasing organizations, as well as for other transactions
or relationships. The HHS has announced its intention to issue a proposed safe
harbor that may protect certain discount and payment arrangements between PBM
companies and HMOs or other risk contractors serving Medicaid and Medicare or
other federal healthcare program members. There can be no assurance that such
a safe harbor will be established. Nonetheless, a practice that does not fall
within a safe harbor is not necessarily unlawful, but may be subject to
scrutiny and challenge. In the absence of an applicable exception or safe
harbor, a violation of the statute may occur even if only one purpose of a
payment arrangement is to induce patient referrals or purchases. Among the
practices that have been identified by the OIG as potentially improper under
the statute are certain "product conversion programs" in which benefits are
given by drug manufacturers to pharmacists or physicians for changing a
prescription (or recommending or requesting such a change) from one drug to
another. Anti-remuneration laws have been cited as a partial basis, along with
state consumer protection laws discussed below, for investigations and multi-
state settlements relating to financial incentives provided by drug
manufacturers to retail pharmacies in connection with such programs.
To the Company's knowledge, these anti-remuneration laws have not been
applied to prohibit PBM companies from receiving amounts from drug
manufacturers in connection with drug purchasing and formulary management
programs. To the Company's further knowledge, these laws have not been applied
to prohibit therapeutic substitution programs conducted by independent PBM
companies, or to the contractual relationships such as those the Company has
with certain of its customers. The Company believes that it is in substantial
compliance with the legal requirements imposed by such laws and regulations,
and the Company believes that
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there are material differences between drug-switching programs that have been
challenged under these laws and the programs offered by the Company to its
customers. However, there can be no assurance that the Company will not be
subject to scrutiny or challenge under such laws or regulations, or that any
such challenge would not have a material adverse effect upon the Company.
ERISA Regulation. The Employee Retirement Income Security Act of 1974, as
amended ("ERISA") regulates aspects of certain employee pension and health
benefit plans, including self-funded corporate health plans with which the
Company has agreements to provide pharmaceutical services. The Company
believes that, in general, the conduct of its business is not subject to the
fiduciary obligations of ERISA, but there can be no assurance that the U.S.
Department of Labor, which is the agency that enforces ERISA, will not assert
that the fiduciary obligations imposed by the statute apply to certain aspects
of the Company's operations.
Reimbursement. Approximately 4% of the net revenue of CPG is derived
directly from Medicare or Medicaid or other government-sponsored healthcare
programs. Also, CPG indirectly provides benefits to managed care entities
providing services to beneficiaries of Medicare, Medicaid and other government
sponsored healthcare programs. Should there be material changes to federal or
state reimbursement methodologies, regulations or policies, the Company's
reimbursements from government-sponsored healthcare programs could be
adversely affected.
Network Access Legislation. A majority of states now have some form of
legislation affecting the ability of the Company to limit access to a pharmacy
provider network or from removing network providers. Such legislation may
require the Company or its client to admit any retail pharmacy willing to meet
the plan's price and other terms for network participation ("any willing
provider" legislation), or may require that a provider may not be removed from
a network except in compliance with certain procedures ("due process"
legislation). To the extent that such legislation is applicable and is not
preempted by ERISA (as to plans governed by ERISA), certain Caremark
operations could be adversely affected by network access legislation.
Consumer Protection Laws. Most states have consumer protection laws that
have been the basis for investigations and multi-state settlements relating to
financial incentives provided by drug manufacturers to pharmacies in
connection with drug switching programs. No assurance can be given that the
Company will not be subject to scrutiny or challenge under one or more of
these laws.
Legislation Imposing Plan Design Restrictions. Some states have enacted
legislation that prohibits the health plan sponsor from implementing certain
restrictive design features, and many states have introduced legislation to
regulate various aspects of managed care plans, including provisions relating
to pharmacy benefits. For example, some states provide that members of the
plan may not be required to use network providers, but must instead be
provided with benefits even if they choose to use non-network providers
("freedom of choice" legislation). Legislation has been introduced in some
states to prohibit or restrict therapeutic substitution, or to require
coverage of all drugs approved by the United States Food and Drug
Administration (the "FDA"). Other states mandate coverage of certain benefits
or conditions. Such legislation does not generally apply to the Company, but
it may apply to certain of the Company's customers (generally, HMOs and health
insurers). If such legislation were to become widespread and broad in scope,
it could have the effect of limiting the economic benefits achievable through
pharmacy benefit management.
Other states have enacted legislation purporting to prohibit health plans
from requiring or offering members financial incentives for use of mail order
pharmacies. To date, there have been no formal administrative or judicial
efforts to enforce any of such laws against the Company, however, any such
enforcement could have an adverse effect on the mail order pharmacy business
of the Company.
Licensure Laws. Many states have licensure or registration laws governing
certain types of ancillary healthcare organizations, including preferred
provider organizations, third party administrators, and companies that provide
utilization review services. The scope of these laws differs significantly
from state to state, and the
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application of such laws to the activities of pharmacy benefit managers often
is unclear. The Company has registered under such laws in those states in
which the Company has concluded that such registration is required.
Legislation Affecting Drug Prices. Some states have adopted legislation
providing that a pharmacy participating in the state Medicaid program must
give the state the best price that the pharmacy makes available to any third
party plan ("most favored nation" legislation). Such legislation may adversely
affect the Company's ability to negotiate discounts in the future from network
pharmacies. At least one state has enacted "unitary
pricing" legislation, which mandates that all wholesale purchasers of drugs
within the state be given access to the same discounts and incentives. Such
legislation has not yet been enacted in the states where the Company's mail
service pharmacies are located. Such legislation, if enacted in other states,
could adversely affect the Company's ability to negotiate discounts on its
purchase of prescription drugs to be dispensed by its mail service pharmacies.
Regulation of Financial Risk Plans. Fee-for-service prescription drug plans
are generally not subject to financial regulation by the states. However, if a
PBM company plan offers to provide prescription drug coverage on a capitated
basis or otherwise accepts material financial risk in providing the benefit,
laws in various states may regulate the plan. Such laws may require that the
party at risk establish reserves or otherwise demonstrate financial reserves.
Laws that may apply in such cases include insurance laws, HMO laws or limited
prepaid health service plan laws. In those cases in which the Company has
contracts in which it is materially at risk to provide the pharmacy benefit,
the Company believes that it has complied with all applicable laws.
Many of these state laws may be preempted in whole or in part by ERISA,
which provides for comprehensive federal regulation of certain corporate self-
funded employee benefit plans. However, the scope of ERISA preemption is
uncertain and is subject to conflicting court rulings. In addition, the
Company provides services to certain customers, such as governmental entities,
that are not subject to the preemption provisions of ERISA. Other state laws
may be invalid in whole or in part as an unconstitutional attempt by a state
to regulate interstate commerce, but the outcome of challenges to these laws
on this basis is uncertain.
Other Laws Affecting Pharmacy Operations. The PBM 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 and medical waste disposal. Federal statutes and
regulations govern the labeling, packaging, advertising and adulteration of
prescription drugs and the dispensing of controlled substances. Federal
controlled substance laws require the Company to register its pharmacies and
repackaging facility with the United States Drug Enforcement Administration
and to comply with security, recordkeeping, inventory control and labeling
standards in order to dispense controlled substances.
State controlled substance laws require registration and compliance with
state pharmacy licensure, registration or permit standards promulgated by the
state pharmacy licensing authority. Such standards often address the
qualifications of an 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
and pharmacy technicians employed by each branch must also satisfy applicable
state licensing requirements. In addition, certain pharmacies of the Company
are accredited by private accreditation commissions, such as the JCAHO, whose
quality and other standards apply to those accredited pharmacies.
Mail Pharmacy Regulation. The Company is licensed to do business as a
pharmacy in each state in which it operates a mail service pharmacy. Many of
the states into which the Company delivers pharmaceuticals have laws and
regulations that require out-of-state mail service pharmacies to register
with, or be licensed by, the board of pharmacy or similar regulatory body in
the state. These states generally permit the mail service pharmacy to follow
the laws of the state within which the mail service pharmacy is located.
However, various states 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
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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. In
addition, 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.
Other statutes and regulations affect the Company's mail service operations.
In addition, the United States Postal Service has statutory authority to
restrict the transmission of drugs and medicines through the mail to a degree
that could have an adverse effect on the Company's mail service operations.
However, at this time the Postal Service has not exercised such statutory
authority.
Antitrust. Numerous lawsuits have been filed throughout the United States by
retail pharmacies against drug manufacturers challenging certain brand drug
pricing practices under various state and federal antitrust laws. A settlement
in one such suit would require defendant drug manufacturers to provide the
same types of discounts on pharmaceuticals to retail pharmacies and buying
groups as are provided to managed care entities to the extent that their
respective abilities to affect market share are comparable, a practice which,
if generally followed in the industry, could increase competition from
pharmacy chains and buying groups and reduce or eliminate the availability to
the Company of certain discounts, rebates and fees currently received in
connection with its drug purchasing and formulary administration programs. In
addition, to the extent that the Company appears to have actual or potential
market power in a relevant market, business arrangements and practices may be
subject to heightened scrutiny from an anti-competitive perspective and
possible challenge by state or federal regulators or private parties.
FDA Regulation. The FDA generally has authority to regulate drug promotional
information and materials that are disseminated by a drug manufacturer or by
other persons on behalf of a drug manufacturer. In January 1998, the FDA
issued a Draft Guidance regarding its intent to regulate certain drug
promotion and switching activities of prescription benefit managers that are
controlled, directly or indirectly, by drug manufacturers. Comments to the
Draft Guidance were due July 31, 1998. The Company believes that prescription
drug benefit management programs developed and implemented by independent PBM
companies do not constitute the distribution of promotional materials on
behalf of pharmaceutical manufacturers and therefore, these programs are not
subject to FDA regulations. The FDA effectively withdrew the Draft Guidance
and indicated that the FDA would issue a new draft guidance with a new comment
period. There was no new draft guidance issued in 1998. However, there can be
no assurance that the FDA will not assert jurisdiction over certain aspects of
the Company's PBM business, which assertion of jurisdiction could materially
adversely affect the Company's operations.
Privacy and Confidentiality Legislation. Most of the Company's activities
involve the receipt or use by the Company of confidential medical information
concerning individual members, including the transfer of the confidential
information to the member's health benefit plan. In addition, the Company uses
aggregated (anonymous) data for research and analysis purposes. Legislation
has been proposed at the federal level and in several states to restrict the
use and disclosure of confidential medical information. To date, no such
legislation has been enacted that adversely impacts the Company's ability to
provide its services. However, confidentiality provisions of the Health
Insurance Portability and Accountability Act of 1996 require the Secretary of
HHS to establish health information privacy standards. In September 1997, the
Secretary submitted recommendations to Congress to implement these standards.
If Congress does not enact health information privacy legislation by August
1999, the Secretary will be required to issue regulations on the subject. Such
federal legislation could have a material adverse effect on the Company's
operations.
The Stark Laws. The Omnibus Budget Reconciliation Act of 1993 substantially
broadened the scope of the federal physician self-referral act commonly known
as "Stark I." "Stark II," which became effective in 1995, prohibits physicians
from referring Medicare or Medicaid patients for "designated health services"
to an entity with which the physician or an immediate family member of the
physician has a financial relationship. In addition, pursuant to the
Settlement Agreement, Caremark agreed to apply the federal Stark laws to all
payors,
10
<PAGE>
public or private. Penalties for violation of the Stark laws include denial of
payment, refund of amounts collected in violation of the statute, civil
monetary penalties and program exclusion. The Stark laws contain certain
exceptions for physician financial arrangements, and the Health Care Financing
Administration ("HFCA") has published Stark II proposed regulations which
describe the parameters of these exceptions in more detail. While Stark laws
and regulations apply to certain contractual arrangements between the Company
and physicians who may refer patients to or write prescriptions ultimately
filled by the Company, the Company believes it is in compliance with such laws
and regulations.
State Self-Referral Laws. The Company is subject to state statutes and
regulations that prohibit payments for referral of patients and referrals by
physicians to healthcare providers with whom the physicians have a financial
relationship. Some state statutes and regulations apply to services reimbursed
by governmental as well as private payors. Violation of these laws may result
in prohibition of payment for services rendered, loss of pharmacy or health
provider licenses, fines, and criminal penalties. The laws and exceptions or
safe harbors may vary from the federal Stark laws and vary significantly from
state to state. The laws are often vague, and, in many cases, have not been
widely interpreted by courts or regulatory agencies.
Statutes Prohibiting False Claims and Fraudulent Billing Activities. A range
of federal civil and criminal laws target false claims and fraudulent billing
activities. One of the most significant is the Federal False Claims Act, which
prohibits the submission of a false claim or the making of a false record or
statement in order to secure a reimbursement. In recent years, the government
has launched several initiatives aimed at uncovering practices which violate
false claims or fraudulent billing laws. Claims under these laws may be
brought either by the government or by private individuals on behalf of the
government, through a "whistleblower" or "qui tam" action. Because such
actions are filed under seal and may remain secret for years, there can be no
assurance that the Company or one of its affiliates is not named in a material
qui tam action which is not discussed in Item 3. "Legal Proceedings."
Future Legislation, Regulation and Interpretation. 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. Further, although the Company exercises care in structuring its CPG
operations to comply in all material respects with the above-referenced laws,
there can be no assurance that (i) government officials charged with
responsibility for enforcing such laws will not assert that the Company or
certain transactions in which the Company is involved are in violation thereof
and (ii) such laws will ultimately be interpreted by the courts in a manner
consistent with the Company's interpretation. Therefore, it is possible that
future legislation, regulation and the interpretation thereof could have a
material adverse effect on the operating results and financial condition of
the Company.
Corporate Liability and Insurance
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 Company's businesses. In addition, in December
1998, the Company agreed to pay a premium of $22.5 million to acquire excess
equity protection insurance coverage from National Union Fire Insurance
Company of Pittsburgh ("National Union"), pursuant to which National Union
assumed financial responsibility for the defense and ultimate resolution of
the Shareholder Litigation which is discussed in Item 3. Legal Proceedings.
The Company's CPG business may subject the Company to litigation and liability
for damages. The Company believes that its current insurance protection is
adequate for its present business operations, but there can be no assurance
that the Company will be able to maintain its professional and general
liability insurance coverage in the future or that such insurance coverage
will be available on acceptable terms or adequate to cover any or all
potential product or professional liability claims. A successful liability
claim in excess of the Company's insurance coverage could have a material
adverse effect upon the Company.
11
<PAGE>
Employees
As of December 31, 1998, the Company employed a total of 19,636 persons.
Approximately 250 of these employees are involved in union activities. The
Company believes that its relations with its employees are good.
Discontinued Operations
General. The Company's PPM business affiliates with physician practices and
provides those practices with access to capital and management information
systems. The affiliation generally consists of a long-term practice management
agreement between the Company and the physician practice which is intended to
provide for management services to be rendered by the Company and to assure
the clinical independence of the physicians. In addition, the Company arranges
for contracts with HMOs and other third party payors that compensate the
Company and its affiliated physicians on a prepaid basis. Current physician
practice affiliations have either been negotiated by the Company or assumed by
the Company as a result of its acquisition of other PPM companies. The PPM
business derives revenues from management fees it receives under its
management agreements with affiliated physician practices.
The Company, primarily the PPM business, experienced several adverse events
in the fourth quarter of 1997 and in January 1998, including: (i) a fourth
quarter pretax charge of $646.7 million related primarily to the restructuring
and impairment of selected assets of certain of its clinic operations within
the PPM business; (ii) the termination of the merger agreement with PhyCor,
Inc. and (iii) the filing of various stockholder class action lawsuits against
the Company and certain of its officers and directors in the aftermath of
these events alleging violations of federal securities laws. At approximately
the same time, the PPM industry experienced overall declining stock prices and
earnings pressures. The Company believes that growth opportunities in the PPM
industry, without acquisitions, are limited to increasing capitation business
of affiliated physician practices through contracts with HMOs and other third
party payors. HMOs and other third party payors have experienced price
pressures during the last few years, and these pricing pressures have been
passed along to PPM companies. The Company believes that these factors will
result in continuing earnings pressures in the PPM industry.
On November 11, 1998, the Company announced its intent to divest its PPM
business. As a result, the Company is reporting the results of the operations
of this business as discontinued operations. Divestiture of this business is
currently underway; however, there is no guarantee that there will not be
adverse developments in relation to this divestiture.
On March 5, 1999, MedPartners Provider Network ("MPN or the "Plan) received
a cease and desist order (the "Order") from the California Department of
Corporations ("DOC"), along with a letter advising that the DOC would be
conducting a non-routine audit of the finances of MPN, commencing March 8,
1999. On March 11, 1999, the DOC appointed a conservator and assumed control
of the business operations of MPN. On April 9, 1999, the Company and
representatives of the State of California (the "State") reached an agreement
in principle to settle the disputes relating to MPN. The proposed settlement
is subject to the execution and delivery of definitive agreements by April 24,
1999, or a later date as agreed to by the Company and the State, and other
approvals. For a detailed discussion, see Item 3. "Legal Proceedings."
The healthcare industry is highly competitive and is subject to continuing
changes in the provision of services and selection and compensation of
providers. The Company's PPM business competes with national, regional and
local entities, including other PPM companies. In addition, certain companies,
including hospitals, are expanding their presence in the PPM market.
Government Regulation. Federal and state laws addressing, among other
things, anti-remuneration, physician self-referrals (i.e., Stark and state
laws), reimbursement and false claims and fraudulent billing activities, apply
to the PPM operations of the Company. A portion of the net revenue of the
Company's affiliated physician practices is derived from payments made by
Medicare or Medicaid or other government-sponsored healthcare programs. As a
result, the Company is subject to laws and regulations under these programs.
For a detailed discussion of these laws, see "Government Regulation," above.
12
<PAGE>
In April 1998, the OIG issued an Advisory Opinion, discussing the federal
anti-remuneration laws and safe harbors and advising against a certain
physician practice management arrangement which included payment by the
physician to the management company of a percentage of practice revenues. The
Company's PPM operations and transactions do not fit within any of the safe
harbors. While a practice that is not sheltered by a safe harbor is not
necessarily unlawful, it may be subject to increased scrutiny and challenge.
The Company believes that the monies retained by the Company under its
management agreements do not exceed the aggregate amount due the Company for
the physician practice management services provided by the Company to the
affiliated physicians or physician practices.
The Company believes that it is not in violation of the Stark laws or
regulations. The Company retains healthcare providers to provide advice and
non-medical services to the Company in return for compensation pursuant to
employment, consulting, or service contracts. The Company has also entered
into contracts with hospitals and other entities under which the Company
provides products and administrative services for a fee.
The laws of many states prohibit physicians from splitting fees with non-
physicians and prohibit non-physician entities from practicing medicine. These
laws vary from state to state and are enforced by courts and regulatory
agencies with varying and broad discretion. The Company believes that its
control over the assets and operations of its various affiliated professional
corporations has not violated such laws; however, there can be no assurance
that the Company's contractual arrangements with affiliated physicians would
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. In the event of
action by any regulatory authority limiting or prohibiting the Company or any
affiliate from carrying on its business, organizational modification of the
Company or restructuring of its contractual arrangements may be required.
PPM Liability and Insurance
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 many of its affiliated physicians
and practices, and for its PPM operations. The Company has accrued for or
purchased "tail" coverage for claims against the Company's affiliated medical
organizations 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 related accrual or that such
coverage will continue to be available.
Moreover, the Company generally requires each physician group with which it
affiliates to obtain and maintain professional liability insurance coverage
that names the Company or its applicable management subsidiary as an
additional insured. Such insurance provides coverage, subject to policy
limits, in the event the Company is held liable as a co-defendant in a lawsuit
for professional malpractice against a physician or physician group. In
addition, the Company is typically indemnified under its management agreements
by the affiliated physician groups for liabilities resulting from the delivery
of medical services by affiliated physicians and physician practices. However,
there can be no assurance that any future claim or claims will not exceed the
limits of these available insurance coverages or that indemnification will be
available for all such claims.
Item 2. Properties.
The Company currently occupies approximately 91,400 square feet of
administrative office space at its corporate headquarters located at 3000
Galleria Tower in Birmingham, Alabama. Additionally, the Company has corporate
offices at 5000 Airport Plaza Drive in Long Beach, California (approximately
54,800 square feet), 2211 Sanders Road in Northbrook, Illinois (approximately
199,100 square feet) and 95 Glastonbury Boulevard in Glastonbury, Connecticut
(approximately 24,500 square feet). The PBM business operates four leased
distribution/service centers across the United States, including a 107,000
square foot facility located in San Antonio, Texas, a 60,000 square foot
facility located in Ft. Lauderdale, Florida, a 47,000 square foot facility in
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<PAGE>
Lincolnshire, Illinois, and a 18,000 square foot facility located in Vernon
Hills, Illinois. The CT business occupies several small leased branch pharmacy
offices across the United States, ranging in size from 900 to 6,000 square
feet. The main CT pharmacy office (36,000 square feet) is located in Redlands,
California. The Redlands facility is also leased. The Company's information
technology support is provided from a leased 57,000 square foot facility
located at 100 Lakeside Drive in Bannockburn, Illinois. The Company currently
owns or leases medical related facilities throughout the United States for the
benefit of affiliated physician groups, and these facilities range in size
from 500 square feet suites to a 260,000 square foot multi-story medical
office building. As the Company has strategically integrated the operations of
affiliated physician practices during 1998, owned and leased corporate and
clinic space has been reduced.
Item 3. Legal Proceedings.
The Company is a party to certain legal actions arising in the ordinary
course of business. MedPartners is named as a defendant in various legal
actions arising primarily out of services rendered by physicians and others
employed by its affiliated physician entities, as well as personal injury,
contract, 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,
MedPartners and/or 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 that would have a material adverse effect on the operating
results and financial condition of MedPartners.
In connection with the matters described above in "Government Regulation"
relating to the Settlement Agreement, CII and Caremark are the subject of
various non-governmental claims and may in the future become subject to
additional OIG related claims. CII and Caremark are the subject of, and may in
the future be subjected to, various private suits and claims being asserted in
connection with matters relating to the Settlement Agreement by former CII
stockholders, patients who received healthcare services from CII subsidiaries
or affiliates and such patients' insurers. MedPartners cannot determine at
this time what costs or liabilities may be incurred in connection with future
disposition of non-governmental claims or litigation. See "Business--
Government Regulation".
Beginning in September 1994, Caremark was named as a defendant in a series
of 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 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 attorney's fees and expenses.
All of these actions have been transferred by the Judicial Panel for Multi-
District 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 the
pharmaceutical manufacturers. The amended settlement provides for a cash
payment by the defendants in the class action (which does not include
Caremark) of approximately $351 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 this settlement, although numerous additional
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<PAGE>
settlements have been reached between a number of the parties to the class and
individual manufacturers. The class action conspiracy claims against the
remaining defendants were tried in the fall of 1998, and resulted in a
judgment by the court at the close of the plaintiffs' case in favor of the
remaining defendants. That judgment is currently being appealed. It is
expected that trials of the remaining individual conspiracy claims will move
forward in 1999, and will also precede the trial of any Robinson-Patman Act
claims.
In December 1997, a putative class action was filed against MedPartners in
the United States District Court for the Central District of California. The
action purports to be a class action on behalf of all of the shareholders of
Talbert Medical Management Holdings Corporation ("Talbert"), which was
acquired by MedPartners in a cash tender offer transaction pursuant to which
MedPartners paid $63 for each share of Talbert. The action alleges that
MedPartners violated Rule 14d-10 under the Securities Exchange Act of 1934,
the so-called "all holder, best price" rule, by reason of provisions in the
employment agreements of two senior officers of Talbert which provided for a
certain contingent payment under specific circumstances. The complaint
requests class certification and claims damages and interest. The defendants
have filed a motion to dismiss. An agreement to settle this case has been
reached in principle, as discussed below.
On January 7, 1998, MedPartners issued a press release announcing the
termination of its proposed merger with PhyCor, Inc., and a further press
release announcing certain fourth quarter 1997 charges and negative earnings
estimates, which were subsequently revised downward. On January 8, 1998, there
was a decline in the market prices for MedPartners publicly traded securities.
Thereafter, certain persons claiming to be stockholders of MedPartners filed
twenty actions (collectively the "Shareholder Litigation") in either state or
federal court against MedPartners and certain officers and directors of
MedPartners. Nineteen of these actions seek direct recovery to the securities
holders and one is a derivative action seeking recovery on behalf of the
Company.
Of the nineteen direct actions, eighteen are putative class actions and one
is a non-class action pursued on behalf of several individuals. Of the
eighteen class actions, fourteen have been consolidated into a single
proceeding in the United States District Court for the Northern District of
Alabama under the caption In re MedPartners Securities Litigation. The
remaining four class actions, Lauriello, et al. v. MedPartners, Inc. et al.;
Schachter and Griffin, et al. v. MedPartners, Inc., et al.; Bronstein, et al.
v. MedPartners, Inc., et al.; and Idlebird, et al. v. MedPartners, Inc., et
al., are in state court in the Circuit Court of Jefferson County, Alabama, as
are both the one non-class direct action and the derivative action. One of the
four class actions filed in the state court has been dismissed with prejudice
upon motion and is currently on appeal to the Supreme Court of Alabama. The
state court non-class direct action is captioned Blankenship, et al. v.
MedPartners, Inc., et al. The state court derivative action is captioned
McBride v. House, et al.
The direct actions are brought on behalf of purchasers of common stock,
Threshold Appreciation Price Securities (publicly offered in September 1997)
and/or stock options. As currently stated, the class actions cover a period
from spring, 1997 through early 1998, and the one non-class direct action
relates to a transaction in the latter part of 1996. The actions in general
assert various theories, including violation of federal and state securities
laws and the common law of fraud, deceit and negligent misrepresentation,
based on the public dissemination of allegedly false and misleading
information about the business circumstances, assets and results of operations
of MedPartners; in one of the actions, brought on behalf of participants in an
employee stock purchase plan, the charges include breach of contract and
fiduciary duty. The actions seek unspecified compensatory damages, and in some
instances punitive damages.
The derivative action charges various officers and directors with breach of
fiduciary duty, mismanagement, unjust enrichment, abuse of control and
constructive fraud, arising generally from the same alleged activities that
are the subject of the direct actions, as well as from asserted but
unspecified sales of stock during the affected period. It seeks unspecified
compensatory damages and other relief. The cases are at various stages in the
litigation process.
An agreement in broad principle has been reached to resolve all twenty cases
in the Shareholder Litigation, as well as the class action lawsuit relating to
the acquisition of Talbert, discussed above. However, the settlement
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<PAGE>
is subject to the negotiation and execution of definitive documentation, court
approval following notice to class members and shareholders, and a hearing
before the state court in Birmingham and in other courts as necessary.
Management has entered into an excess insurance coverage agreement with
National Union pursuant to which National Union assumed financial
responsibility for the defense and ultimate resolution of the Shareholder
Litigation, and management believes that the ultimate resolution of these
matters presents no material adverse risk to the Company.
In March 1998, a consortium of insurance companies and third party private
payors sued Caremark and CII alleging violations of the Racketeering
Influenced and Corrupt Organizations Act ("RICO") and ERISA and claims of
state law fraud and unjust enrichment. The case, captioned Blue Cross and Blue
Shield of Alabama, et al. v. Caremark Inc. and Caremark International, Inc.,
was filed in the United States District Court for the Northern District of
Illinois. The plaintiffs maintain that Caremark's home infusion division
implemented a scheme to submit fraudulent claims for payment to the payors
which the payors unwittingly paid. The complaint seeks unspecified damages,
treble damages and attorneys' fees and expenses. Caremark's motion to dismiss
is pending. Discovery has not yet been commenced.
On March 5, 1999, MPN received a cease and desist order (the "Order") from
the DOC, along with a letter advising that the DOC would be conducting a non-
routine audit of the finances of MPN, commencing March 8, 1999. MPN is a
wholly-owned subsidiary of the Company and a health care service plan which is
licensed under the Knox-Keene Health Care Service Plan Act of 1975. The DOC
regulates health care service plans (HMOs) in California.
Among other things, the Order provided that MPN "cease and desist" from
transferring any funds to its parent or affiliates, except to pay capitation
payments and compensation to contracting and non-contracting providers.
Because this Order could be interpreted to prohibit MPN from meeting its
obligations to the Company under an Amended and Restated MedPartners Provider
Network, Inc. Management Agreement ("Management Agreement"), at the March 8
meeting attended by representatives from the Company and from the DOC
regarding the non-routine audit, MPN and MedPartners requested that the DOC
issue a written clarification of the Order. Subsequently, the DOC issued a
letter of clarification, dated March 9, 1999, stating that the Order was not
intended to preclude MPN "from paying for ordinary and necessary expenses
incurred in its business operations as a health care service plan ...,
including those actual and necessary expenses for staffing in medical and
other health services, and fiscal and administrative services expenses actual
and necessary for the conduct of the Plan's business."
On March 11, 1999, the DOC appointed a conservator and assumed control of
the business operations of MPN. Also on March 11, the conservator filed a
voluntary petition in the United States Court for the Central District of
California (the "Bankruptcy Court") under Chapter 11 of the United States
Bankruptcy Code, purportedly on behalf of MPN, placing MPN into bankruptcy.
The DOC did not request or receive the approval of any court prior to taking
these actions; and to date, no court has approved of these actions.
On March 17, 1999, the Company filed an emergency motion in the Bankruptcy
Court seeking to dismiss the bankruptcy case and for other relief. A hearing
on the motion has been scheduled for April 21, 1999. Since March 11, 1999, the
conservator, on behalf of MPN, and other parties have filed several motions
seeking Bankruptcy Court approval for certain actions.
Also on March 17, 1999, the Company filed a complaint for injunctive and
declaratory relief with the Los Angeles Superior Court that would, among other
things, enjoin the DOC from further proceedings with respect to MPN. On March
18, 1999, the DOC commenced an action in the Los Angeles Superior Court to
confirm the DOC's order appointing a conservator. On March 23, 1999, the
Superior Court issued an order to show cause to the DOC as to why further
proceedings should not be enjoined and an order establishing an expedited
discovery schedule for both actions and setting a hearing on the merits for
April 9, 1999. At the April 9 hearing, the court did not make any final
rulings on the merits, and the judge referred certain factual disputes to a
referee. In light of the agreement in principle on a settlement referred to
below, the parties have agreed and the court has ordered that the Superior
Court proceedings be stayed until April 26, 1999, subject to resuming such
proceedings upon 48 hours notice to the other party.
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<PAGE>
On April 9, 1999, the Company and representatives of the State of
California (the "State") reached an agreement in principle to settle the
disputes relating to MPN. The proposed settlement provides for: a transition
plan for the orderly and timely disposition of the existing operations of
MPN's and the Company's California PPM-related assets; the continued funding
of the Company's California PPM operations with all of the proceeds from such
disposition, loans from certain health care plans and additional funding
provided by the Company; restoration of MPN's assets, operations and
management responsibilities to the Company, which will operate MPN as a debtor
in possession under the Bankruptcy Code, subject to oversight and supervision
of a new court-appointed conservator; and a monitoring role by the new
conservator and the DOC with primary oversight responsibilities on the
fulfillment of the proposed settlement and transition plan.
The proposed settlement provides for a loan of up to $25 million from
certain health care plans to the Company or, as designated by the Company,
purchasers of MPN's and the Company's PPM-related assets. The Company is also
providing a letter of credit in the amount of $25 million as security for its
funding obligations. The proposed settlement is subject to the execution and
delivery of definitive agreements by April 24, 1999, or a later date as agreed
to by the Company and the State, and other approvals.
Although MedPartners believes that it has a meritorious defense to the
claims of liability or for damages in the actions against it, there can be no
assurance that such defenses will be successful or that additional lawsuits
will not be filed against MedPartners or its subsidiaries. Further, there can
be no assurance that the lawsuits will not have a disruptive effect upon the
operations of the business, that the defense of the lawsuits will not consume
the time and attention of senior management of MedPartners and its
subsidiaries, or that the resolution of the lawsuits will not have a material
adverse effect on the operating results and financial condition of
MedPartners. MedPartners intends to vigorously pursue or defend each of these
lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of stockholders of the Company
during the fourth quarter of 1998.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "MDM". The following table sets forth, for the
calendar periods indicated, the range of high and low sales prices from
January 1, 1997.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1997
First Quarter................................................ $25.00 $18.00
Second Quarter............................................... 23.50 18.00
Third Quarter................................................ 24.188 19.813
Fourth Quarter............................................... 28.375 20.00
1998
First Quarter................................................ $21.625 $ 8.00
Second Quarter............................................... 11.50 7.00
Third Quarter................................................ 7.875 1.688
Fourth Quarter............................................... 5.25 1.938
1999
First Quarter (through March 5).............................. $ 6.375 $ 5.00
</TABLE>
On March 5, 1999, the closing sale price of the Company's Common Stock on
the NYSE was $5.00.
There were 41,358 holders of record of the Company's Common Stock as of
March 5, 1999.
The Company has never paid a cash dividend on its Common Stock. Future
dividends, if any, will be determined by the Company's Board of Directors in
light of circumstances existing from time to time, including the Company's
growth, profitability, financial condition, results of operations, continued
existence of the restrictions described below and other factors deemed
relevant by the Company's Board of Directors.
17
<PAGE>
Restrictions contained in the Credit Facility (as defined in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") limit the payment of non-stock dividends on the Company's Common
Stock.
Unregistered Sales of Securities
Pacific Medical Group
On October 7, 1998, the Company issued an aggregate of 330,000 shares of
MedPartners common stock pursuant to an earnout arrangement relating to the
purchase by the Company of the stock of Pacific Medical Group in 1995. The
Company relied on Section 4(2) of the Securities Act as its exemption from the
registration requirements of the Securities Act.
IMHC Management, Inc.
On November 9, 1998, the Company issued an aggregate of 5,559 shares of
MedPartners common stock to a shareholder of IMHC Management, Inc. for $2.0625
per share pursuant to the purchase of all of the outstanding common stock,
$1.00 par value per share, of IMHC Management, Inc. The Company relied on
Section 4(2) of the Securities Act as its exemption from the registration
requirements of the Securities Act.
Item 6. Selected Financial Data.
The following table sets forth selected financial data for the Company
derived from the Company's Consolidated Financial Statements. The selected
financial data should be read in conjunction with the accompanying
Consolidated Financial Statements and the related Notes thereto.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net revenue............. $1,616,633 $1,840,291 $2,159,480 $2,363,404 $ 2,634,017
Income from continuing
operations............. 95,542 9,565 32,329 38,049 30,760
Loss from discontinued
operations............. (6,130) (113,904) (177,817) (832,775) (1,284,878)
---------- ---------- ---------- ---------- -----------
Income (loss) before
cumulative effect of a
change in
accounting principle... 89,412 (104,339) (145,488) (794,726) (1,254,118)
Cumulative effect of a
change in accounting
principle.............. -- -- -- (25,889) (6,348)
---------- ---------- ---------- ---------- -----------
Net income (loss)....... $ 89,412 $ (104,339) $ (145,488) $ (820,615) $(1,260,466)
========== ========== ========== ========== ===========
Earnings (loss) per
common share
outstanding(1):
Income from continuing
operations............ $ 0.73 $ 0.06 $ 0.19 $ 0.20 $ 0.16
Loss from discontinued
operations............ (0.05) (0.75) (1.05) (4.48) (6.79)
Cumulative effect of a
change in accounting
principle............. -- -- -- (0.14) (0.03)
---------- ---------- ---------- ---------- -----------
Net income (loss) per
share................. $ 0.68 $ (0.69) $ (0.86) $ (4.42) $ (6.66)
========== ========== ========== ========== ===========
Weighted average common
shares outstanding..... 130,435 152,453 169,897 185,830 189,327
Diluted earnings (loss)
per common share
outstanding:
Income from continuing
operations............ $ 0.65 $ 0.06 $ 0.19 $ 0.20 $ 0.16
Loss from discontinued
operations............ (0.04) (0.72) (1.02) (4.39) (6.77)
Cumulative effect of a
change in accounting
principle............. -- -- -- (0.14) (0.03)
---------- ---------- ---------- ---------- -----------
Net income (loss) per
share................. $ 0.61 $ (0.66) $ (0.83) $ (4.33) $ (6.64)
========== ========== ========== ========== ===========
Weighted average common
and dilutive equivalent
shares outstanding..... 146,773 158,109 174,028 189,573 189,927
Balance Sheet Data:
Cash and cash
equivalents............ $ 101,101 $ 56,295 $ 112,792 $ 109,098 $ 23,100
Working capital......... 146,817 164,097 270,189 83,813 85,111
Total assets............ 1,276,835 1,431,563 1,807,366 2,891,896 1,862,106
Long-term debt, less
current portion........ 286,329 392,552 663,979 1,395,079 1,735,096
Total stockholders'
equity (deficit)....... 650,819 678,905 839,073 92,221 (1,144,173)
</TABLE>
- --------
(1) Earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the periods
presented in accordance with the applicable rules of the Commission.
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of the Company. This discussion should be
read in conjunction with the audited Consolidated Financial Statements and the
Notes thereto. Unless the context otherwise requires, as used herein, the term
"MedPartners" or the "Company" refers collectively to MedPartners, Inc. and
its subsidiaries and affiliates.
General
MedPartners operates one of the largest independent PBM companies in the
United States, with net revenue of approximately $2.6 billion for the year
ended December 31, 1998.
The Company manages PBM programs for clients throughout the United States,
including corporations, insurance companies, unions, government employee
groups and managed care organizations. During 1998, the Company dispensed
approximately 11 million prescriptions through three mail service pharmacies
and processed approximately 33 million prescriptions through a network of more
than 50,000 retail and other pharmacies.
The Company's CT services are designed to meet the healthcare needs of
individuals with certain chronic diseases or conditions. These services
include the design, development and management of comprehensive programs
comprising drug therapy, physician support and patient education. The Company
currently provides therapies and services for individuals with such conditions
as hemophilia, growth disorders, immune deficiencies, cystic fibrosis,
multiple sclerosis and infants with respiratory difficulties.
On November 11, 1998, the Company announced that CPG, which includes its PBM
business, would become its core operating unit. The Company also announced its
intention to divest its other businesses. As a result the Company has restated
its prior period financial statements to reflect the appropriate accounting
for these discontinued operations. Additionally, a loss on disposal of
discontinued operations charge of $1.1 billion was recorded during the fourth
quarter of 1998. On January 26, 1999, the Company completed the sale of its
government services business for $67 million less certain working capital
adjustments. On March 12, 1999, the Company completed the sale of its Team
Health business for $318.9 million, less certain expenses, and retained
approximately 7.3% of the equity of the recapitalized company.
On March 11, 1999, the Company announced that it entered into a definitive
agreement for the sale of the assets of the physician practice management
business that provides services to the multi-specialty physicians group,
Kelsey-Seybold Medical Group, P.A. The purchaser is a joint venture between
St. Luke's Episcopal Health System and Methodist Health Care System. The joint
venture will acquire the MedPartners and Kelsey-Seybold management services
agreement and related assets valued at approximately $89 million, and the new
Holcombe Building, a major new site for Kelsey-Seybold, and other assets
valued at approximately $61 million. The transaction is subject to customary
regulatory and board approvals and closing conditions.
Results of Operations for the Years Ended December 31, 1996, 1997 and 1998
Continuing Operations
For the years ended December 31, 1996, 1997, and 1998, net revenue was
$2,159.5 million, $2,363.4 million and $2,634.0 million, representing
increases of $203.9 million and $270.6 million during 1997 and 1998,
respectively. This growth is entirely internal and has not been supplemented
by acquisitions. Key factors contributing to this growth include high customer
retention, increased sales to retained customers, new customer contracts and
drug cost inflation. These growth factors were partially offset in 1996 and
1997 by selective non-renewal of certain accounts not meeting threshold
profitability levels. The preponderance of the Company's revenue is earned on
a fee-for-service basis through contracts covering one to three-year periods.
Revenues for selected types of services are earned based on a percentage of
savings achieved or on a per-enrollee or per-member basis; however, these
revenues are not material to total revenues.
19
<PAGE>
Operating income was $121.4, $100.5 and $137.9 million in 1996, 1997 and
1998, respectively. Operating margins were 5.6%, 4.3% and 5.2% for these same
periods. The operating income and margin decrease in 1997 was due almost
entirely to a $20 million loss recognized on a risk-share contract. This
particular contract was the only significant PBM risk-share contract. During
1998, the Company renegotiated this risk-share contract, changing it to a fee-
for-service arrangement beginning in 1999. Adjusting for the impact of the $20
million loss contract reserve, operating margins for 1998 and 1997 were
comparable. (Operating income represents earnings before interest and income
taxes and excludes merger expenses and restructuring and impairment charges.)
In 1996, the Company incurred merger expenses of $55.5 million related to
the acquisition of Caremark. This charge primarily related to transaction
costs such as investment banking and legal fees. Also included in this amount
were charges relating to occupancy costs for excess facilities and elimination
of certain information systems in the PBM business.
Restructuring expenses totaled $10.6 million in 1997 and $9.5 million in
1998. These charges primarily related to severance and occupancy costs for
excess facilities.
Net interest expense was $5.9 million, $27.2 million and $78.8 million for
the years ended December 31, 1996, 1997 and 1998, respectively. The year over
year increases in interest expense primarily resulted from increased debt
levels. Increases in debt levels were a result of substantial uses of cash in
the Company's discontinued operations for acquisitions, capital expenditures
and working capital requirements. The net interest expense allocated to the
discontinued operations was limited by generally accepted accounting
principles; accordingly, the interest expense allocated to continuing
operations is not necessarily indicative of the net interest expense those
operations would have incurred as an independent entity on a stand alone
basis.
Under Statement of Financial Accounting Standards 109, "Accounting for
Income Taxes" (SFAS 109), the Company is required to record a net deferred tax
asset for the future tax benefits of tax loss and tax credit carryforwards, as
well as for other temporary differences, if realization of such benefits is
more likely than not. In assessing the realizability of deferred tax assets,
management has considered reversing deferred tax liabilities, projected future
taxable income and tax planning strategies. However, the ultimate realization
of the deferred tax assets is dependent upon the generation of future taxable
income during the periods in which temporary differences become deductible and
net operating losses can be carried forward.
Management believes, considering all available information, including the
Company's history of earnings (after adjustments for nonrecurring items,
restructuring charges, permanent differences, and other appropriate items) and
after considering appropriate tax planning strategies, it is more likely than
not that the deferred tax assets will not be realized. Accordingly, the
Company has recorded a valuation allowance for $736.0 million, which is the
amount of the deferred tax assets in excess of the deferred tax liabilities.
The valuation allowance has been established due to the uncertainty of
forecasting future income and also covers certain net operating losses of non-
consolidated entities that can only offset future taxable income generated by
those entities.
In November 1997, the Emerging Issues Task Force ("EITF") issued EITF 97-13
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project that Combines Business Process Reengineering and Information
Technology" ("EITF 97-13"). EITF 97-13 requires process reengineering costs,
as defined, which had been previously capitalized as part of an information
technology project to be written off as a cumulative catch-up adjustment in
the fourth quarter of 1997. The Company recorded a charge of $25.9 million,
net of tax of $15.8 million, as a result of EITF 97-13. The Company incurred
such costs primarily in connection with the process reengineering associated
with the new operating systems installed for its PBM operations.
20
<PAGE>
In April 1998, the American Institute of Certified Public Accountants issued
a Statement of Position "Reporting on the Costs of Start-Up Activities" ("SOP
98-5"). SOP 98-5 requires that the costs of start-up activities be expensed as
incurred. The Company recorded a charge of $6.3 million, net of tax of $3.9
million, as a cumulative effect adjustment retroactive to January 1, 1998.
Discontinued Operations
The loss from discontinued operations includes losses from the Company's PPM
business, contract services business, international business and CII's
previously reported discontinued operations. Discontinued operations for 1996
reflects a $67.9 million after-tax charge related to CII's settlement with
private payors discussed in Note 13 of the accompanying audited Consolidated
Financial Statements and merger charges of $253.5 million for acquisitions in
the PPM and contract services businesses. Discontinued operations for 1997
includes a fourth quarter restructuring and impairment charge of $636.1
million. This charge relates primarily to the restructuring and impairment of
selected assets of certain clinic operations within the PPM business and
includes goodwill impairment and other asset write downs. Also included in the
discontinued operations loss for 1997 are merger charges of $59.4 million for
acquisitions in the PPM and contract services businesses. Discontinued
operations for 1998 include a charge taken in the fourth quarter of $1.1
billion. This charge consists primarily of the non-cash write off of
intangibles, the Company's deferred tax assets and other PPM assets. The
remainder of the charge reflects the future cash costs of exiting the PPM
business. Also included in the net loss from discontinued operations for 1998
are losses of $0.2 billion for the operations of these discontinued
operations.
Other Matters
Year 2000 Compliance. The year 2000 ("Y2K") presents a problem for computer
software and hardware that were not designed to handle dates beyond the year
1999. The Y2K Problem is pervasive and complex because virtually every
computer operation will be affected in some way by the rollover of the last
two digits of the year to "00." As a consequence, any such software and
hardware will need to be modified some time prior to December 31, 1999 in
order to remain functional. Computer systems and hardware that do not properly
handle this rollover could generate erroneous data or fail to function.
The Company has initiated a company-wide program to address the Y2K Problem
with respect to the information systems (software and hardware) and equipment
and systems utilized in the Company's operations. The program includes: (1) an
inventory of the information systems, hardware, and equipment (the "Systems,
Hardware and Equipment") utilized in operations; (2) an assessment of the Y2K
issues associated with the Systems, Hardware and Equipment; (3) the
remediation of such Systems, Hardware and Equipment to achieve Y2K readiness
("Y2K Readiness" or "Y2K Ready"); (4) the testing of such Systems, Hardware
and Equipment to confirm Y2K Readiness; and (5) the development of contingency
plans to address Y2K and the principal risks facing the Company in its efforts
to achieve Y2K Readiness. The Company's Y2K program also includes its "Trading
Partners Initiative," which is designed to provide the Company with insights
into the Y2K Readiness of certain of the Company's customers, suppliers and
vendors. In addition, the Company has sent letters to certain manufacturers of
the hardware and equipment utilized in operations requesting that such
manufacturers address the Y2K Readiness of such hardware and equipment.
In terms of the status of the Company's Y2K program, including systems
related to discontinued operations, management believes that the Company's
inventory of information systems is approximately 99% complete, that its
assessment of Y2K issues associated with such information systems is
approximately 90% complete and that its remediation efforts with respect to
such information systems is approximately 45% complete. With respect to the
status of the Company's Y2K efforts with respect to equipment and systems that
include embedded logic or software which presents Y2K issues, management
believes that the inventory of such equipment and systems is approximately 50%
complete. The Company's assessment of Y2K issues associated with such
equipment and systems is approximately 50% complete and its remediation
efforts with respect to such equipment and systems is approximately 15%
complete. The Company expects to complete its assessment of all of these areas
by June 1999. The Company expects to commence testing efforts with respect to
the Systems, Hardware and Equipment
21
<PAGE>
following the completion of the inventory and assessment stages of its Y2K
program. The Company has not, to date, received substantial responses to its
requests of customers, suppliers and vendors with respect to their Y2K
Readiness. As a result, management is currently unable to form an opinion as
to the present level of risk associated with the state of Y2K Readiness of the
Company's customers, vendors and suppliers, other than a belief that the Y2K
issues generally associated with the healthcare industry are very significant
and complex and include issues associated with the delivery of healthcare
services and products as well as the billing and collection of amounts due for
such services and products.
According to a recent report (the "Report") by the Senate Special
Subcommittee on the Year 2000 Technology Problem, the healthcare industry lags
behind other industries in Y2K preparedness. While, according to the Report,
the pharmaceutical segment appears to be better Y2K prepared than other
segments of the healthcare industry, the preparedness of health claim billing
systems of third party payors is progressing slowly.
Management of the Company believes that the Company's Y2K program will be
substantially completed by the third quarter of 1999. The Company estimates
that the total cost of the Y2K program, including $28 million in costs
associated with discontinued operations, will be approximately $32.5 million,
of which approximately $14.9 million has been spent through December 31, 1998.
Of such aggregate Y2K expenditures made to date, management currently
estimates that approximately $12.2 million consisted of capital expenditures
for new or replacement Systems, Hardware and Equipment and approximately $2.7
million consisted of expenses of the Y2K program. The source of the funding
utilized to make such historical expenditures has been borrowings under the
Company's credit facility and cash flow from operations. Management of the
Company believes that a significant amount of the funds spent to date and
budgeted in the future for achieving Y2K Readiness would otherwise have been
spent and budgeted in connection with the Company's ongoing information
technology consolidation efforts to reduce the number of information systems
and hardware platforms utilized in its operations and acquired through the
Company's various acquisition transactions over the years.
The Company believes that the most reasonably likely worse case scenario
with respect to Y2K issues is the possibility that equipment and systems that
include embedded logic or software will fail to be Y2K Ready and that such
failure will cause such equipment to fail to operate or operate improperly.
The failure of such equipment may expose individual patients to potential
injury and may expose the Company to claims and liabilities. At this time the
Company cannot estimate the likelihood or magnitude of any such equipment or
systems failures. The Company has not established a contingency plan for the
failure of such equipment or systems but plans to establish such a plan during
1999 in conjunction with the implementation of the Y2K program.
The Y2K problems experienced by the Company's vendors, suppliers and
distribution network could result in the Company experiencing difficulty in
obtaining and distributing prescription drugs or pharmaceutical therapies,
thereby disrupting the Company's PBM business as historically conducted. Y2K
problems experienced by HMOs, other third party payors and the government
agencies which administer Medicare, Medicaid and other government sponsored
healthcare programs, may result in delays in payments to the Company for
services or in erroneous payments for such services which could adversely
affect the Company's results of operations and liquidity.
The foregoing discussion involves the estimates and judgments of the senior
management of the Company. There can be no assurances that the Company will be
Y2K Ready or that the Company will not incur liability or suffer a material
adverse effect as a result of the Company's failure to be Y2K Ready. In
addition, there can be no assurances that the estimated expenses to make the
Company Y2K Ready will not be materially higher than estimated or that the
Company will not incur additional expenses associated with its efforts to get
Y2K Ready or its failure to do so.
22
<PAGE>
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. The future operating results and financial condition of the
Company may be affected by a number of additional factors, including: the
Company's divestiture of its discontinued operations; the proposed settlement
and transition plan to exit its PPM operations in the State of California; the
Company's compliance with or changes in government regulations, including
pharmacy licensing requirements and healthcare reform legislation; potentially
adverse resolution of lawsuits pending against the Company and its affiliates;
declining reimbursement levels of products distributed; identification of
growth opportunities; implementation of the Company's strategic plan;
liabilities potentially in excess of insurance risks; the Company's liquidity
and capital requirements; and the Company's potential failure to ensure its
information systems are Year 2000 compliant. Changes in one or more of these
factors could have a material adverse effect on the future operating results
and financial condition of the Company.
There are various legal matters which, if materially adversely determined,
could have a material adverse effect on the Company's operating results and
financial condition. See Note 13 to the accompanying audited Consolidated
Financial Statements of the Company.
Liquidity and Capital Resources
The Company has experienced positive cash flow from continuing operations
for each of the last three fiscal years. This positive cash flow has been
offset by the Company's investing activities, primarily capital expenditures,
and cash used in the discontinued operations. The cash flow from continuing
operations for the year ended December 31, 1998 was $83.9 million, offset by
net capital expenditures of $20.1 million and cash used in discontinued
operations of $486.4 million. The combined cash used in discontinued
operations of $1.811 billion over the last three years is the primary cause of
the Company's significant debt level of $1.735 billion at December 31, 1998.
On June 9, 1998, the Company entered into an amendment and restatement of
its $1.0 billion credit facility with NationsBank, N.A. as administrative
agent. The credit facility is unsecured, but is guaranteed by the Company's
material subsidiaries. The credit facility consists of the following:
i. a one-year non-amortizing term loan in an aggregate principal amount
of up to $300 million (the Company has an option to extend the term loan
for an additional two years as an amortizing term loan) ($278 million
outstanding at December 31, 1998);
ii. a three-year non-amortizing term loan in an aggregate principal
amount of up to $300 million ($278 million outstanding at December 31,
1998); and
iii. a three-year revolving credit facility in an aggregate principal
amount of up to $400 million ($309 million in outstanding borrowings and
$64 million in letters of credit under the revolving credit facility,
resulting in $27 million in available borrowing capacity at December 31,
1998).
Effective December 4, 1998, the Company amended its credit facility to
permit a $75 million accounts receivable securitization. The Company has
securitized certain of its accounts receivables with The Chase Manhattan Bank
as funding agent. This facility provides approximately $75 million in
liquidity to the Company.
Effective January 13, 1999, the Company entered into an amendment to its
credit facility, bringing it in line with the Company's new corporate strategy
of separating from its PPM business to focus on its CPG business. The credit
agreement provides for 75% of the first $500 million in net cash proceeds
received from asset sales after December 8, 1998 to be used to reduce the
Company's outstanding debt under its term loans. The remaining 25% of such net
asset sales proceeds, up to a maximum of $125 million, is available to the
Company for use in its business and operations in the ordinary course. All net
cash proceeds in excess of $500 million from such asset sales are to be used
to reduce the Company's outstanding debt under its term loans.
23
<PAGE>
Effective April 15, 1999, the Company entered into an amendment to its
Credit Facility to modify the terms of its credit agreement concerning the
Company's proposed settlement with the State of California (see Note 15) on
April 9, 1999. The terms of the agreement were modified to among other things
(a) permit the Company to enter into a comprehensive settlement agreement and
transition plan (the '"California Transition Plan") with the State of
California and certain health care service plans; (b) permit the sale or other
disposition of all of the property and assets of the Company's California PPM
operations, with proceeds remaining in the California PPM operations to
satisfy liabilities and obligations of the Company's California PPM
operations; (c) to increase to $215 million (of which $15 million is available
solely to pay amounts under certain promissory notes), from $125 million, the
amount of net asset sale proceeds available to the Company for use in its
business and operations in the ordinary course; and (d) modify certain
financial ratios for periods ending on or after March 31, 1999.
The Company's discontinued operations will continue to use significant
amounts of cash until the Company divests such operations. Proceeds from the
sales of these operations will be used to reduce the term loans and the
revolver to the extent required under the amended credit agreement. Cash used
to fund exit costs, which are classified in current liabilities as other
accrued expenses and liabilities, will be funded by the revolving credit
facility and cash flow from continuing operations. The Company believes that
amounts available from the sales of discontinued operations, amounts available
under its revolving credit facility and cash flow from continuing operations
will be sufficient to fund the cash requirements. However, if the cash
generated from such sources is insufficient to fund discontinued operations
until they are divested, or if the Company is unable to successfully implement
its divestiture strategy in a timely manner, the Company's liquidity position
could be adversely affected.
On April 9, 1999, the Company and representatives of the State of California
(the "State") have signed a letter of intent to settle the disputes relating
to MPN. The proposed settlement provides for a loan of up to $25 million from
certain health care services plans to the Company or, as designated by the
Company, purchasers of MPN's and the Company's physician practice assets. The
Company is also providing a letter of credit in the amount of $25 million in
respect of its funding obligations with respect to the proposed settlement.
For a detailed discussion, see Item 3. "Legal Proceedings."
In September 1997, the Company issued 21.7 million 6.50% Threshold
Appreciation Price Securities ("TAPS") with a stated amount of $22.1875 per
security. Each TAPS consists of (i) a stock purchase contract which obligates
the holder to purchase common stock from the Company on the final settlement
date (August 31, 2000) and (ii) 6.25% U.S. Treasury Notes due August 31, 2000.
Under each stock purchase contract the Company is obligated to sell, and the
TAPS holder is obligated to purchase on August 31, 2000, between 0.8197 of a
share and one share of the Company's Common Stock. The exact number of common
shares to be sold is dependent on the market value of the Company's Common
Stock in August 2000. The number of shares issued by the Company in
conjunction with this security will not be more than approximately 21.7
million or less than approximately 17.8 million (subject to certain anti-
dilution adjustments). The Treasury Notes forming a part of the TAPS have been
pledged to secure the obligations of the TAPS holders under the purchase
contracts. Pursuant to the TAPS, TAPS holders receive payments equal to 6.50%
of the stated amount per annum consisting of interest on the Treasury Notes at
the rate of 6.25% per annum and yield enhancement payments payable semi-
annually by the Company at the rate of 0.25% of the stated amount per annum.
Additional paid-in capital has been reduced by $20.4 million for issuance
costs and the present value of the annual 0.25% yield enhancement payments
payable to the holders of the TAPS. These securities are not included on the
Company's balance sheet; an increase in stockholders' equity would be
reflected upon receipt by the Company of cash proceeds of $481.4 million on
August 31, 2000 from the issuance of the Company's common stock pursuant to
the TAPS.
24
<PAGE>
Quarterly Results (Unaudited)
The following tables set forth certain unaudited quarterly financial data
for 1997 and 1998. 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
----------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $591,879 $599,705 $578,040 $ 593,780 $620,226 $639,457 $660,608 $ 713,726
Operating expenses...... 563,238 567,389 545,233 587,027 591,272 608,037 623,189 673,611
Net interest expense.... 4,767 6,116 6,808 9,478 18,622 20,603 17,547 22,024
Restructuring and
impairment charges..... -- -- -- 10,610 -- 9,500 -- --
-------- -------- -------- --------- -------- -------- -------- -----------
Income (loss) from
continuing operations
before income taxes.... 23,874 26,200 25,999 (13,335) 10,332 1,317 19,872 18,091
Income tax expense
(benefit).............. 9,366 10,273 10,195 (5,145) 3,926 500 7,551 6,875
-------- -------- -------- --------- -------- -------- -------- -----------
Income (loss) from
continuing operations.. 14,508 15,927 15,804 (8,190) 6,406 817 12,321 11,216
Income (loss) from
discontinued
operations, net of
taxes.................. 29,889 (89,313) 33,365 (806,716) (31,486) (24,081) (3,709) (1,225,602)
Cumulative effects of a
change in accounting
principle.............. -- -- -- (25,889) -- -- -- (6,348)
-------- -------- -------- --------- -------- -------- -------- -----------
Net income (loss)....... $ 44,397 $(73,386) $ 49,169 $(840,795) $(25,080) $(23,264) $ 8,612 $(1,220,734)
======== ======== ======== ========= ======== ======== ======== ===========
Earnings (loss) per
common share
outstanding(1):
Income (loss) from
continuing
operations............ $ 0.08 $ 0.09 $ 0.08 $ (0.04) $ 0.03 $ 0.01 $ 0.06 $ 0.06
Income (loss) from
discontinued
operations............ $ 0.16 $ (0.48) $ 0.18 $ (4.29) $ (0.17) $ (0.13) $ (0.02) $ (6.45)
Cumulative effect of
change in accounting
principle............. $ -- $ -- $ -- $ (0.14) $ -- $ -- $ -- $ (0.03)
-------- -------- -------- --------- -------- -------- -------- -----------
Net income (loss)....... $ 0.24 $ (0.39) $ 0.26 $ (4.47) $ (0.14) $ (0.12) $ 0.04 $ (6.42)
======== ======== ======== ========= ======== ======== ======== ===========
Weighted average common
shares outstanding..... 183,666 184,570 186,691 187,888 188,610 189,245 189,585 190,078
Earnings (loss) per
common share
outstanding(2):
Income (loss) from
continuing
operations............ $ 0.08 $ 0.08 $ 0.08 $ (0.04) $ 0.03 $ 0.01 $ 0.06 $ 0.06
Income (loss) from
discontinued
operations............ $ 0.16 $ (0.48) $ 0.18 $ (4.29) $ (0.17) $ (0.13) $ (0.02) $ (6.41)
Cumulative effect of
change in accounting
principle............. $ -- $ -- $ -- $ (0.14) $ -- $ -- $ -- $ (0.03)
-------- -------- -------- --------- -------- -------- -------- -----------
Net income (loss)....... $ 0.24 $ (0.40) $ 0.26 $ (4.47) $ (0.14) $ (0.12) $ 0.04 $ (6.38)
======== ======== ======== ========= ======== ======== ======== ===========
Weighted average common
shares outstanding..... 187,156 187,595 190,382 187,888 189,432 189,612 189,659 191,215
</TABLE>
- --------
(1) Earnings (loss) per share is computed by dividing net income (loss) by the
number of common shares outstanding during the periods presented in
accordance with the applicable rules of the Commission.
(2) For the computation of diluted earnings (loss) per share, no incremental
shares related to options are included for periods with net losses from
continuing operations.
25
<PAGE>
The Company's historical unaudited quarterly financial data has been
restated to include the results of certain operations as discontinued
operations. The quarterly data for 1998 has also been restated to reflect the
Company's adoption of the American Institute of Certified Public Accountants
Statement of Position "Reporting on the Costs of Start-Up Activities" ("SOP
98-5"). The Company's Quarterly Reports on Form 10-Q were filed prior to these
operations being classified as discontinued operations and the adoption of SOP
98-5 therefore, the financial data included in those reports differs from the
amounts for the quarters included herein. The differences are summarized as
follows:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1997 June 30, 1997
----------------------- -----------------------
Form 10-Q As Restated Form 10-Q As Restated
---------- ----------- ---------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net revenue................... $1,332,271 $591,879 $1,560,600 $599,705
Income from continuing
operations before income
taxes........................ 65,411 23,874 21,588 26,200
Income tax expense............ 24,925 9,366 19,540 10,273
Net income (loss)............. 40,486 44,397 (73,386) (73,386)
<CAPTION>
Quarter Ended Quarter Ended
September 30, 1997 March 31, 1998
----------------------- -----------------------
Form 10-Q As Restated Form 10-Q As Restated
---------- ----------- ---------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net revenue................... $1,614,062 $578,040 $1,743,097 $620,226
Income from continuing
operations before income
taxes........................ 87,951 25,999 (34,186) 10,332
Income tax expense (benefit).. 33,509 10,195 (8,439) 3,926
Net income (loss)............. 49,169 49,169 (25,747) (25,080)
<CAPTION>
Quarter Ended Quarter Ended
June 30, 1998 September 30, 1998
----------------------- -----------------------
Form 10-Q As Restated Form 10-Q As Restated
---------- ----------- ---------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net revenue................... $1,752,686 $639,457 $1,739,189 $660,608
Income from continuing
operations before income
taxes........................ (40,895) 1,317 15,340 19,872
Income tax expense (benefit).. (17,249) 500 7,617 7,551
Net income (loss)............. (23,646) (23,264) 7,723 8,612
</TABLE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates related
to its long-term debt. The impact on earnings and value of its long-term debt
is subject to change as a result of movements in market rates and prices. As
of December 31, 1998, the Company had $865 million in long-term debt subject
to variable interest rates. The remaining $870 million in long-term debt is
subject to fixed rates of interest. A hypothetical increase in interest rates
of 1% would result in potential losses in future pre-tax earnings of
approximately $8.7 million per year. The impact of such a change on the
carrying value of long-term debt would not be significant. These amounts are
determined based on the impact of the hypothetical interest rates on the
Company's long-term debt balances and do not consider the effects, if any, of
the potential changes in the overall level of economic activity that could
exist in such an environment.
26
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Consolidated Financial Statements of the Company meeting the requirements of
Regulation S-X are filed on the succeeding pages of this Item 8 of this Annual
Report on Form 10-K, as listed below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ 28
Consolidated Balance Sheets as of December 31, 1997 and 1998............. 29
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998..................................................... 30
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1997 and 1998.................................. 31
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998..................................................... 32
Notes to Consolidated Financial Statements............................... 33
</TABLE>
Other financial statements and schedules required under regulation S-X are
listed in Item 14(a)(2) of this Annual Report on Form 10-K.
27
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
MedPartners, Inc.
We have audited the accompanying consolidated balance sheets of MedPartners,
Inc. as of December 31, 1997 and 1998, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1998. 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 opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MedPartners,
Inc. at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 1997 and 1998 the
Company changed its method of accounting for process reengineering and start-
up costs, respectively.
Ernst & Young LLP
Birmingham, Alabama
March 12, 1999, except for
Notes 7 and 15 as to which the date is April 15, 1999
28
<PAGE>
MEDPARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- -----------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 109,098 $ 23,100
Accounts receivable, less allowances for bad debts
of $10,111 in 1997 and $11,136 in 1998............. 304,624 185,719
Inventories......................................... 138,235 171,739
Deferred tax assets, net............................ 72,203 --
Income tax receivable............................... 10,446 --
Prepaid expenses and other current assets........... 8,721 11,513
Current assets of discontinued operations........... 677,780 793,495
---------- -----------
Total current assets.............................. 1,321,107 1,185,566
Property and equipment, net........................... 114,152 115,835
Intangible assets, net................................ 35,883 27,463
Deferred tax assets, net.............................. 175,619 --
Other assets.......................................... 27,090 51,272
Non current assets of discontinued operations......... 1,218,045 481,970
---------- -----------
Total assets...................................... $2,891,896 $ 1,862,106
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 192,421 $ 215,861
Other accrued expenses and liabilities.............. 215,960 297,265
Income tax payable.................................. -- 9,480
Current portion of long-term debt................... 233 207
Current liabilities of discontinued operations...... 828,680 577,642
---------- -----------
Total current liabilities......................... 1,237,294 1,100,455
Long-term debt, net of current portion................ 1,395,079 1,735,096
Other long-term liabilities........................... 34,539 61,954
Long-term liabilities of discontinued operations...... 132,763 108,774
Contingencies (Note 13)
Stockholders' equity (deficit):
Common stock, $.001 par value; 400,000 shares
authorized, issued--197,766 in 1997 and 199,032 in
1998............................................... 198 199
Additional paid-in capital.......................... 937,233 954,420
Shares held in trust, 9,317 in 1997 and 8,838 in
1998............................................... (150,200) (142,477)
Accumulated deficit................................. (695,010) (1,956,315)
---------- -----------
Total stockholders' equity (deficit).............. 92,221 (1,144,173)
---------- -----------
Total liabilities and stockholders' equity
(deficit)........................................ $2,891,896 $ 1,862,106
========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE>
MEDPARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
---------- ---------- -----------
(In thousands)
<S> <C> <C> <C>
Net revenue............................... $2,159,480 $2,363,404 $ 2,634,017
Operating expenses:
Cost of revenues........................ 1,941,834 2,153,005 2,383,666
General and administrative.............. 69,858 67,431 70,945
Corporate overhead...................... 8,051 18,162 16,776
Depreciation and amortization........... 18,354 24,289 24,722
Net interest expense.................... 5,908 27,169 78,796
Restructuring charges (Note 11)......... -- 10,610 9,500
Merger expenses (Note 11)............... 55,461 -- --
---------- ---------- -----------
Income from continuing operations
before income taxes.................. 60,014 62,738 49,612
Income tax expense........................ 27,685 24,689 18,852
---------- ---------- -----------
Income from continuing operations..... 32,329 38,049 30,760
Discontinued operations:
Loss from discontinued operations, net
of tax expense (benefit) of $(59,007),
$(154,081) and $243,977 in 1996, 1997
and 1998, respectively (Note 2)........ (177,817) (832,775) (1,284,878)
Cumulative effect of a change in
accounting principle, net of tax benefit
of $(15,792) in 1997 and $(3,890) in
1998..................................... -- (25,889) (6,348)
---------- ---------- -----------
Net loss.................................. $ (145,488) $ (820,615) $(1,260,466)
========== ========== ===========
Earnings (loss) per common share
outstanding:
Income from continuing operations....... $ 0.19 $ 0.20 $ 0.16
Loss from discontinued operations....... (1.05) (4.48) (6.79)
Cumulative effect of a change in
accounting principle................... -- (0.14) (0.03)
---------- ---------- -----------
Net loss.................................. $ (0.86) $ (4.42) $ (6.66)
========== ========== ===========
Weighted average common shares
outstanding.............................. 169,897 185,830 189,327
========== ========== ===========
Diluted earnings (loss) per common share
outstanding:
Income from continuing operations....... $ 0.19 $ 0.20 $ 0.16
Loss from discontinued operations....... (1.02) (4.39) (6.77)
Cumulative effect of a change in
accounting principle................... -- (0.14) (0.03)
---------- ---------- -----------
Net loss.................................. $ (0.83) $ (4.33) $ (6.64)
========== ========== ===========
Weighted average common and dilutive
equivalent shares outstanding............ 174,028 189,573 189,927
========== ========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE>
MEDPARTNERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1997 1998
--------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Common Stock:
Balance, beginning of year................ $ 165 $ 184 $ 198
Beginning balance of immaterial poolings
of interests entities.................... 6 -- --
Common stock issued and capital
contributions............................ 10 7 --
Stock issued in connection with
acquisitions............................. 3 7 1
--------- --------- -----------
Balance, end of year...................... 184 198 199
Additional Paid In Capital:
Balance, beginning of year................ 541,230 855,162 937,233
Beginning balance of immaterial poolings
of interests entities.................... 620 2,396 --
Common stock issued and capital
contributions............................ 226,190 -- --
Exercise of stock options................. 46,654 75,964 5,096
Stock issued from shares held in trust in
connection with the Employee Stock
Purchase Plan............................ -- -- (4,177)
Stock issued in connection with
acquisitions............................. 40,468 23,466 16,541
Issuance costs and present value of yield
enhancement payments payable to holders
of Threshold Appreciation Price
Securities............................... -- (20,417) --
Other..................................... -- 662 (273)
--------- --------- -----------
Balance, end of year...................... 855,162 937,233 954,420
Shares Held In Trust:
Balance, beginning of year................ (150,200) (150,200) (150,200)
Shares issued for Employee Stock Purchase
Plan..................................... -- -- 7,723
--------- --------- -----------
Balance, end of year...................... (150,200) (150,200) (142,477)
Retained Earnings (Deficit):
Balance, beginning of year................ 287,859 133,927 (695,010)
Beginning balance of immaterial poolings
of interests entities.................... (238) (3,287) --
Net loss for two months ended December 31,
1995 for acquired entity with October 31
year end................................. (8,057) -- --
Comprehensive Income
Net loss................................. (145,488) (820,615) (1,260,466)
Other comprehensive income--unrealized
loss on marketable equity securities,
net of taxes............................ (149) (5,035) (839)
--------- --------- -----------
Total comprehensive income............... (145,637) (825,650) (1,261,305)
--------- --------- -----------
Balance, end of year...................... 133,927 (695,010) (1,956,315)
--------- --------- -----------
Total stockholders' equity (deficit).... $ 839,073 $ 92,221 $(1,144,173)
========= ========= ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE>
MEDPARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1997 1998
--------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $(145,488) $(820,615) $(1,260,466)
Adjustments for non-cash items:
Net loss from discontinued operations..... 177,817 832,775 1,284,878
Cumulative effect of change in accounting
principle, net of taxes.................. -- 25,889 6,348
Restructuring charges..................... -- 10,610 9,500
Depreciation and amortization............. 18,354 24,289 24,722
Deferred tax expense (benefit)............ 23,778 (219) 18,852
Merger expenses........................... 55,461 -- --
Changes in operating assets and
liabilities:
Accounts receivable....................... 26,443 (52,461) 23,897
Inventories............................... (25,011) (9,777) (33,504)
Accounts payable.......................... 2,824 (7,580) 23,353
Other..................................... (59,105) 89,682 (13,660)
--------- --------- -----------
Net cash and cash equivalents provided by
continuing operations................... 75,073 92,593 83,920
Investing activities:
Cash paid for merger expense.............. (17,453) (34,158) --
Additions to intangibles.................. (4,238) (205) --
Purchase of property and equipment........ (29,702) (18,567) (28,661)
Proceeds from sale of property and
equipment................................ -- -- 8,523
--------- --------- -----------
Net cash and cash equivalents used in
investing activities.................... (51,393) (52,930) (20,138)
Financing activities:
Common stock issued and capital
contributions............................ 271,863 76,588 8,369
Issuance costs related to debt financing.. (15,947) (20,579) (6,100)
Net borrowings (repayments) under Credit
Facility................................. (77,000) 311,500 340,399
Proceeds from issuance of senior
subordinated notes....................... -- 420,000 --
Proceeds from issuance of bonds payable... 450,000 -- --
Net repayment of other debt............... (98,381) (3,717) (408)
--------- --------- -----------
Net cash and cash equivalents provided by
financing activities.................... 530,535 783,792 342,260
Cash paid for restructuring................ -- -- (5,670)
Discontinued operations:
Operating activities...................... 6,370 (172,225) (246,437)
Investing activities...................... (370,124) (606,974) (280,708)
Financing activities...................... (133,964) (47,950) 40,775
--------- --------- -----------
Cash used by discontinued operations..... (497,718) (827,149) (486,370)
--------- --------- -----------
Net increase (decrease) in cash and cash
equivalents............................... 56,497 (3,694) (85,998)
Cash and cash equivalents at beginning of
year...................................... 56,295 112,792 109,098
--------- --------- -----------
Cash and cash equivalents at end of year... $ 112,792 $ 109,098 $ 23,100
========= ========= ===========
Supplemental disclosure of cash flow
information
Cash paid (received) during the period,
including amounts related to discontinued
operations, for:
Interest.................................. $ 42,979 $ 62,175 $ 128,444
========= ========= ===========
Income taxes.............................. $ (16,848) $ 4,513 $ (393)
========= ========= ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE>
MEDPARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Accounting Policies
Description of Business
In September 1996, MedPartners/Mullikin, Inc. combined with Caremark
International Inc. ("CII"). This business combination was accounted for as a
pooling of interests. The combined company was renamed MedPartners, Inc.
(herein referred to as the "Company" or "MedPartners").
The Company provides prescription benefit management ("PBM") and
theurapeutic pharmaceutical services ("CT" services) and associated disease
management programs (collectively "CPG"), for clients throughout the United
States, including corporations, insurance companies, unions, government
employee groups and managed care organizations. During 1998, the Company
dispensed approximately 11 million prescriptions through three mail service
pharmacies and processed approximately 33 million prescriptions through a
network of more than 50,000 retail and other pharmacies.
The Company's CT services are designed to meet the healthcare needs of
individuals with certain chronic diseases or conditions. These services
include the design, development and management of comprehensive programs
comprising drug therapy, physician support and patient education. The Company
currently provides therapies and services for individuals with such conditions
as hemophilia, growth disorders, immune deficiencies, cystic fibrosis,
multiple sclerosis, and infants with respiratory difficulties.
Restatement of Financial Statements
During the fourth quarter of 1998 the Company announced its plans to
separate from its physician practice management ("PPM") business. The Company
had previously announced its intent to sell the business units that comprised
its contract services business. Prior period financial statements have been
restated to show this division, along with the contract services and
international businesses, as discontinued operations.
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 thereto. Actual results could differ from those
estimates.
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 approximate fair value. Certain cash balances
expected to be sold with the discontinued operations have been classified with
the net assets of discontinued operations, including approximately $93.1
million related to MedPartners Provider Network, Inc., a PPM entity required
by law to maintain certain levels of depository cash.
Marketable Securities
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 as other comprehensive income in
stockholders' equity unless a decline in value is judged other than temporary.
When this is the case, unrealized losses are reflected in the results of
operations. 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.
33
<PAGE>
Trade Receivable Securitization
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"), which requires the Company
to allocate the carrying amount of its trade receivables sold among the
residual interest, servicing rights retained and interest sold, based on their
relative fair values. Gain or loss on sale of receivables depends in part on
the previous carrying amount of retained interest, allocated in proportion to
their fair value. Fair values were estimated using the present value of future
cash flows. Discount rates used are commensurate with the risk associated with
the retained interest.
Inventories
Inventories, which are primarily finished goods, consist of pharmaceutical
drugs, medical equipment and supplies and are stated at the lower of cost
(first-in, first-out method) or market.
Property and Equipment
Property and equipment are stated at cost. 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 and computer software, 10 to 20 years for leasehold
improvements and 10 to 40 years for buildings and improvements based on type
and condition of assets.
Intangible Assets
Intangible assets are primarily composed of 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.
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.
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock-based compensation plans. The
Company applies APB 25 and related interpretations in accounting for its plans
because the alternative fair value accounting provided for under FASB
Statement 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.
New Accounting Pronouncements
In November 1997, the Emerging Issues Task Force ("EITF") issued EITF 97-13
"Accounting for Costs Incurred in Connection with a Consulting Contract or an
Internal Project that Combines Business Process Reengineering and Information
Technology" ("EITF 97-13"). EITF 97-13 requires process reengineering costs,
as defined, which had been previously capitalized as part of an information
technology project to be written off as a cumulative catch-up adjustment in
the fourth quarter of 1997. The Company recorded a charge of $25.9 million,
net of tax of $15.8 million, as a result of EITF 97-13. The Company incurred
such costs primarily in connection with the process reengineering associated
with the new operating systems installed for its PBM operations.
34
<PAGE>
In April 1998, the American Institute of Certified Public Accountants issued
a Statement of Position "Reporting on the Costs of Start-Up Activities" ("SOP
98-5"). SOP 98-5 requires that the costs of start-up activities be expensed as
incurred. The Company recorded a charge of $6.3 million, net of tax of $3.9
million, as a cumulative effect adjustment retroactive to January 1, 1998.
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of SFAS 130 had no impact on the Company's consolidated net income or
consolidated stockholders' equity. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which prior to adoption
had been reported separately in stockholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS 130.
2. Discontinued Operations
On November 11, 1998, the Company announced that CPG, which includes the PBM
business, would become its core operating unit. The Company also announced its
intent to divest its PPM and contract services businesses. As a result, the
Company has restated its prior period financial statements to reflect the
appropriate accounting for these businesses, as well as the international
operations sold during 1998, as discontinued operations. The measurement date
for the PPM and contract services transactions is January 14, 1999.
The operating results of these discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
---------- ---------- -----------
(In thousands)
<S> <C> <C> <C>
Net revenue........................... $3,062,539 $3,967,747 $ 4,369,536
Operating expenses.................... 3,049,714 4,259,128 4,488,771
Merger expenses....................... 253,484 59,434 --
Restructuring charges................. -- 636,041 65,675
---------- ---------- -----------
Loss from operations before income
taxes............................... (240,659) (986,856) (184,910)
Income tax expense (benefit).......... (60,319) (154,081) 34,453
---------- ---------- -----------
Loss from operations................. (180,340) (832,775) (219,363)
Gain/estimated (loss) on disposal..... 3,835 -- (855,991)
Income tax expense.................... 1,312 -- 209,524
---------- ---------- -----------
Net gain (loss) on disposal........... 2,523 -- (1,065,515)
---------- ---------- -----------
Total loss on discontinued
operations.......................... $ (177,817) $ (832,775) $(1,284,878)
========== ========== ===========
</TABLE>
For the year ended December 31, 1996, the discontinued operations loss
includes losses from the Company's PPM, contract services and international
businesses. Included in these losses were merger charges totaling $253.5 for
acquisitions in the PPM and contract services businesses. Of this amount,
approximately $32.5 million relates to the merger with Pacific Physician
Services, Inc. and approximately $195.8 million relates to the merger with
CII.
In March 1996, CII agreed to settle all disputes with a number of private
payors related to its home infusion business, which was sold to Coram
Healthcare Corporation in 1995. The settlements resulted in an after-tax
charge of $43.8 million. In addition, CII agreed to pay $24.1 million after
tax to cover the private payors' pre-settlement related expenses. An after-tax
charge for the above amounts has been recorded in 1996 discontinued
operations.
35
<PAGE>
The discontinued operations loss for the year ended December 31, 1997,
includes losses from the PPM, contract services and international businesses.
The most significant component of these losses is a restructuring and
impairment charge of $636.0 million that was taken in the fourth quarter of
1997. This charge primarily relates to the restructuring and impairment of
selected assets of certain clinic operations within the PPM business and
includes goodwill impairment and other asset write downs. Of the total charge,
approximately $552.4 million relates to the impairment of goodwill. The
remaining $83.6 million relates to the severance of approximately 600
employees and 114 physicians, leases, the write down of various assets and
other exit costs. Also included in the discontinued operations loss are merger
charges of $59.4 million which relate primarily to the acquisition of InPhyNet
Medical Management, Inc.
In July 1997, the parties to the certain litigation announced that a
settlement had been reached pursuant to which CII returned for cancellation
all of the securities issued in connection with an acquisition and paid the
party $45 million in cash. The settlement agreement also provided for the
termination and resolution of all disputes and issues between the parties and
for the exchange of mutual releases. The settlement resulted in a 1997 after-
tax charge from discontinued operations of approximately $75.4 million.
Discontinued operations loss for the year ended December 31, 1998 includes
the losses of the PPM, contract services and international businesses and a
$1.1 billion charge taken in the fourth quarter to exit these businesses. This
charge included approximately $815.4 million for the impairment and write-off
of intangibles and other PPM assets, estimated costs to exit the PPM
operations of approximately $340.9 million, (including $153.9 million to fully
reserve the Company's deferred tax assets) and approximately $90.8 million,
net of taxes of $55.6 million, for the estimated net gain for the sale of the
contract services business. These amounts are estimates. The actual results
could differ from those outlined above. Also included in discontinued
operations loss for the year ended December 31, 1998 are restructuring charges
of $65.7 million that relate primarily to severance costs, costs associated
with the closing of certain clinic operations and real estate obligations for
space no longer in use or scheduled to become vacant.
Included in the balance sheet line "Other accrued expenses and liabilities"
at December 31, 1998 are reserves related to discontinued operations of
approximately $155.4 million. These reserves relate primarily to the estimated
costs to exit the PPM business.
Non-cash financing activities for discontinued operations included the
issuance of $39.9, $23.5 and $15.6 million of stock for acquisitions in 1996,
1997 and 1998 respectively. Cash paid for acquisitions in these discontinued
operations was $160.5, $415.3 and $146.4 for the years ended December 31,
1996, 1997 and 1998, respectively.
Net interest expense allocated to discontinued operations was $18.8, $28.6
and $32.3 million for the years ended December 31, 1996, 1997 and 1998,
respectively. Interest was allocated to discontinued operations based on the
guidance in EITF 87-24-Allocation of Interest to Discontinued Operations
("EITF 87-24"). An additional allocation of $18.6 million in interest costs
was included in the estimated loss on the sale of discontinued operations.
3. Financial Instruments
The Company's financial instruments include cash and cash equivalents,
investments in marketable and non-marketable securities and debt obligations.
The carrying value of marketable and non-marketable securities, which
approximated fair value, are not material. The carrying value of debt
obligations was $870.0 million at December 31, 1997 and 1998. The fair value
of these obligations approximated $858.3 and $737.8 million at December 31,
1997 and 1998, respectively. The fair value of marketable securities is
determined using market quotes and rates. The fair value of non-marketable
securities are estimated based on information provided by these companies. The
fair value of long-term debt has been estimated using market quotes.
36
<PAGE>
4. Trade Receivable Securitization
In December 1998 the Company sold approximately $321 million in trade
account receivables, with a pre-tax loss of $6.1 million, which includes $3.3
million in transaction costs to a qualifying special purpose entity, ("QSPE")
in a securitization transaction. The Company retained servicing
responsibilities and subordinated interest. For the servicing responsibilities
the Company is paid 1% based on the amount of receivables serviced. The
contractual servicing fees received by the Company are considered adequate
compensation for services rendered and accordingly, no asset or liability has
been recorded. As additional credit enhancement under the agreement, the
Company is required to maintain a $20 million net equity balance within the
QSPE for the term of the structure (approximately one year) for capital
purposes.
Activity in retained interest in trade receivable securitizations was as
follows for the year ended December 31, 1998, in thousands:
<TABLE>
<S> <C>
Balance at the beginning of the year............................ $ -0-
Additions...................................................... 149,327
Accretion...................................................... (129)
Excess cash flow received on retained interest................. (70,473)
--------
Balance at end of the year...................................... $ 78,725
========
</TABLE>
The components of retained interest in the trade receivable securitization
was as follows as of December 31, 1998:
<TABLE>
<S> <C>
Subordinated interest............................................ $60,274
Fair value of restricted capital................................. 18,580
-------
$78,854
=======
</TABLE>
5. Intangible Assets
Net intangible assets totaled $35.9 million and $27.5 million at December
31, 1997 and 1998, respectively. As of December 31, 1997 and 1998, accumulated
amortization totaled $8.8 million and $11.8 million, respectively. Debt
issuance costs represent the primary components of intangible assets.
Amortization expense for the years ended December 31, 1996, 1997 and 1998 was
$4.6 million, $6.1 million, and $6.3 million, respectively.
6. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(In thousands)
<S> <C> <C>
Land..................................................... $ 79 $ 79
Buildings and leasehold improvements..................... 22,324 27,417
Equipment and computer software.......................... 118,405 128,758
Construction-in-progress................................. 27,963 33,871
-------- --------
168,771 190,125
Less accumulated depreciation and amortization........... (54,619) (74,290)
-------- --------
$114,152 $115,835
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997 and 1998
was $13.8 million, $18.2 million, and $18.4 million, respectively.
37
<PAGE>
7. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
(In thousands)
<S> <C> <C>
Advances under Credit Facility, due 2001........... $ 524,500 $ 864,900
Bonds payable with interest at 7 3/8%, interest
only paid semi-annually, due in 2006.............. 450,000 450,000
Senior subordinated notes with interest at 6 7/8%,
interest only paid semi-annually, due in 2000..... 420,000 420,000
Other long-term notes payable...................... 812 403
---------- ----------
1,395,312 1,735,303
Less amounts due within one year................... (233) (207)
---------- ----------
$1,395,079 $1,735,096
========== ==========
</TABLE>
On June 9, 1998, the Company entered into an amendment and restatement of
its $1.0 billion credit facility with Nations Bank, N.A. as administrative
agent. The credit facility is unsecured but is guaranteed by the Company's
material subsidiaries. The amendment of the credit facility includes the
following:
i. a one-year non-amortizing term loan in an aggregate principal amount
of up to $300 million (the Company has an option to extend the term loan an
additional two years as an amortizing term loan) ($278 million outstanding
at December 31, 1998);
ii. a three year non-amortizing term loan in an aggregate principal
amount of up to $300 million ($278 million outstanding at December 31,
1998); and
iii. a three-year revolving credit facility in an aggregate principal
amount of up to $400 million ($309 million in outstanding borrowings and
$64 million in letters of credit, resulting in $27 million in available
borrowing capacity as of December 31, 1998).
Effective December 4, 1998, the Company amended its credit facility to
permit a $75 million accounts receivable securitization. The Company has
securitized certain of its accounts receivables with The Chase Manhattan Bank
as funding agent. This facility provides approximately $75 million in
liquidity to the Company.
Effective January 13, 1999, the Company entered into a second amendment to
its credit facility, bringing it in line with the Company's new corporate
strategy of separating from its PPM business to focus on its CPG business. The
credit agreement now provides for 75% of the first $500 million in net cash
proceeds received from asset sales after December 8, 1998 to be used to reduce
the Company's outstanding debt under its term loans. The remaining 25% of such
net asset sales proceeds, up to a maximum of $125 million, is available to the
Company for use in its business and operations in the ordinary course. All net
cash proceeds in excess of $500 million from such asset sales are to be used
to reduce the Company's outstanding debt under its term loan.
Effective April 15, 1999, the Company entered into an amendment to its
credit facility to modify the terms of its credit agreement concerning the
Company's proposed settlement with the State of California (see Note 15) on
April 9, 1999. The terms of the agreement were modified to (a) permit the
Company to enter into a comprehensive settlement agreement and transition plan
with the State of California and certain health care service plans; (b) permit
the sale or other disposition of all of the property and assets of the
Company's California PPM operations, with proceeds remaining in the California
PPM operations to satisfy liabilities and obligations of the Company's
California PPM operations; (c) to increase to $215 million (of which $15
million is available solely to pay amounts under certain promissory notes),
from $125 million, the amount of net asset sale proceeds
38
<PAGE>
available to the Company for use in its business and operations in the
ordinary course; and (d) modify certain financial ratios for periods ending on
or after March 31, 1999.
Effective September 19, 1997, the Company completed a $420 million senior
subordinated note offering. These three year notes carry a coupon rate of 6
7/8%. Interest on the notes is payable semi-annually on March 1 and September
1 of each year. The notes are not redeemable by the Company prior to maturity
and are not entitled to the benefit of any mandatory sinking fund. The notes
are general unsecured obligations of the Company ranking junior in right of
payment to all existing and future senior debt of the Company. Net proceeds
from the offering were used to reduce indebtedness outstanding under the
Credit Facility.
Effective October 8, 1996, the Company completed a $450 million senior note
offering. These ten-year notes carry a coupon rate of 7 3/8%. Interest on the
notes is payable semi-annually on April 1 and October 1 of each year. The
notes are not redeemable by the Company prior to maturity and are not entitled
to the benefit of any mandatory sinking fund. The notes are 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. Net proceeds from the note offering were used to reduce
amounts under the credit facility.
The following is a schedule of principal maturities of long-term debt as of
December 31, 1998:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
1999.......................................................... $ 207
2000.......................................................... 420,196
2001.......................................................... 864,900
2002.......................................................... --
2003.......................................................... --
Thereafter.................................................... 450,000
----------
Total....................................................... $1,735,303
==========
</TABLE>
To manage interest rates and to lower its cost of borrowing, the Company
entered into an interest rate swap during 1997. The notional principal amount
of the swap was $200 million and was used solely as the basis for which the
payment streams were calculated and exchanged. The notional amount is not a
measure of the exposure to the Company through the use of the swap. The
purpose of the interest rate swap was to essentially modify the interest rate
characteristics of a portion of the Company's debt, from fixed to floating
rate. The contract was terminated in September 1998.
Interest expense totaled $7.2, $29.8 and $85.0 million in 1996, 1997 and
1998, respectively. Interest income totaled $1.3, $2.6, and $6.2 million in
1996, 1997, and 1998, respectively. These amounts exclude net interest expense
allocated to discontinued operations of $18.8, $28.6 and $32.3 million for the
years ended December 31, 1996, 1997 and 1998 respectively.
Operating Leases: Operating leases generally consist of short-term lease
agreements for professional and administrative office space. These leases
generally have five-year terms with renewal options. Lease expense from
continuing operations for the years ended December 31, 1996, 1997 and 1998 was
$16.2 million, $10.5 million and $16.9 million, respectively. The following is
a schedule of future minimum lease payments under noncancelable operating
leases, excluding discontinued operations lease obligations, as of December
31, 1998:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
1999.......................................................... $11,105
2000.......................................................... 9,707
2001.......................................................... 8,844
2002.......................................................... 8,323
2003.......................................................... 7,353
Thereafter.................................................... 25,850
-------
Total....................................................... $71,182
=======
</TABLE>
39
<PAGE>
8. Capitalization
The Company's Third Restated Certificate of Incorporation provides that the
Company may issue 9.5 million shares of Preferred Stock, par value $0.001 per
share, 0.5 million shares of Series C Junior Participating Preferred Stock,
par value $0.001 per share, and 400 million shares of Common Stock, par value
$0.001 per share. As of December 31, 1998 no shares of the preferred stock
were outstanding.
In September 1997, the Company issued 21.7 million 6.50% Threshold
Appreciation Price Securities ("TAPS") with a stated amount of $22.1875 per
security. Each TAPS consists of (i) a stock purchase contract which obligates
the holder to purchase common stock from the Company on the final settlement
date (August 31, 2000) and (ii) 6.25% U.S. Treasury Notes due August 31, 2000.
Under each stock purchase contract the Company is obligated to sell, and the
TAPS holder is obligated to purchase, on August 31, 2000, between 0.8197 of a
share and one share of the Company's common stock. The exact number of common
shares to be sold is dependent on the market value of the Company's common
shares in August 2000. The number of shares issued by the Company in
conjunction with this security will not be more than approximately 21.7
million or less than approximately 17.8 million (subject to certain anti-
dilution adjustments). The Treasury Notes forming a part of the TAPS have been
pledged to secure the obligations of the TAPS holders under the purchase
contracts. Pursuant to the TAPS, TAPS holders receive payments equal to 6.50%
of the stated amount per annum consisting of interest on the Treasury Notes at
the rate of 6.25% per annum and yield enhancement payments payable semi-
annually by the Company at the rate of 0.25% of the stated amount per annum.
Additional paid-in capital has been reduced by approximately $20.4 million for
issuance costs and the present value of the annual 0.25% yield enhancement
payments payable to the holders of the TAPS. These securities are not included
on the Company's balance sheet; an increase in stockholders' equity would be
reflected upon receipt by the Company of cash proceeds of $481.4 million on
August 31, 2000 from the issuance of the Company's common stock pursuant to
the TAPS.
The earnings (loss) per common share outstanding computation is calculated
by dividing income available to common stockholders by the weighted average
number of common shares outstanding. The weighted average common and dilutive
shares outstanding for the years ended December 31, 1996, 1997 and 1998 of
174.0 million, 189.6 million and 189.9 million, respectively, include 4.1
million, 3.7 million and 0.6 million for each respective year of common shares
issuable on exercise of certain stock options.
9. Income Tax Expense
At December 31, 1998, the Company had a cumulative net operating loss
("NOL") carryforward for federal income tax purposes of approximately $819
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 2018.
40
<PAGE>
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 were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Merger/acquisition costs............................. $ 22,325 $ 14,379
Bad debts............................................ 14,640 29,075
Restructuring........................................ 18,900 64,154
Malpractice.......................................... 7,119 21,924
Goodwill amortization................................ 128,269 104,151
Accrued vacation..................................... 9,202 9,112
NOL carryforward..................................... 215,147 283,324
Alternative minimum tax credit carryforward.......... 20,195 20,195
Discontinued operations write down................... -- 344,008
Other................................................ 55,308 29,138
--------- ---------
Gross deferred tax assets.............................. 491,105 919,460
Valuation allowance for deferred tax assets............ (109,278) (736,032)
--------- ---------
381,827 183,428
Deferred tax liabilities
Purchase reserves.................................... 16,529 18,084
Change in accounting method.......................... 3,390 725
Prepaid expenses..................................... 4,339 5,190
State taxes.......................................... 5,399 27,036
Shared risk receivable............................... 4,423 3,952
Excess tax depreciation.............................. 15,546 22,645
Other amortization................................... 71,256 66,093
Other long term reserves............................. -- 19,183
Other................................................ 13,123 20,520
--------- ---------
Gross deferred tax liabilities......................... 134,005 183,428
--------- ---------
Net deferred tax asset................................. $ 247,822 $ --
========= =========
</TABLE>
Because of the uncertainty of the ultimate realization of the net deferred
tax asset, the Company has established a valuation allowance for the amount of
the asset that is not otherwise used to offset deferred tax liabilities. The
change in valuation allowance for 1998 resulted in an increase in tax expense
of approximately $627 million.
41
<PAGE>
Income tax expense (benefit) on continuing operations is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 3,992 $24,179 $ --
State............................................ (85) 729 --
------- ------- -------
3,907 24,908 --
Deferred:
Federal.......................................... 21,516 (193) 16,562
State............................................ 2,262 (26) 2,290
------- ------- -------
23,778 (219) 18,852
------- ------- -------
$27,685 $24,689 $18,852
======= ======= =======
</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>
Year Ended December 31,
-----------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Federal tax at statutory rate....................... $21,005 $21,958 $17,364
Add (deduct):
State income tax, net of federal tax benefit...... 1,415 457 1,488
Non deductible merger expense..................... 4,245 -- --
Other............................................. 1,020 2,274 --
------- ------- -------
$27,685 $24,689 $18,852
======= ======= =======
</TABLE>
10. Stock Based Compensation Plans
The Company offers participation in stock option plans to certain employees
and individuals. Awarded options typically vest and become exercisable in
incremental installments over a period of either two or four years and expire
no later than ten years and one day from the date of grant. The number of
shares authorized under the various plans was approximately 41,636,052 million
as of December 31, 1998.
The following table summarizes stock option activity for the indicated years:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------- --------- -------------- --------- -------------- ---------
(In Thousands) (In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding:
Beginning of year..... 17,008 $13.71 19,294 $14.69 21,696 $17.50
Granted............... 12,448 19.11 10,047 19.02 21,820 5.65
Exercised............. (4,281) 10.87 (6,315) 10.26 (271) 1.81
Canceled/expired...... (5,881) 23.98 (1,330) 18.05 (12,858) 14.73
------ ------ --------
End of year........... 19,294 14.69 21,696 17.50 30,387 9.69
Exercisable at end of
year................. 12,472 13.57 11,755 15.66 10,108 8.99
Weighted-average fair
value of options
granted during the
year................... $ 5.93 $ 5.23 $ 5.05
</TABLE>
42
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Options Weighted-Average Weighted- Options Weighted-
Outstanding Remaining Average Exercisable Average
at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
-------------- ---------------- -------------- -------------- --------------
(In thousands) (Years) (In thousands)
<S> <C> <C> <C> <C> <C>
Under $3.26............. 12,871 9.56 $ 3.10 2,565 $ 3.09
$3.26-$17.876........... 11,816 5.15 12.50 6,999 10.35
$17.877 and above....... 5,700 8.20 18.75 544 19.30
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock-based compensation plans under the fair value method
as described in Statement 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- ------
<S> <C> <C> <C>
Risk-free interest rates............................... 6.21% 6.03% 5.095%
Expected volatility.................................... 0.442 0.396 2.2065
Expected option lives (years from vest date)........... 1.0 1.0 1.0
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with Statement 123, the Company's net loss and loss per share
would have been reduced to pro forma net loss from continuing operations of
$(3.1), $(2.1) and $(54.2) million and pro forma net losses of $(180.9),
$(860.7) and $(1,345.4) million for the years ended December 31, 1996, 1997
and 1998, respectively. Per share amounts would have been reduced to pro forma
net loss from continuing operations of $(0.02), $(0.01) and $(0.29) and pro
forma net losses per share of $(1.04), $(4.54) and $(7.08) for the years ended
December 31, 1996, 1997 and 1998, respectively.
11. Merger and Restructuring Charges
Included in the pre-tax loss for the year ended December 31, 1996 are merger
costs totaling $55.5 million related to the merger with CII. Investment
banker, legal and other transaction costs represent $37.0 million of this
amount. The remaining $18.5 million relates to occupancy costs for excess
facilities and elimination of certain information systems in the PBM area.
The Company recorded a pre-tax charge during the fourth quarter of 1997 and
second quarter of 1998 of $10.6 million and $9.5 million, respectively. These
charges related primarily to severance and occupancy costs for excess
facilities.
12. Retirement Savings Plan
The Company and certain subsidiaries have employee benefit plans to provide
retirement, disability and death benefits to substantially all of their
employees and affiliates. The plans primarily are defined contribution plans.
Effective January 1, 1998, the Board of Directors approved a Retirement
Savings Plan for employees and
43
<PAGE>
affiliates. The plan is a defined contribution plan in accordance with the
provisions of Section 401(k) of the Internal Revenue Code. Full-time employees
and affiliates are eligible to enroll in the plan in the first quarter
following two months of service. Individuals on a part-time and per diem basis
are eligible to participate in the quarter following completion of one year of
service. For employees, the Company makes a matching contribution of 50% of
the employee's pre-tax contribution, up to 6% of the employee's compensation,
in any calendar year. The various entities that have been acquired or merged
into the Company have various retirement plans that will be evaluated for
possible termination or incorporation into the Company's plan.
13. Contingencies
The Company is party to certain legal actions arising in the ordinary course
of business. The Company is named as a defendant in various legal actions
arising primarily out of services rendered by physicians and others employed
by its affiliated medical groups, as well as 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 and/or 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 that would
have a material adverse effect on the operating results and financial
condition of the Company.
In June 1995, Caremark and CII agreed to settle an investigation with
certain agencies of the United States government (the "Settlement Agreement").
The Settlement Agreement allows Caremark and CII to continue participating in
Medicare, Medicaid, and other government healthcare programs. In the
Settlement Agreement, Caremark and CII agreed to continue to maintain certain
compliance-related oversight procedures until June 15, 2000. Should these
oversight procedures reveal credible evidence of legal or regulatory
violations, Caremark and CII are required to report such violations to the OIG
and DOJ. Caremark and CII are therefore subject to increased regulatory
scrutiny and, in the event that either Caremark or CII 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 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 Settlement
Agreement, Caremark and CII are the subject of various non-governmental claims
and may in the future become subject to additional OIG-related claims.
Caremark and CII are the subject of, and may in the future be subjected to,
various private suits and claims being asserted in connection with matters
relating to the OIG settlement by CII's former stockholders, patients who
received healthcare services from Caremark and such patients' insurers.
MedPartners cannot determine at this time what costs or liabilities may be
incurred in connection with future disposition of non-governmental claims or
litigation.
Beginning in September 1994, Caremark was named as a defendant in a series
of 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 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 attorney's fees and expenses.
All of these actions have been transferred by the Judicial Panel for Multi-
District 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-
44
<PAGE>
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 the pharmaceutical manufacturers. The
amended settlement provides for a cash payment by the defendants in the class
action (which does not include Caremark) of approximately $351 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 this settlement, although numerous additional
settlements have been reached between a number of the parties to the class and
individual manufacturers. The class action conspiracy claims against the
remaining defendants were tried in the fall of 1998, and resulted in a
judgment by the court at the close of the plaintiffs' case in favor of the
remaining defendants. That judgment is currently being appealed. It is
expected that trials of the remaining individual conspiracy claims will move
forward in 1999, and will also precede the trial of any Robinson-Patman Act
claims.
In March 1998, a consortium of insurance companies and third-party private
payors sued Caremark alleging violations of the Racketeering Influenced and
Corrupt Organizations Act ("RICO"), the Employee Retirement Income Security
Act ("ERISA") and claims of state law fraud and unjust enrichment. The case
was filed in the United States District Court for the Northern District of
Illinois. The plaintiffs maintain that Caremark's home infusion division
implemented a scheme to submit fraudulent claims for payment to the payors
which the payors unwittingly paid. The complaint seeks unspecified damages,
treble damages and attorney's fees and expenses.
There can be no assurance that the lawsuits will not have a disruptive
effect upon the operations of the business, that the defense of the lawsuits
will not consume the time and attention of senior management of MedPartners
and its subsidiaries, or that the resolution of the lawsuits will not have a
material adverse effect on the operating results and financial condition of
the Company. The Company intends to vigorously defend each of these lawsuits.
The Company believes that these lawsuits will not have a material adverse
effect on the operating results and financial condition of the Company.
14. Corporate Liability and Insurance
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. In addition, in December 1998, the
Company agreed to pay a premium of $22.5 million to acquire excess equity
protection insurance coverage from National Union Insurance Company of
Pittsburgh, pursuant to which National Union assumed financial responsibility
for the defense and ultimate resolution of certain shareholder litigation. The
Company believes that its current insurance protection is adequate for its
present business operations, but there can be no assurance that the Company
will be able to maintain its current insurance protection in the future or
that such insurance coverage will be available on acceptable terms or adequate
to cover any or all potential claims.
15. Subsequent Events
On January 26, 1999, the Company closed the sale of its government services
operations, one of the two businesses that comprised the Company's contract
services division, to America Service Group, Inc. The Company received
approximately $67 million in cash, less certain working capital adjustments,
in this transaction.
On March 12, 1999, the Company closed the sale of its hospital services
operations, the other of the two businesses that comprised the Company's
contract services business, to an affiliate comprised of Madison Dearborne
Partners, Cornerstone Equity Investors, L.L.C., Beecken Petty & Company,
L.L.C. and Team Health's current management team in a recapitalization
transaction. The Company received approximately $318.9 million in cash, before
payment of transaction costs and other expenses including insurance coverage
for certain medical malpractice liabilities, in this transaction. The Company
will retain 7.3% of the equity of the recapitalized company.
45
<PAGE>
Estimated gains on the two transactions noted above were included in the
$1.1 billion net loss on the disposal of discontinued operations recorded in
the fourth quarter of 1998.
On March 11, 1999 the Company announced that it has entered into a
definitive agreement for the sale of the assets of the PPM business that
provides services to the multi-specialty physicians group, Kelsey-Seybold
Medical Group, P.A. The purchaser is a joint venture between St. Luke's
Episcopal Health System and Methodist Health Care System. The joint venture
will acquire the MedPartners and Kelsey-Seybold management services agreement
and related assets valued at approximately $89 million, and the new Holcombe
Building, a major new site for Kelsey-Seybold, and other assets valued at
approximately $61 million. The transaction is subject to customary regulatory
and board approvals and closing conditions.
On March 5, 1999, MPN received a cease and desist order (the "Order") from
the California Department of Corporations ("DOC"), along with a letter
advising that the DOC would be conducting a non-routine audit of the finances
of MPN, commencing March 8. MPN is a wholly-owned subsidiary of the Company
and a health care service plan which is licensed under the Knox-Keene Health
Care Service Plan Act of 1975. The DOC regulates health care service plans
(HMOs) in California.
On March 11, 1999, the DOC appointed a conservator and assumed control of
the business operations of MPN. Also on March 11, the conservator filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code,
purportedly on behalf of MPN, placing MPN into bankruptcy. The DOC did not
request or receive the approval of any court prior to taking these actions;
and to date, no court has approved of these actions.
On March 17, 1999, the Company filed an emergency motion in the Bankruptcy
Court seeking to dismiss the bankruptcy case and for other relief. A hearing
on the motion has been scheduled for April 21, 1999. Since March 11, 1999, the
conservator, on behalf of MPN, and other parties have filed several motions
seeking Bankruptcy Court approval for certain actions.
On April 9, 1999, the Company and representatives of the State of California
(the "State") reached an agreement in principle to settle the disputes
relating to MPN. The proposed settlement provides for: a transition plan for
the orderly and timely disposition of the existing operations of MPN's and the
Company's California PPM-related assets; the continued funding of the
Company's California PPM operations with all of the proceeds from such
disposition, loans from certain health care plans and additional funding
provided by the Company; restoration of MPN's assets, operations and
management responsibilities to the Company, which will operate MPN as a debtor
in possession under the Bankruptcy Code, subject to oversight and supervision
of a new court-appointed conservator; and the continuation in a monitoring
role by the new conservator and the DOC with primary oversight
responsibilities on the fulfillment of the proposed settlement and transition
plan.
The proposed settlement provides for a loan of up to $25 million from
certain health care plans to the Company or, as designated by the Company,
purchasers of MPN's and the Company's physician practices assets. The Company
is also providing a letter of credit in the amount of $25 million as security
for its funding obligations. The proposed settlement is subject to the
execution and delivery of definitive agreements by April 24, 1999, or a later
date as agreed to by the Company and the State, and other approvals.
46
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(dollars in millions)
Deferred Income Tax Asset Valuation Allowance
<TABLE>
<CAPTION>
Additions
Charged to
Balance at ---------------- Balance at
Beginning Costs and End of
Fiscal Year End of Period Expenses Other Deductions Period
--------------- ---------- --------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1996.......... $ 1.2 $ 2.1 $ -- $ 0.9 $ 2.4
December 31, 1997.......... $ 2.4 $ 6.8 $100.1 $ -- $109.3
December 31, 1998.......... $109.3 $629.7 $ -- $ 3.0 $736.0
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
1. Financial Statements.
The Consolidated Financial Statements of the Company and its subsidiaries
filed as a part of this Annual Report on Form 10-K are listed in Item 8 of the
Annual Report on Form 10-K, which listing is hereby incorporated herein by
reference.
2. Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Commission, except for Schedule II above, have been omitted
because they are not required under the related instructions, or are
inapplicable, or because the information has been provided in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits.
The Exhibits filed as a part of this Annual Report are listed in Item 14(c)
of this Annual Report on Form 10-K, which is hereby incorporated herein by
reference.
47
<PAGE>
(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the fourth quarter of 1998.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No.
-----------
<C> <S>
(2)-1 --Stock Purchase Agreement, dated as of December 18, 1998, by
and between InPhyNet Administrative Services, Inc. and America
Service Group, Inc. The Exhibits and Disclosure Letter that are
referenced in the table of contents and elsewhere in the Stock
Purchase Agreement are hereby incorporated by reference. Such
Exhibits and Disclosure Letter have been omitted for purposes
of this filing, but will be furnished supplementally to the
commission upon request.
(2)-2 --First Amendment to Stock Purchase Agreement, dated as of
January 26, 1999, by and between InPhyNet Administrative
Services, Inc. and America Service Group, Inc.
(2)-3 --Recapitalization Agreement, dated as of January 25, 1999, by
and between Team Health, Inc., MedPartners, Inc., Pacific
Physician Services, Inc. and Team Health Holdings, L.L.C.,
filed as Exhibit (10)-1 to the Company's Current Report on Form
8-K filed on January 27, 1999, is hereby incorporated by
reference. The Exhibits and Disclosure Letter that are
referenced in the table of contents and elsewhere in the
Recapitalization Agreement are hereby incorporated by
reference. Such Exhibits and Disclosure Letter have been
omitted for purposes of this filing, but will be furnished
supplementally to the commission upon request.
(2)-4 --Purchase Agreement, dated as of March 11, 1999, by and between
St. Luke's Episcopal Health System, Methodist Health Care
System, MedPartners, Inc., Caremark Inc., KS-PSI of Texas,
L.P., Caremark Resources Corporation, MedPartners Physician
Services, Inc., Caremark Physician Services of Texas, Inc. and
MedTex, L.P. The Schedules that are referenced in the table of
contents and elsewhere in the Purchase Agreement are hereby
incorporated by reference. Such Schedules have been omitted for
purposes of this filing, but will be furnished supplementally
to the commission upon request.
(2)-5 --Letter Agreement by and between Team Health, Inc.,
MedPartners, Inc., Pacific Physician Services, Inc., and Team
Health Holdings, L.L.C., dated March 11, 1999, filed as
Exhibit (2)-2 to the Company's Current Report on Form, 8-K
filed on March 26, 1999 is hereby incorporated herein by
reference.
(3)-1 --MedPartners, Inc. Third Restated Certificate of Incorporation,
filed as Exhibit (3)-1 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(3)-2 --MedPartners, Inc. Fourth Amended and Restated Bylaws.
(4)-1 --MedPartners, Inc. Rights Plan, filed as Exhibit (4)-1 to the
Company's Registration Statement on Form S-4 (Registration No.
33-00774), is hereby incorporated herein by reference.
(4)-2 --Amendment No. 1 to the Rights Plan of MedPartners, Inc., filed
as Exhibit (4)-2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(4)-3 --Amendment No. 2 to the Rights Plan of MedPartners, Inc., filed
as Exhibit (4)-2 to the Company's Registration Statement on
Form S-3 (Registration No. 333-17339), is hereby incorporated
herein by reference.
(4)-4 --Purchase Contract Agreement, dated September 15, 1997, between
MedPartners, Inc. and The First National Bank of Chicago, filed
as Exhibit (4)-4 to the Company's Registration Statement of
Form S-3 (Registration No. 333-35665), is hereby incorporated
herein by reference.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
-----------
<C> <S>
(4)-5 --Pledge Agreement, dated September 15, 1997, by and between
MedPartners, Inc., PNC Bank, Kentucky, Inc. and The First
National Bank of Chicago, filed as Exhibit (4)-5 to the
Company's Registration Statement of Form S-3 (Registration No.
333-35665), and is hereby incorporated herein by reference
thereto.
(4)-6 --Form of Common Stock Certificate of Registrant.
(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 November 29, 1995, by and
between MedPartners, Inc. 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)-3 --Termination Agreement, dated as of November 29, 1995, by and
between MedPartners/Mullikin, Inc. and Walter T. Mullikin,
M.D., 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 --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)-9 --Employment Agreement, dated September 20, 1997, by and between
MedPartners, Inc. and John J. Arlotta.
(10)-10 --Retirement Agreement, dated January 16, 1998, by and between
MedPartners, Inc. and Larry R. House, filed as Exhibit (10)-1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter March 31, 1998, is hereby incorporated herein by
reference.
(10)-11 --Employment Agreement, dated March 18, 1998, by and between
MedPartners, Inc. and E. Mac Crawford, filed as Exhibit (10)-4
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter March 31, 1998, is hereby incorporated herein by
reference.
(10)-12 --Amendment No. 1 to Employment Agreement, dated August 6, 1998,
by and between MedPartners, Inc. and E. Mac Crawford, filed as
Exhibit (10)-2 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1998, is hereby
incorporated herein by reference.
(10)-13 --Nonqualified Stock Option Agreement, dated August 6, 1998, by
and between MedPartners, Inc. and E. Mac Crawford, filed as
Exhibit (10)-3 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1998, is hereby
incorporated herein by reference.
(10)-14 --Employment Agreement, dated March 15, 1998, by and between
MedPartners, Inc. and Rosalio J. Lopez.
(10)-15 --Employment Agreement, dated May 7, 1998, by and between
MedPartners, Inc. and James H. Dickerson, Jr.
(10)-16 --Employment Agreement, dated July 1, 1998, by and between
MedPartners, Inc. and Edward L. Hardin, Jr.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
-----------
<C> <S>
(10)-17 --$1 Billion Third Amended and Restated Credit Agreement, dated
June 9, 1998, by and between MedPartners, Inc., NationsBank,
National Association (successor by merger of NationsBank,
National Association (South)), as Administrative Agent for
Lenders, The First National Bank of Chicago, as Documentation
Agent for Lenders, and the Lenders thereto, filed as Exhibit
(10)-1 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1998, is hereby incorporated
herein by reference.
(10)-18 --Amended and Restated MedPartners, Inc. Incentive Compensation
Plan.
(10)-19 --The Registrant's Non-Employee Director Stock Option Plan,
filed as Exhibit (4)-2 to the Company's Registration Statement
on Form S-8 (Registration No. 333-14163), is hereby
incorporated herein by reference.
(10)-20 --The Registrant's Amended and Restated 1993 Stock Option Plan.
(10)-21 --The Registrant's Amended and Restated 1994 Stock Incentive
Plan.
(10)-22 --The Registrant's 1994 Non-Employee Director Stock Option Plan,
filed as Exhibit (4)-5 to the Company's Registration Statement
on Form S-8 (Registration No. 333-30145), is hereby
incorporated herein by reference.
(10)-23 --The Registrant's Amended and Restated 1995 Stock Option Plan.
(10)-24 --The Registrant's Amended and Restated 1997 Long Term Incentive
Compensation Plan.
(10)-25 --1998 Employee Stock Option Plan, filed as Exhibit (4)-5 to the
Company's Registration Statement on Form S-8 (Registration No.
333-64371), is hereby incorporated herein by reference.
(10)-26 --1998 New Employee Stock Option Plan, filed as Exhibit (99)-1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998, is hereby incorporated herein
by reference.
(10)-27 --Receivables Transfer Agreement, dated December 4, 1998, by and
between Park Avenue Receivables Corporation, MP Receivables
Company, Caremark Inc., and The Chase Manhattan Bank.
(10)-28 --Receivables Purchase Agreement, dated December 4, 1998, by and
between Caremark Inc. and MP Receivables Company.
(10)-29 --Amendment and Waiver No. 1 to the Third Amended and Restated
Credit Agreement, dated December 4, 1998, by and between
MedPartners, Inc., NationsBank, Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, NationsBanc Montgomery Securities
LLC, and NationsBank, N.A., filed as Exhibit (10)-1 to the
Company's Current Report on Form 8-K filed on January 15, 1999,
and is hereby incorporated herein by reference thereto.
(10)-30 --Amendment and Waiver No. 2 to the Third Amended and Restated
Credit Agreement, dated January 13, 1999 by and between
MedPartners, Inc., NationsBank, N.A., Credit Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, and NationsBanc Montgomery
Securities LLC, filed as Exhibit (10)-2 to the Company's
Current Report on Form 8-K filed on January 15, 1999, and is
hereby incorporated herein by reference thereto.
(10)-31 --Amendment and Waiver No. 3 to the Third Amended and Restated
Credit Agreement dated February 9, 1999, by and between
MedPartners, Inc., NationsBank, N.A., Lyonnais New York Branch,
The First National Bank of Chicago, Morgan Guaranty Trust
Company of New York, NationsBanc Montgomery Securities LLC and
NationsBank, N.A.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
-----------
<C> <S>
(10)-32 --Amendment and Waiver No. 4 to the Third Amended and Restated
Credit Agreement dated March 18, 1999, by and between
MedPartners, Inc., Nations Bank, N.A., Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, NationsBanc Montgomery Securities
LLC and NationsBank, N.A.
(10)-33 --Amendment and Waiver No. 5 to the Third Amended and Restated
Credit Agreement dated April 1, 1999, by and between
MedPartners Inc., NationsBank, N.A., Lyonnais New York
Branch, The First National Bank of Chicago, Morgan Guaranty
Trust Company of New York, NationsBank Montgomery Securities
LLC and NationsBank, N.A.
(21) --Subsidiaries of MedPartners, Inc.
(23) --Consent of Ernst & Young LLP, Independent Auditors.
(27) --Financial Data Schedule.
</TABLE>
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MedPartners, Inc.
/s/ James H. Dickerson, Jr.
By: _________________________________
James H. Dickerson, Jr.
Executive Vice President,
Chief Financial Officer and
Director
Date: April 15, 1999
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Edwin M. Crawford President, Chief Executive April 15, 1999
______________________________________ Officer and Chairman of the
Edwin M. Crawford Board
/s/ Richard M. Scrushy Director April 15, 1999
______________________________________
Richard M. Scrushy
/s/ Larry D. Striplin, Jr. Director April 15, 1999
______________________________________
Larry D. Striplin, Jr.
/s/ Charles W. Newhall, III Director April 15, 1999
______________________________________
Charles W. Newhall, III
/s/ Ted H. McCourtney Director April 15, 1999
______________________________________
Ted H. McCourtney
/s/ Walter T. Mullikin, M.D. Director April 15, 1999
______________________________________
Walter T. Mullikin, M.D.
/s/ John S. McDonald, J.D. Director April 15, 1999
______________________________________
John S. McDonald, J.D.
/s/ Michael D. Martin Director April 15, 1999
______________________________________
Michael D. Martin
/s/ Rosalio J. Lopez, M.D. Director April 15, 1999
______________________________________
Rosalio J. Lopez, M.D.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ C.A. Lance Piccolo Director April 15, 1999
______________________________________
C.A. Lance Piccolo
/s/ Roger L. Headrick Director April 15, 1999
______________________________________
Roger L. Headrick
/s/ Kristen E. Gibney Director April 15, 1999
______________________________________
Kristen E. Gibney
/s/ James H. Dickerson, Jr. Executive Vice President, April 15, 1999
______________________________________ Chief
James H. Dickerson, Jr. Financial Officer and
Director
/s/ Howard McLure Senior Vice President and April 15, 1999
______________________________________ Chief
</TABLE> Howard McLure Accounting Officer
53
<PAGE>
EXHIBIT 2.1
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and between
INPHYNET ADMINISTRATIVE SERVICES, INC.,
and
AMERICA SERVICE GROUP INC.
- --------------------------------------------------------------------------------
As of December 18, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I PURCHASE AND SALE OF SHARES...................................... 1
Section 1.1 Purchase and Sale...................................... 1
Section 1.2 Consideration; Adjustment.............................. 1
Section 1.3 Closing................................................ 2
Section 1.4 Deliveries by Seller................................... 3
Section 1.5 Deliveries by Buyer.................................... 3
ARTICLE II RELATED MATTERS................................................. 3
Section 2.1 Use of Seller's Names and Logos........................ 3
Section 2.2 No Ongoing or Transition Services...................... 3
Section 2.3 Intercompany Accounts.................................. 4
Section 2.4 Distributions.......................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND
SELLER................................................................ 4
Section 3.1 Organization........................................... 4
Section 3.2 Authorization.......................................... 4
Section 3.3 Capital Stock.......................................... 5
Section 3.4 Ownership of the Company............................... 5
Section 3.5 Subsidiaries........................................... 6
Section 3.6 Consents and Approvals; No Violations.................. 6
Section 3.7 Financial Statements and Related Matters............... 6
Section 3.8 Absence of Material Adverse Effect..................... 8
Section 3.9 Title, Ownership and Related Matters................... 9
Section 3.10 Leases................................................. 9
Section 3.11 Intellectual Property.................................. 9
Section 3.12 Litigation............................................. 10
Section 3.13 Compliance With Applicable Law......................... 10
Section 3.14 Certain Contracts and Agreements....................... 11
Section 3.15 Employee Benefits Plans, ERISA......................... 13
Section 3.16 Labor Matters.......................................... 15
Section 3.17 Taxes.................................................. 15
Section 3.18 Regulatory Approvals................................... 17
Section 3.19 Medicare and Medicaid.................................. 17
Section 3.20 Environmental Matters.................................. 17
Section 3.21 Insurance.............................................. 18
Section 3.22 List of Accounts....................................... 18
Section 3.23 Certain Fees........................................... 18
Section 3.24 Disclosure............................................. 18
-i-
<PAGE>
Section 3.25 Closing Date........................................... 18
Section 3.26 Disclaimer............................................. 19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER......................... 19
Section 4.1 Organization and Authority of Buyer.................... 19
Section 4.2 Consents and Approvals; No Violations.................. 19
Section 4.3 Availability of Funds.................................. 20
Section 4.4 Litigation............................................. 20
Section 4.5 Certain Fees........................................... 20
Section 4.6 Investment Representations............................. 20
Section 4.7 Investigation by Buyer................................. 20
ARTICLE V COVENANTS........................................................ 20
Section 5.1 Conduct of the Company's Businesses.................... 20
Section 5.2 Access to Information.................................. 22
Section 5.3 Consents............................................... 23
Section 5.4 Reasonable Best Efforts................................ 24
Section 5.5 Public Announcements................................... 24
Section 5.6 HSR Act Compliance..................................... 24
Section 5.7 Covenant to Satisfy Conditions......................... 24
Section 5.8 Employees; Employee Benefits........................... 25
Section 5.9 Certain Tax Matters.................................... 26
Section 5.10 Supplemental Disclosure................................ 28
Section 5.11 No Solicitation........................................ 29
Section 5.12 Medical Malpractice and Professional Liability Matters. 29
Section 5.13 Transition Services Agreement.......................... 29
Section 5.14 No Shop................................................ 29
Section 5.15 Visits to Clients...................................... 29
Section 5.16 Audited Financial Statements........................... 29
Section 5.17 Noncompetition, Nonsolicitation and Confidentiality.... 30
Section 5.18 Good Standing.......................................... 31
Section 5.19 EMSA Limited Partnership............................... 31
ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PARTIES........................ 31
Section 6.1 Conditions to Each Party's Obligation.................. 31
Section 6.2 Conditions to Obligations of Seller.................... 32
Section 6.3 Conditions to Obligations of Buyer..................... 32
ARTICLE VII TERMINATION.................................................... 33
Section 7.1 Termination............................................ 33
Section 7.2 Procedure and Effect of Termination.................... 34
ARTICLE VIII SURVIVAL AND INDEMNIFICATION.................................. 34
Section 8.1 Survival............................................... 34
Section 8.2 Limitations On Indemnification......................... 35
-ii-
<PAGE>
Section 8.3 Indemnification........................................ 36
Section 8.4 Defense of Claims...................................... 37
ARTICLE IX MISCELLANEOUS................................................... 39
Section 9.1 Fees and Expenses...................................... 39
Section 9.2 Further Assurances..................................... 40
Section 9.3 Notices................................................ 40
Section 9.4 Severability........................................... 41
Section 9.5 Binding Effect Assignment.............................. 41
Section 9.6 No Third Party Beneficiaries........................... 41
Section 9.7 Interpretation......................................... 41
Section 9.8 Jurisdiction and Consent to Service.................... 42
Section 9.9 Entire Agreement....................................... 42
Section 9.10 Governing Law.......................................... 42
Section 9.11 Specific Performance................................... 42
Section 9.12 Counterparts........................................... 42
Section 9.13 Amendment; Modification; Waiver........................ 42
Section 9.14 Knowledge.............................................. 43
Section 9.15 Disclosure Letters and Exhibits........................ 43
EXHIBITS
--------
Exhibit Number
- ------- ------
Seller Disclosure Letter A
NationsBank Commitment Letter B
Ferrer Freeman Thompson & Co. Commitment Letter C
Guaranty D
-iii-
<PAGE>
DEFINITIONS
-----------
Term
- ----
Allocation..........................................................Section 5.14
Affiliate.........................................................Section.9.7(c)
Agreement...............................................................Preamble
Balance Sheet Date...................................................Section 3.8
Buyer...................................................................Preamble
Buyer Disclosure Letter...............................................ARTICLE IV
Buyer Executives....................................................Section 9.14
Buyer Tax Group................................................Section 5.9(a)(i)
Closing..............................................................Section 1.1
Closing Date.........................................................Section 1.3
Closing Date Working Capital......................................Section.1.2(b)
Code....................................................................Preamble
Company.................................................................Preamble
Company Accountants...............................................Section.1.2(c)
Company Executives..................................................Section 9.14
Confidentiality Agreement.........................................Section.5.2(b)
Environmental Law...................................................Section 3.20
Financial Statements.................................................Section 3.7
Final Closing Balance Sheet.......................................Section.1.2(c)
HSR Act..............................................................Section 3.6
Identified Employees..............................................Section.5.8(c)
Indemnifiable Losses..............................................Section.8.3(a)
Indemnity Payment.................................................Section.8.3(d)
Indemnitee........................................................Section.8.3(d)
Indemnifying Parts................................................Section.8.3(d)
Indemnifiable Losses..............................................Section.8.3(a)
Independent Accounting Firm.......................................Section.1.2(c)
Latest Balance Sheet.................................................Section 3.7
Leases..............................................................Section 3.10
Licensed Professionals............................................Section.6.3(j)
Material Adverse Effect..............................................Section 3.1
Medical Malpractice Claim...........................................Section 5.12
Medical Malpractice Coverage........................................Section 5.12
Permitted Encumbrances...............................................Section 3.9
-iv-
<PAGE>
Term Section
- ---- -------
Person............................................................Section.9.7(b)
Benefit Plan........................................................Section 3.15
Pre-Closing Period...........................................Section 5.9(a)(iii)
Pre-Closing Period Returns.....................................Section 5.9(c)(i)
Preliminary Closing Balance Sheet.................................Section.1.2(c)
Proprietary Rights..................................................Section 3.11
Purchase Price.......................................................Section 1.2
Section 338(h)(10) Election...................................Section 5.9(a)(iv)
Seller..................................................................Preamble
Seller Disclosure Letter.............................................ARTICLE III
Seller Group...................................................Section 5.9(a)(v)
Seller Trademarks and Logos..........................................Section 2.1
Settlement Date...................................................Section.1.2(b)
Shares..................................................................Preamble
Subsidiary or Subsidiaries..............................................Preamble
Target Working Capital............................................Section.1.2(b)
Taxes.........................................................Section 3.17(g)(i)
Tax Return...................................................Section 3.17(g)(ii)
Third party Claim.................................................Section.8.4(a)
To the Knowledge of Buyer...........................................Section 9.14
To the Knowledge of Seller..........................................Section 9.14
Transaction Documents................................................Section 3.2
Transition Services Agreement.......................................Section 5.13
WARN Act............................................................Section 3.16
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT, dated as of December 18, 1998 (this
"Agreement"), by and between INPHYNET ADMINISTRATIVE SERVICES, INC., a Florida
corporation ("Seller") and AMERICA SERVICE GROUP INC., a Delaware corporation
("Buyer").
W I T N E S S E T H:
-------------------
WHEREAS, Seller owns all of the issued and outstanding shares of common
stock (the "Shares") of EMSA Government Services, Inc. (the "Company") which
together with its subsidiaries, EMSA Correctional Care, Inc., and EMSA Military
Services, Inc. (individually the "Subsidiary" and collectively, the
"Subsidiaries") and with EMSA Limited Partnership, conducts comprehensive
managed health care solutions to state and local correctional and military
facilities across the United States; and
WHEREAS, pursuant to the terms and conditions of this Agreement, Seller
desires to sell to Buyer, and Buyer desires to purchase from Seller, the Shares;
and
WHEREAS, Seller and Buyer have agreed to elect under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code"), to treat the
transactions contemplated herein for federal and, where applicable, state income
tax purposes as the deemed sale of the assets of the Company and of its
Subsidiaries.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
---------------------------
Section 1.1 Purchase and Sale. Subject to the terms and conditions set
------------------
forth in this Agreement, at the closing provided for in Section 1.3 hereof (the
"Closing"), Seller agrees to sell, transfer and deliver the Shares to Buyer free
and clear of any liens and encumbrances, and Buyer agrees to purchase, acquire
and accept from Seller, the Shares.
Section 1.2 Consideration; Adjustment. (a) Subject to the terms and
--------------------------
conditions of this Agreement, in consideration of the aforesaid sale, transfer
and delivery of the Shares, Buyer will deliver or cause to be delivered to
Seller the sum of Sixty-Seven Million and No/100 Dollars ($67,000,000) in cash
at Closing by wire transfer of immediately available federal funds to such bank
account as shall be designated in writing by Seller (the "Purchase Price").
(b) The Purchase Price shall be increased or decreased on a
dollar-for-dollar basis by an amount equal to the amount by which the "Closing
Date Working Capital" is in excess of or is less than the "Target Working
Capital" (the "Purchase Price Adjustment"). The payment of the Purchase Price
Adjustment shall occur within three (3) days after the final determination of
the Closing Date Working Capital, or on such other date
<PAGE>
as shall be mutually agreed to in writing by the parties (the "Settlement
Date"). If the Closing Date Working Capital is greater than the Target Working
Capital, the Buyer shall pay to the Seller on the Settlement Date an amount
equal to the Purchase Price Adjustment. If the Closing Date Working Capital is
less than the Target Working Capital, Seller shall pay to Buyer an amount equal
to the Purchase Price Adjustment. The term "Closing Date Working Capital" means
the difference between the accounts receivable and current liabilities of the
Company, both as disclosed on the "Final Closing Balance Sheet" (as hereinafter
defined). The term "Target Working Capital" means an amount equal to $27.6
million.
(c) As promptly as practicable after the Closing and in any
event within forty-five (45) days of the Closing Date, the Seller and Buyer
shall cause the Company to prepare, in accordance with generally accepted
accounting principles, and shall cause Ernst & Young, LLP, Nashville, Tennessee
(the "Company Accountants") to audit a balance sheet of the Company as of the
close of business on the date immediately preceding the Closing Date (the
"Preliminary Closing Balance Sheet"). Notwithstanding anything to the contrary
set forth in this Agreement and notwithstanding the application of generally
accepted accounting principles, such balance sheet shall reflect as a current
liability of the Company an amount equal to the amounts specified in Section
5.8(b) and Section 5.8(c). The Preliminary Closing Balance Sheet shall be
delivered to Seller and Buyer promptly following the completion thereof. Buyer
and Seller shall each have fifteen (15) days following delivery of the
Preliminary Closing Balance Sheet during which to notify the other of any
dispute of any item contained in the Preliminary Closing Balance Sheet, which
notice shall set forth in reasonable detail the basis for such dispute. If
either party fails to notify the other of any dispute within such 15-day period,
the Preliminary Closing Balance Sheet shall be deemed to be the "Final Closing
Balance Sheet." Buyer and Seller shall cooperate in good faith to resolve any
dispute as promptly as possible, and upon such resolution, the Final Closing
Balance Sheet shall be prepared in accordance with the agreement of Buyer and
the Seller. If Buyer and Seller are unable to resolve any such dispute within
fifteen (15) days (or such longer period as Buyer and Seller shall mutually
agree in writing) of delivery of such notice, such dispute shall be resolved by
a mutually agreeable nationally recognized, independent accounting firm
("Independent Accounting Firm"), and such determination shall be final and
binding on the parties. If Seller and Buyer cannot mutually agree on the
identity of the Independent Accounting Firm, then Seller and Buyer shall each
submit to the other party's independent auditor the name of a national
accounting firm, and the Independent Accounting Firm shall be selected by lot
from those two firms by the independent auditors of the two parties. (If no
national accounting firm shall be willing to serve as the Independent Accounting
Firm, then an arbitrator shall be selected to serve as such, such selection to
be according to the above procedures.) Any expenses relating to the engagement
of the Independent Accounting Firm shall be shared equally by Buyer and Seller.
The Independent Accounting Firm shall be instructed to use every reasonable
effort to perform its services within fifteen (15) days of submission of the
Preliminary Closing Balance Sheet to it and, in any case, as promptly as
practicable after such submission. The Final Closing Balance Sheet shall then be
prepared by Buyer and Seller based on the determination of the Independent
Accounting Firm.
Section 1.3 Closing. The Closing of the transactions contemplated by
--------
this Agreement shall take place as promptly as practicable, and in any event not
later than the fifth business day, following the satisfaction or waiver of all
of the conditions to Closing set forth in
-2-
<PAGE>
Article VI hereof, at 10:00 am., local time, at the offices of Foley & Lardner,
111 North Orange Avenue, Suite 1800, Orlando, Florida, or on such other date and
at such other time or place as the parties may agree. The date of the Closing is
sometimes referred to herein as the "Closing Date."
Section 1.4 Deliveries by Seller. At the Closing, Seller will deliver
---------------------
or cause to be delivered to Buyer (unless delivered previously) the following:
(a) The stock certificates representing all of the Shares, duly
endorsed in blank or accompanied by stock or similar powers duly executed in
blank;
(b) The resignations of all officers and members of the Board
of Directors of the Company; and
(c) All other documents, instruments and writings required or
reasonably requested by Buyer to be delivered by Seller at or prior to the
Closing pursuant to this Agreement or otherwise reasonably required in
connection herewith.
Section 1.5 Deliveries by Buyer. At the Closing, Buyer will deliver or
--------------------
cause to be delivered to Seller (unless previously delivered) the following:
(a) The Purchase Price in accordance with Section 1.2 hereof;
and
(b) All other documents, instruments and writings required or
reasonably requested by Seller to be delivered by the Buyer at or prior to the
Closing pursuant to this Agreement or otherwise reasonably required in
connection herewith.
ARTICLE II
RELATED MATTERS
---------------
Section 2.1 Use of Seller's Names and Logos. It is expressly agreed
--------------------------------
that Buyer is not purchasing, acquiring or otherwise obtaining any right, title
or interest in the name "MedPartners, Inc.," "InPhyNet Administrative Services,
Inc.," InPhyNet Government Services, Inc.," or any tradenames, trademarks,
identifying logos or service marks related thereto or employing the word
"MedPartners," "InPhyNet," or any part or variation of any of the foregoing or
any confusingly similar tradename, trademark or logo (collectively, the "Seller
Trademarks and Logos"). Buyer agrees that, neither it nor any of its Affiliates
(as hereinafter defined) shall make any use of the Seller Trademarks and Logos
from and after the Closing Date.
Section 2.2 No Ongoing or Transition Services. Except as otherwise
----------------------------------
agreed to in writing by Seller and Buyer or in the Transition Services Agreement
described in Section 5.13 hereof, at the Closing, all data processing,
accounting, insurance, banking, personnel, legal, communications and other
products or services provided to the Company by the Seller or any Affiliate of
the Seller (other than the Company), including any agreements or understandings
(written or oral) with respect thereto, will terminate.
-3-
<PAGE>
Section 2.3 Intercompany Accounts. On or prior to the Closing Date,
----------------------
all intercompany accounts between Company and/or its Subsidiaries on the one
hand, and Seller and its Affiliates (other than the Company or the Subsidiaries)
on the other hand, shall be canceled or settled. No adjustment shall be made to
the Purchase Price as a result of any such cancellation or settlement.
Section 2.4 Distributions. The parties agree that Seller shall have
--------------
the right, at or prior to the Closing, to cause the Company and/or the
Subsidiaries to distribute cash held by the Company and/or the Subsidiaries to
the Seller or its Affiliates, by one or more cash dividends, repurchase of
existing stock and/or other distributions. No adjustment shall be made to the
Purchase Price as a result of any such dividends, repurchases or other
distributions paid to Seller or its Affiliates.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND SELLER
----------------------------------------------------------------
With such exceptions as are set forth in a letter attached as Exhibit A
hereto (the "Seller Disclosure Letter") delivered by Seller to Buyer prior to
the execution hereof and any amendments thereto, as a material inducement to
Buyer to enter into this Agreement, Seller hereby represents and warrants to
Buyer as follows:
Section 3.1 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Florida and
has all requisite power and authority to own, lease and operate its properties
and assets and to carry on its operations as now being conducted. The Company is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property or assets owned, leased or operated by the
Company or the nature of the business conducted by the Company makes such
qualification necessary, except where the failure to be so duly qualified or
licensed and in good standing would not individually or in the aggregate have a
Material Adverse Effect (as hereinafter defined), which jurisdictions are those
set forth in Schedule 3.1 of the Seller Disclosure Letter. As used herein, the
term "Material Adverse Effect" shall mean any event, change or effect,
individually or in the aggregate with such other events, changes or effects,
that has occurred which has a material adverse effect upon the financial
condition or business of the Company and its Subsidiaries taken as a whole;
provided however, that a Material Adverse Effect shall not include any event,
change in or effect upon the financial condition or business of the Company and
its Subsidiaries taken as a whole, directly or indirectly, arising out of,
attributable to or as a consequence of: (a) conditions, events or circumstances
affecting the health-care industry generally or the overall economy; (b) the
public announcement of either the execution of this Agreement or the
transactions contemplated hereunder, or (c) proposed or pending federal, state
or local legislation, regulation or administration of any governmental
authority. Seller has heretofore made available to Buyer complete and correct
copies of the articles of incorporation and by-laws of the Company and the
Subsidiaries, as currently in effect.
Section 3.2 Authorization. Seller is a corporation duly organized,
-------------
validly existing and in good standing under the laws of the State of Florida.
Seller has the corporate
-4-
<PAGE>
power and authority to execute and deliver this Agreement and the other
documents contemplated hereby and perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement, the other Transaction
Documents and the performance by Seller of its covenants and agreements
hereunder and thereunder have been duly and validly authorized by the Board of
Directors of Seller and Seller's shareholder and no other corporate proceedings
on the part of Seller are necessary to authorize the execution, delivery and
performance of this Agreement, the other Transaction Documents or the
consummation of the transactions contemplated hereby or thereby. Each of the
Transaction Documents has been duly executed and delivered by Seller and
constitutes a valid and binding agreement of Seller, enforceable against Seller
in accordance with its terms, except that (a) such enforcement may be subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought. As
used herein, "Transaction Documents" means this Agreement, and all other
agreements, instruments, certificates and other documents to be entered into or
delivered by any Party in connection with the transactions contemplated to be
consummated pursuant to this Agreement.
Section 3.3 Capital Stock. The authorized capital stock of the Company
-------------
consists entirely of One Thousand (1,000) shares of common stock, $1.00 par
value per share. No shares of such capital stock are issued or outstanding
except for the Shares, which are owned of record and beneficially by the Seller.
The Shares constitute all of the issued and outstanding shares of capital stock
of the Company. Other than the Shares, no person owns any other equity security
of the Company or right of any kind to have any such equity security issued.
Seller has the exclusive right, power and authority to vote the Shares of the
Company owned by Seller. Seller covenants that it is not a party to or bound by
any agreements affecting or relating to Seller's right to transfer or vote the
Shares. The Shares have been validly issued and are fully paid and non-
assessable. There are no (a) securities convertible into or exchangeable for any
of the Company's capital stock or other securities; (b) options, warrants or
other rights to purchase or subscribe to capital stock or other securities of
the Company or securities which are convertible into or exchangeable for capital
stock or other securities of the Company; or (c) contracts, commitments,
agreements, understandings or arrangements of any kind (other than this
Agreement) relating to the issuance, sale or transfer of any capital stock or
other equity securities of the Company, any such convertible or exchangeable
securities or any such options, warrants or other rights.
Section 3.4 Ownership of the Company. Seller is the owner of the
------------------------
Shares. Seller has good title to the Shares free and clear of all Liens. As used
herein, "Liens" means any mortgage, pledge, security interest, claim,
encumbrance, lien or charge of any kind (including, without limitation, any
option, conditional sale or other title retention agreement or lease in the
nature thereof), any sale of receivables with recourse against the Company or
any Affiliate, any filing or agreement to file a financing statement as debtor
under the Uniform Commercial Code or any similar statute other than to reflect
ownership by a third party of property leased to the Company or any of its
Subsidiaries under a lease which is not in the nature of a conditional sale or
title retention agreement, or any subordination arrangement in
-5-
<PAGE>
favor of another Person (other than any subordination arising in the ordinary
course of business).
Section 3.5 Subsidiaries. The Seller's Disclosure Letter sets forth the
-------------
jurisdiction of incorporation, capitalization, ownership, officers and directors
of the Subsidiaries and the jurisdictions in which each Subsidiary is qualified
or licensed to do business as a foreign corporation. Except as listed in the
Seller's Disclosure Letter, the Company does not own, directly or indirectly,
any capital stock or other equity securities of any corporation or have any
direct or indirect equity or other ownership interest in any entity or business.
The Company owns all of the issued and outstanding shares of capital stock of
each Subsidiary, free and clear of any security interest, restriction, option,
voting trust or agreement, proxy, encumbrance, claim or charge of any kind
whatsoever, and all such shares are validly issued, fully paid and
nonassessable. There are no (a) securities convertible into or exchangeable for
the capital stock or other securities of any Subsidiary; (b) options, warrants
or other rights to purchase or subscribe to capital stock or other securities of
any Subsidiary or securities which are convertible into or exchangeable for
capital stock or other securities of any Subsidiary; or (c) contracts,
commitments, agreements, understandings or arrangements of any kind relating to
the issuance, sale or transfer of any capital stock or other equity securities
of any Subsidiary, any such convertible or exchangeable securities or any such
options, warrants, or other rights. Each Subsidiary is a corporation duly
organized validly existing and in good standing under the laws of its state of
incorporation. Each Subsidiary has full corporate power and authority to carry
on its business as it is now being conducted and to own and lease the properties
and assets it now owns and leases and is in good standing and is duly qualified
or licensed to do business as a foreign corporation in each of the jurisdictions
where the property or assets owned, leased or operated by such Subsidiary or the
business conducted by such Subsidiary makes such qualification necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect, which jurisdictions are those set forth in
Schedule 3.1 of the Seller Disclosure Letter.
Section 3.6 Consents and Approvals; No Violations. Except for
--------------------------------------
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the articles of
incorporation or by-laws of the Company or any provisions of, or result in the
acceleration of any obligation under, any mortgage, lien, lease, agreement,
instrument, order, arbitration order, judgment or decree to which the Company is
a party, or by which it is bound, or violate any restrictions of any kind to
which the Company is subject; or (b) require any filing with, or the obtaining
of any permit, authorization, consent or approval of, any governmental or
regulatory authority.
Section 3.7 Financial Statements and Related Matters.
-----------------------------------------
(a) Included with the Seller Disclosure Letter are copies of
the Company's and its Subsidiaries': (a) unaudited consolidated balance sheets
and statements of income and cash flows for the fiscal years ended December 31,
1995, 1996 and 1997 and (b) the unaudited consolidated balance sheet as of
November 30, 1998 (the "Latest Balance Sheet") and the related unaudited
statements of income and cash flows for the eleven-month period then ended. Each
of the foregoing financial statements (including in all cases the notes
-6-
<PAGE>
thereto, if any) (the "Financial Statements") is accurate and complete to the
Knowledge of the Company or Seller and consistent with the Company's and its
Subsidiaries' books and records (which, in turn, are accurate and complete to
the Knowledge of the Company or Seller). The Financial Statements present,
fairly the Company's and its Subsidiaries' financial condition, results of
operations and cash flows as of the times and for the periods referred to
therein, and have been prepared in accordance with GAAP, consistently followed
throughout the periods indicated (except as may be disclosed in the notes
thereto), subject in the case of unaudited financial statements to changes
resulting from normal year-end adjustments for recurring accruals (which shall
not be material individually or in the aggregate) and to the absence of footnote
disclosure. Except as to the extent reflected on the Latest Balance Sheet or in
the Seller Disclosure Letter, the Company has no liabilities, commitments or
obligations of any nature (whether absolute, accrued, contingent or otherwise)
other than those incurred in the ordinary course of business consistent with
past practice since the date of the Latest Balance Sheet. To the Knowledge of
the Company or Seller, the books and records of the Company and its Subsidiaries
accurately and fairly reflect the transactions and dispositions of assets of the
Company and its Subsidiaries. The Company's system of internal accounting
controls is sufficient to provide reasonable assurances that transactions are
executed in accordance with management's general or specific authorization and
that transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets.
(b) Receivables.
-----------
(i) All of the Accounts Receivable reflected on the Latest
Balance Sheet are and all of the Accounts Receivable reflected on the Final
Closing Balance Sheet will be (i) properly reflected on the Company's books
and records in accordance with GAAP, (ii) bona fide Accounts Receivable
incurred in the ordinary course of business and (iii) valid Accounts
Receivable (subject to no counterclaims, deduction, credit or offset),
except to the extent of the allowance for doubtful accounts.
(ii) The amount of the allowance for doubtful accounts
reflected on the Latest Balance Sheet is and the allowance for doubtful
accounts on the Final Closing Balance Sheet will be computed in accordance
with GAAP and the Company's historic practices and procedures.
(iii) As of the date hereof, no Person has, and as of the
Closing Date, no Person will have, any Lien on any Accounts Receivable or
any part thereof, and no agreement by Company or any Subsidiary for
deduction, free services or goods, discount or other deferred price or
quantity adjustment will have been made with respect to any such Accounts
Receivable, except for such agreements made between Buyer and its lenders
with respect to the financing of the transactions contemplated hereby.
(iv) As used herein, "Accounts Receivable" shall mean all
accounts and commissions receivable, including without limitation, all
trade accounts receivable, notes receivable from customers, vendor credits
and accounts receivable from employees and all other obligations from
customers with respect to sales of goods or services, whether evidenced or
not evidenced by a note.
-7-
<PAGE>
(v) Since the date of the Latest Balance Sheet, the
Company has not changed any principle or practice with respect to the
recordation of accounts receivable or the calculation of reserves therefor
or any material collection, discount or write-off policy or procedure.
(vi) Since the date of the Latest Balance Sheet, the
Company has not changed any principle or practice with respect to the
recordation of incurred-but-not-reported ("IBNR") medical expenses or the
calculation of reserves therefor.
(c) Inventory. The Company's and its Subsidiaries' inventory,
---------
net of the reserves applicable to such inventory, consists of a quantity and
quality which, except as reflected in such reserve, is usable and saleable in
the ordinary course of business consistent with past practice, and the items of
such inventory are merchantable and fit for their particular use. The Company
and each of its Subsidiaries has good title to such inventory, free and clear of
all Liens (other than Permitted Encumbrances).
Section 3.8 Absence of Material Adverse Effect. Except as otherwise
----------------------------------
contemplated by this Agreement, there has not been any occurrence or event
resulting in a Material Adverse Effect since December 31, 1997 (the "Balance
Sheet Date"). Without limiting the generality of the foregoing, since the date
of the Balance Sheet Date neither the Company nor any of its Subsidiaries has:
(i) Increased or established any reserve for taxes or any
other liability on its books or otherwise provided therefor, except as may
have been required due to income or operations of the Company since the
Balance Sheet Date.
(ii) Mortgaged, pledged or subjected to any lien, charge
or other encumbrance any of the assets, tangible or intangible, which
assets are material to the business or financial condition of the Company,
other than with respect to (i) liabilities shown or reflected on the
Company's balance sheet as of the Balance Sheet Date or (ii) liabilities
incurred since the Balance Sheet Date in the ordinary course of business.
(iii) Sold or transferred any of the assets material to
the consolidated business of the Company, canceled any material debts or
claims or waived any material rights, except in the ordinary course of
business.
(iv) Granted any general or uniform increase in the rates
of pay of employees or any material increase in salary payable or to become
payable by the Company or any of its Subsidiaries to any, officer or
employee, consultant or agent (other than normal increases consistent with
past practices), or by means of any bonus or pension plan, contract or
other commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent, except in the ordinary course of
business.
(v) Except for this Agreement and any other agreement
executed and delivered pursuant to this Agreement, entered into any
material
-8-
<PAGE>
transaction other than in the ordinary course of business or permitted
under other Sections of this Agreement.
Section 3.9 Title, Ownership and Related Matters. Neither the Company
------------------------------------
nor any Subsidiary owns any real property. The Company and each Subsidiary has,
or as of the Closing will have, good title to, or rights by license, lease or
other agreement to use free and clear of any liens, claims, charges, exceptions
or encumbrances, all material properties and assets (or rights thereto), other
than cash, cash equivalents and securities (except for the Shares), necessary to
permit the Company to conduct its business as currently conducted, except for
liens disclosed on the Financial Statements or statutory liens for current taxes
and assessments not yet due and payable (such liens being collectively, the
"Permitted Encumbrances").
Section 3.10 Leases. Schedule 3.10 to the Seller Disclosure Letter sets
-------
forth a true and complete list of all real property leases and subleases for
space occupied by the Company and the Subsidiaries (collectively, the "Leases"),
and all written amendments and agreements relating thereto. True and correct
copies of the Leases have been made available to Buyer. The Leases are valid,
binding and enforceable in accordance with their respective terms, and neither
the Company nor any Subsidiary has given or received written notice of any
default under any such Lease where such default would have a Material Adverse
Effect.
Section 3.11 Intellectual Property.
----------------------
(a) The Seller Disclosure Letter contains a complete and
accurate list of all (a) patented or registered Proprietary Rights owned or used
by the Company or any of its Subsidiaries, (b) pending patent applications and
applications for registrations of other Proprietary Rights filed by the Company
or any of its Subsidiaries, (c) unregistered trade names, internet domain names
and corporate names owned or used by the Company or any of its Subsidiaries and
(d) unregistered trademarks, service marks, and computer software owned or used
by the Company or any of its Subsidiaries. The Seller Disclosure Letter also
contains a complete and accurate list of all licenses and other rights granted
by the Company or any of its Subsidiaries to any third party with respect to any
Proprietary Rights and all licenses and other rights granted by any third party
to the Company or any of its Subsidiaries with respect to any Proprietary Rights
(other than standard licenses to use widely marketed shrink-wrapped software),
in each case identifying the subject Proprietary Rights. The Company and each of
its Subsidiaries own, free of all Liens (except Permitted Encumbrances), all
right, title and interest to, or have the right to use pursuant to a valid
written license, all Proprietary Rights necessary for the operation of their
businesses as presently conducted.
(b) (i) Neither the Company nor any of its Subsidiaries has
received any notices of invalidity, infringement or misappropriation from any
third party with respect to any such Proprietary Rights; (ii) neither the
Company nor any of its Subsidiaries has interfered with, infringed upon or
misappropriated any Proprietary Rights of any third parties; and (iii) to the
Knowledge of the Company or Seller, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Proprietary Rights of the Company or its Subsidiaries.
-9-
<PAGE>
(c) As used herein, "Proprietary Rights" means all of the
following owned by, issued to, or licensed to the Company or any of its
Subsidiaries, or used in the Company's or it's Subsidiaries business, along with
all associated income, royalties, damages and payments due from or payable by
any third party at the Closing or thereafter (including, without limitation,
damages and payments for past, present, or future infringements or
misappropriations thereof), all other associated rights (including without
limitation, the right to sue and recover for past, present, or future
infringements or misappropriations thereof), and any and all corresponding
rights that, now or hereafter, may be secured throughout the world: (i) patents,
patent applications, patent disclosures and inventions, (ii) trademarks, service
marks, trade dress, trade names, logos, internet domain names and corporate
names and registrations and applications for registration thereof together with
all of the goodwill associated therewith, (iii) copyrights (registered or
unregistered) and copyrightable works and registrations and applications for
registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software, data, data bases and documentation
thereof, (vi) trade secrets and other confidential information (including,
without limitation, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial and marketing plans and customer and
supplier lists and information), (vii) other intellectual property rights and
(viii) copies and tangible embodiments thereof (in whatever form or medium).
Section 3.12 Litigation. There is no claim, action, suit, proceeding or
----------
governmental investigation, including, without limitation, any such claim,
action, suit, proceeding or investigation relating to this Agreement or the
transaction contemplated by this Agreement, pending or, to the Knowledge of
Seller, threatened against Seller or the Company or any Subsidiary by or before
any court, governmental or regulatory authority or by any third party. There is
no claim, action, suit or proceeding pending or, to the Knowledge of the Seller,
threatened against any Affiliate of the Seller by or before any court by any
third party relating to this Agreement or the transaction contemplated by this
Agreement, nor is there, to the Knowledge of the Seller, any basis therefor. To
the Knowledge of the Seller, there is no basis for the institution of any such
claim, action, suit, proceeding or governmental investigation against the
Seller, the Company or any Subsidiary. The Seller Disclosure Letter sets forth a
true and correct description of all claims, actions, suits, proceedings and
governmental investigations pending against the Company or any Subsidiary on the
date hereof or of the basis for the assertion of any such claim, action, suit,
proceeding or governmental investigation that, to the Knowledge of the Seller,
is threatened against the Company or any Subsidiary.
Section 3.13 Compliance With Applicable Law. To the Knowledge of
------------------------------
Seller, neither the Company nor any Subsidiary has received any written notices
of, nor to the knowledge of Seller have there been any, violations of any
material laws, ordinances, rules or regulations of any federal, state, local or
foreign governmental authority which are applicable to the Company or the
Subsidiaries. The Seller Disclosure Letter sets forth a true and correct
description of all material violations of any laws, ordinances, rules or
regulations of any federal, state, local or foreign governmental authority, of
which the Seller, the Company or any Subsidiary has received notice or which, to
the Knowledge of the Seller, have occurred.
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<PAGE>
Section 3.14 Certain Contracts and Agreements.
---------------------------------
(a) Except as specifically contemplated by this Agreement and
except as set forth in the Seller Disclosure Letter, neither the Company nor any
of its Subsidiaries is a party to or bound by, whether written or oral, any:
(i) collective bargaining agreement or contract with any
labor union or any bonus, pension, profit sharing, retirement or any other
form of deferred compensation plan or any stock purchase, stock option,
hospitalization insurance or similar plan or practice, whether formal or
informal, other than the Benefit Plans described in Section 3.15 of this
Agreement;
(ii) contract for the employment of any officer,
individual employee or other person on a full-time or consulting basis or
any severance agreements;
(iii) agreement or indenture relating to the borrowing of
money or to mortgaging, pledging or otherwise placing a lien on any of its
assets;
(iv) contract under which the Company or any of its
Subsidiaries has advanced or loaned any other Person, or invested in any
other Person, amounts in the aggregate (for any one Person) exceeding
$25,000 or contractually committed to do so;
(v) agreement under which the Company or any of its
Subsidiaries has granted any Person any registration rights (including,
without limitation, demand and piggyback registration rights) with respect
to capital stock of the Company or its Subsidiaries;
(vi) license, sublicense or royalty agreements relating to
Proprietary Rights;
(vii) guaranty of any obligation, other than endorsements
made for collection or intercompany guarantees among the Company and its
Subsidiaries;
(viii) management, consulting, advertising, marketing,
promotion, services, advisory or other contract or other similar
arrangement relating to the design, marketing, promotion, management or
operation of the business of the Company and the Subsidiaries;
(ix) outstanding powers of attorney executed on behalf of
the Company or any Subsidiary;
(x) lease or agreement under which it is lessee of, or
holds or operates, any personal property owned by any other party calling
for payments in excess of $10,000 annually;
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<PAGE>
(xi) lease or agreement under which it is lessor of or permits any third
party to hold or operate any property, real or personal, owned or controlled
by it;
(xii) contract or group of related contracts with the same party which
are currently in effect and which by their terms will continue over a period
of more than six months from the date or dates thereof, which is not
terminable by the Company or Subsidiary without cause on 90 days notice or
less without penalties or which involves the payment or receipt by the Company
or Subsidiaries of more than $50,000.00 during any 12 month period;
(xiii) confidentiality agreement or similar arrangement;
(xiv) contract relating to the supply, sale or distribution of the
Company's or its Subsidiaries' products or services;
(xv) contract which prohibits the Company or any of its Subsidiaries
from freely engaging in business anywhere in the world;
(xvi) is with Seller, with any director or officer of the Company or any
Subsidiary, with any person related to Seller or with any company or other
organization in which Seller, any director or officer of the Company or any
Subsidiary, or any person related to any of the foregoing, has a direct or
indirect financial interest;
(xvii) is a joint venture or other agreement involving sharing of
profits;
(xviii) is an offer, bid or proposal that, if accepted, would result in
a contract requiring the Company or any Subsidiary to pay, or by which the
Company or any Subsidiary would receive, in the aggregate, $25,000 or more
from a single source in any 12-month period;
(xix) was not made in the ordinary course of business;
(xx) is a minority or set-aside contract; or
(xxi) grants any right of first refusal or similar right in favor of any
third party with respect to any material portion of the properties or assets
of the Company or any Subsidiary.
(b) Except as set forth in the Seller Disclosure Letter, (i) no contract or
commitment required to be disclosed in the Seller Disclosure Letter
(collectively, the "Material Contracts") has been terminated by the other party
and neither the Company nor any Subsidiary has Knowledge or has given or
received written notice of any breach by any party to the Material Contracts,
(ii) neither the Company nor any of its Subsidiaries has received written notice
from any customer or supplier, and no senior executive officer of the Company or
Subsidiaries has received any oral notification from any customer or supplier,
that such customer or supplier shall stop or materially decrease the rate of
business done with the Company or any of its Subsidiaries or that it desires to
renegotiate its contract or current
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<PAGE>
arrangement with the Company or any of its Subsidiaries, (iii) the Company and
each of its Subsidiaries are not in default under or in breach of any of the
Material Contracts, and to the Knowledge of the Company or the Seller, no event
has occurred which with the passage of time or the giving of notice or both
would result in a default or breach thereunder, (iv) each of the Material
Contracts is legal, valid, binding, enforceable and in full force and effect,
subject to general equitable principles, and (v) no Material Contract will, by
its terms, terminate as a result of the transactions contemplated hereby or
require any consent from any obligor thereunder in order to remain in full force
and effect immediately after the Closing.
(c) The Company has made available to Buyer a true and correct copy of the
Material Contracts, in each case together with all written amendments, waivers
or other changes thereto (all of which are disclosed in Seller Disclosure
Letter). The Seller Disclosure Letter contains an accurate and complete
description of all material terms of any oral contracts to which the Company or
the Subsidiaries are a party and sets forth a list of certain professional
service corporations and associations with which the Company or any Subsidiary
has entered into arrangements which are binding on the Company and a list of the
shareholders, partners or members of each such corporation or association.
Section 3.15 Employee Benefits Plans, ERISA.
-------------------------------
(a) The Seller Disclosure Letter sets forth an accurate and complete list
of each plan, program, policy or arrangement (whether written or oral) providing
cash or other compensation or benefits of any kind or description whatsoever
(whether current or deferred) to, or on behalf of, any current or former
officer, employee or director of the Company or any of its Subsidiaries or any
of their dependents under which Company or any of its Subsidiaries has any
liability, duty or obligation whatsoever, whether fixed or contingent, including
but not limited to, any employment, consulting or severance agreement and any
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (individually a "Benefit Plan"
and collectively the "Benefit Plans"). Neither the Company nor any of its ERISA
Affiliates has ever contributed directly or indirectly to (or had any obligation
to contribute directly or indirectly to) any multiemployer pension plan (as
defined in Section 3(37) of ERISA), and, except as disclosed in the Seller
Disclosure Letter, neither the Company nor any of its ERISA Affiliates has
within the past ten years, maintained or contributed to (or had any obligation
to contribute directly or indirectly to) any defined benefit plan (as defined in
Section 3(35) of ERISA). Neither the Company nor any of its Subsidiaries
maintains or contributes to any Benefit Plan which provides health, accident or
life insurance benefits to former employees, their spouses or dependents, other
than in accordance with Section 4980B of the Code ("COBRA").
(b) The Benefit Plans (and related trusts and insurance contracts) comply
(and have at all times complied) in form and in operation with the requirements
of applicable laws and regulations in all material respects, including, without
limitation, ERISA and the Code and the nondiscrimination rules thereof, and the
requirements of COBRA. All contributions, premiums or payments which are due on
or before the Closing Date under each Benefit Plan have been paid or accrued on
the appropriate balance sheet. Each Benefit Plan which is intended to be
qualified under Section 401(a) of the Code (i) has been amended on a timely
basis in compliance with the Code and (ii) has received from the Internal
Revenue
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Service a favorable determination letter which considers the terms of such
Benefit Plan as amended.
(c) All required reports and descriptions (including IRS/DOL/PBGC Form 5500
annual reports, summary annual reports and summary plan descriptions) with
respect to the Benefit Plans have been properly and timely filed with the
appropriate government agency and distributed to participants and beneficiaries
as required.
(d) With respect to each Benefit Plan, neither the Company nor any of its
Subsidiaries has any liability for (i) any prohibited transactions as defined in
Section 406 of ERISA or Section 4975 of the Code or (ii) any breach of fiduciary
duty or any other failure to act or comply in connection with the administration
of such Benefit Plan or investment of the assets of such Benefit Plans, and no
actions, investigations, suits or claims with respect to such Benefit Plans or
the assets thereof (other than routine claims for benefits) are pending or, to
the Knowledge of Seller, threatened, and neither the Company nor Seller has
Knowledge of any facts which would give rise to or could reasonably be expected
to give rise to any such actions, suits or claims.
(e) With respect to each of the Benefit Plans, Seller has furnished, or
made available, to Buyer true and complete copies of (i) the plan documents,
summary plan descriptions and summaries of material modifications and other
material employee communications, (ii) the IRS/DOL/PBGC Form 5500 annual report
(including all schedules and other attachments for the most recent three years),
(iii) all related trust agreements, insurance contracts or other funding
agreements which implement such plans, (iv) all contracts relating to each such
plan, including, without limitation, service provider agreements, insurance
contracts, investment management agreements and recordkeeping agreements, (v)
all Internal Revenue Service Department of Labor and Pension Benefit Guaranty
Corporation rulings or determinations, actuarial and other financial reports for
all periods ending on or after December 31, 1992, with respect to each Benefit
Plan, (vi) an accurate written summary of all material provisions of each
unwritten Benefit Plan; and (vii) such other documentation with respect to any
Benefit Plan as is reasonably requested by Buyer.
(f) Neither the Company nor any of its ERISA Affiliates has incurred or has
reason to expect that it will incur, any liability to the Pension Benefit
Guaranty Corporation (other than routine premium payments ) or otherwise under
Title IV of ERISA (including any withdrawal liability) or under the Code with
respect to any employee pension benefit plan (as defined in Section 3(2) of
ERISA) that the Company or any of its ERISA Affiliates maintains or has ever
maintained.
(g) All of the assets which have been set aside in a trust or insurance
company separate account to satisfy any obligations under any Benefit Plan are
shown on the books and records of each such trust and each such account at their
current fair market value as of the most recent valuation date equals or exceeds
the present value of any obligation under any Benefit Plan, and the liabilities
for all other obligations under any Benefit Plan are accurately set forth in the
Company's most recent Financial Statement.
(h) Each Benefit Plan which Company or its Subsidiaries has treated as
satisfying the requirements of Code Section 401 and each trust which Company or
its
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Subsidiaries has treated as satisfying the requirements of Code Section 501
at all times have in fact satisfied such requirements in all material respects.
(i) The transactions contemplated by this Agreement will not result in any
additional payments to or benefit accruals for, or any increase in the vested
interest of any current or former officer, employee or director or their
dependents under any Benefit Plan. The transactions contemplated by this
Agreement will not result in any payments to any current or former officer,
employee or director of the Company or its Subsidiaries which will be subject to
Section 280G of the Code.
(j) The term "ERISA Affiliate" shall include any organization whose
employees are treated as "Company's" employees under Code Section 41.4(b), (c),
(m) or (o).
Section 3.16 Labor Matters. To the Knowledge of the Company or Seller, no
-------------
executive employee and no group of employees or independent contractors of the
Company or any of its Subsidiaries has any plans to terminate his, her or its
employment or relationship as an independent contractor with the Company or any
of its Subsidiaries. The Company and each of its Subsidiaries have materially
complied and remain in material compliance with all applicable laws relating to
the employment of personnel and labor, including, without limitation, employment
practices, employment discrimination or retaliation, terms and conditions of
employment, wages and hours, occupational safety and health, wrongful discharge
and liable or slander arising out of an employment relationship. Neither the
Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement, nor has such party experienced, and there are not
currently in progress, any strikes, grievances, unfair labor practices claims,
"Concerted Action" or other material employee or labor disputes. Neither the
Company nor any of its Subsidiaries has engaged in any unfair labor or unlawful
employment practice. Neither the Company nor Seller has Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union or association with respect to employees of the Company or any of
its Subsidiaries. Neither the Company nor any of its Subsidiaries has
implemented any plant closing or mass layoff of employees as those terms are
defined in the Worker Adjustment Retraining and Notification Act of 1988, as
amended ("WARN"), or any similar state or local law or regulation, and no
layoffs that could implicate such laws or regulations will have been implemented
before Closing without advance notification to Buyer. No claims or proceeding is
pending against the Company or any Subsidiary with the Office of Federal
Contract Compliance Programs. The Company has provided Buyer with a true,
correct and complete list of all of the Company's employees indicating the rate
of pay of each such employee during the twelve months preceding the date hereof
and the status of each such employee as active, on leave, full-time, part-time
or otherwise.
Section 3.17 Taxes.
------
(a) Seller or the Company (i) has timely filed or caused to be filed on a
timely basis with the appropriate taxing authorities all Tax Returns (as
hereinafter defined), or extensions for filing such Tax Returns required to be
filed by or with respect to the Company or its Subsidiaries, and (ii) has paid
or made adequate provision for the payment of all Taxes (as hereinafter defined)
shown to be due on such Tax Returns. Such Tax Returns are true, correct and
complete in all material respects. No claim has ever been made by an
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authority in a jurisdiction where any of the Company and its Subsidiaries does
not file Tax Returns, that the Company or any of its Subsidiaries is or may be
subject to taxation by that jurisdiction.
(b) (i) There are no liens for Taxes with respect to the assets of the
Company or its Subsidiaries, except for statutory liens for current taxes not
yet delinquent, and no claims with respect to Taxes are being asserted by any
taxing authority in writing; (ii) none of the Tax Returns applicable to the
Company or its Subsidiaries is currently being audited or examined by any taxing
authority; (iii) there is no material unpaid tax deficiency, determination or
assessment currently outstanding against the Company or its Subsidiaries; and
(iv) there are no outstanding agreements or waivers extending the statute of
limitations relating to the assessment of Taxes applicable to the Company or its
Subsidiaries.
(c) Each of the Company and its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
(d) None of the Company and its Subsidiaries has filed a consent under
Section 341(f) of the Code concerning collapsible corporations. None of the
Company and its Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances, could
obligate it to make any payments that will not be deductible under Section 280G
of the Code. None of the Company and its Subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) during
the applicable periods specified in Section 897(c)(2)(A)(ii) of the Code. None
of the Company and its Subsidiaries is a party to any Tax allocation or sharing
agreement (other than the agreement, if any, to be terminated at Closing
pursuant to Section 5.9(e) of this Agreement). None of the Company and its
Subsidiaries has been a member of an affiliated group filing a consolidated
federal income Tax Return (other than the Seller Group (as hereinafter
defined)). Seller represents that it filed a consolidated federal income tax
return with Company and its Subsidiaries for the taxable year immediately
preceding the current taxable year and that Seller is eligible to make an
election under Section 338(h)(10) of the Code (and any comparable election under
state, local or foreign tax law) with respect to Company and its Subsidiaries.
(e) Each member of the Seller Group has filed all Tax Returns that it was
required to file for each taxable period during which any of the Company and its
Subsidiaries was a member of the group, and has paid all Taxes shown thereon as
owing.
(f) None of the Company and its Subsidiaries has any liability for the
Taxes of any Person other than the Company and its Subsidiaries under Section
1.1502-6 of the Treasury Regulations (or any similar provision of state, local
or foreign law).
(g) As used in this Agreement:
(i) "Taxes" shall mean all taxes, levies, charges or fees including
income, corporation, advance corporation, gross receipts, transfer, excise,
property, sales, use, value-added, license, payroll, pay-as-you-earn,
withholding, social security and franchise or other governmental taxes or
charges, imposed by the United
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States or any state, county, local or foreign government, and such term shall
include any interest, penalties or additions to tax attributable to such
taxes.
(ii) "Tax Return" shall mean any report, return or statement required
to be supplied to a taxing authority in connection with Taxes.
Section 3.18 Regulatory Approvals. Except as disclosed in the Seller
--------------------
Disclosure Letter, and to the Knowledge of the Company, the Company and each
Subsidiary holds all material licenses and other regulatory approvals required
or necessary to be applied for or obtained in connection with its business as
presently conducted or as proposed to be conducted. All such licenses and other
regulatory approvals relating to the business, operations and facilities of the
Company and each Subsidiary are in full force and effect. Any and all past
litigation concerning such licenses and regulatory approvals, and all claims and
causes of action raised therein, has been finally adjudicated. No license or
other regulatory approval has been revoked, conditioned (except as may be
customary) or restricted, and no action (equitable, legal or administrative),
arbitration or other process is pending, or to the Knowledge of the Company,
threatened, which in any way challenges the validity of, or seeks to revoke,
condition or restrict any such license or other regulatory approval.
Section 3.19 Medicare and Medicaid. Neither the Company nor any Subsidiary
---------------------
participates in either the Medicare or Medicaid programs as those programs are
defined in the Medicare Act and the Medicaid Act, respectively, and do not
receive any payments or funds therefrom.
Section 3.20 Environmental Matters. Neither the Company nor any Subsidiary
---------------------
has received any written communication from any governmental entity stating that
the Company or any Subsidiary may be a potentially responsible party under any
Environmental Law (as defined below) with respect to any actual or alleged any
environmental contamination, neither the Company nor any Subsidiary nor, to the
Knowledge of the Company, any governmental entity, is conducting or has
conducted any environmental remediation or environmental investigation that
could reasonably be expected to result in liability for the Company or any
Subsidiary under any Environmental Law, including without limitation with
relation to properties that are not owned or leased by the Company or any
Subsidiary; and neither the Company nor any Subsidiary has received any request
for information under any Environmental Law from any governmental entity with
respect to any actual or alleged environmental contamination. Since January 1,
1995, neither the Company nor any Subsidiary has received any written
communication from any person or entity stating or alleging that the Company or
any Subsidiary may have violated any Environmental Law, or any permit issued
pursuant to any Environmental Law, or that the Company or any Subsidiary has
caused or contributed to any environmental contamination that has caused any
property damage or personal injury under any Environmental Law. The Company has
provided Buyer with copies of (i) any material environmental investigation,
study, audit, test, review and other analysis in the possession of the Company
conducted in relation to the business of the Company or any property or facility
now or previously owned, operated or leased by the Company or any Subsidiary and
(ii) any consent decree, consent order or similar document in force and to which
it or any Subsidiary is a party relating to any property currently owned, leased
or operated by the Company or any Subsidiary. To the Knowledge of the Company
(i)
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no release of any hazardous substance has occurred on any property owned or
leased by the Company or any Subsidiary; (ii) no underground storage tanks or
asbestos containing materials exist on any property owned or leased by the
Company or any Subsidiary; (iii) the Company and each Subsidiary has all permits
and approvals and has filed all notices required to comply with applicable
environmental laws; and (iv) neither the Company nor any Subsidiary has entered
into any consent decree, consent order or other type of agreement with any
person or entity, resulting in any alleged violation of any Environmental Law or
any permit issued pursuant to any Environmental Law or to remediate any
environmental condition pursuant to any Environmental Law. For purposes of this
Section 3.20, "Environmental Law" means all applicable state, federal and local
laws, regulations and rules, including common law, judgment, decrees and orders
relating to pollution, the preservation of the environment, and the release of
hazardous substances, toxic or hazardous waste or petroleum or petroleum
products as those terms we defined by Environmental Laws.
Section 3.21 Insurance. The Seller Disclosure Letter sets forth a complete
---------
and correct list of all insurance policies currently in effect that are owned or
held by the Company (or that are owned or held by Seller or its affiliates for
the benefit of the Company), insuring the products, properties, assets, business
and operations of the Company or its Subsidiaries and its potential liabilities
to third parties, and all general liability policies maintained by the Company.
All such policies are in full force and effect and all premiums due and payable
in respect thereof have been paid. Since the respective dates of such policies,
no notice of cancellation or non-renewal with respect to any such policy has
been received by the Company. The Seller Disclosure Letter sets forth a list of
all pending claims and the status as of the date of this Agreement of all
deductibles with respect to all such policies, and loss runs for the previous
five years, as of the date of this Agreement, with respect to such policies.
Section 3.22 List of Accounts. The Seller Disclosure Letter contains a list
----------------
of all bank and securities accounts, and all safe deposit boxes, maintained by
the Company or any Subsidiary and a listing of the persons authorized to draw
thereon or make withdrawals therefrom or, in the case of safe deposit boxes,
with access thereto.
Section 3.23 Certain Fees. Except for the engagement of Bowles, Hollowell
------------
Conner & Co., neither Seller, Company nor any of their respective Affiliates has
employed any financial advisor or finder or incurred any liability for any
financial advisory or finders' fees in connection with this Agreement or the
transactions contemplated hereby.
Section 3.24 Disclosure. Neither this Agreement, the other Transaction
----------
Documents, nor any of the schedules, attachments or Exhibits hereto or
certificates delivered herewith, contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein, not misleading.
Section 3.25 Closing Date. All of the representations and warranties
------------
contained in this Article III and elsewhere in this Agreement and all
information delivered in any schedule, attachment or Exhibit hereto or in any
writing delivered to Buyer are true and correct in all material respects on the
date of this Agreement and shall be true and correct in all material respects on
the Closing Date, except to the extent that the Company or Seller has advised
Buyer otherwise in writing prior to the Closing.
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<PAGE>
Section 3.26 Disclaimer. Seller's representations and warranties are
----------
subject to and qualified by any relevant fact or facts disclosed in this
Agreement or the Seller Disclosure Letter. Disclosures made in the Seller
Disclosure Letter shall be deemed to be disclosures made by Seller for all
purposes with respect to this Agreement. The inclusion by Seller in the Seller
Disclosure Letter of items that may not be needed or required to be given so as
to make a representation or warranty true, correct or not misleading shall not
be construed as an indication that all items of similar scope and degree are
required or have been included in every other disclosure and shall be deemed to
be included for the sole purpose of providing additional information to the
Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
Section 4.1 Organization and Authority of Buyer. Buyer is a corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Buyer has heretofore delivered to Seller complete and correct
copies of Buyer's incorporation documents and by-laws, as currently in effect.
Buyer has the corporate power and authority to execute and deliver this
Agreement and perform its obligations hereunder. The execution and delivery of
this Agreement and the performance by Buyer of its covenants and agreements
hereunder have been duly and validly authorized by the Board of Directors of
Buyer and no other corporate proceedings on the part of Buyer are necessary to
authorize the execution, delivery and performance of this Agreement or the
consummation of the transactions so contemplated. This Agreement has been duly
executed and delivered by Buyer and constitutes a valid and binding agreement of
Buyer, enforceable against Buyer in accordance with its terms, except that (i)
such enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in effect,
relating to or limiting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 4.2 Consents and Approvals; No Violations. Except for applicable
-------------------------------------
requirements of the HSR Act, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the incorporation
documents or by-laws of Buyer; (b) require any filing with, or the obtaining of
any permit, authorization, consent or approval of, any governmental or
regulatory authority; (c) violate, conflict with or result in a default (or any
event which, with notice or lapse of time or both, would constitute a default)
under, or give rise to any right of termination, cancellation or acceleration
under, any of the terms, conditions or provisions of any note, mortgage, other
evidence of indebtedness, guarantee, license, agreement, lease or other
contract, instrument or obligation to which Buyer is a party or by which Buyer
or any of its assets may be bound; or (d) violate any order, injunction, decree,
statute, rule or regulation applicable to Buyer, excluding from the foregoing
clauses (b), (c) and (d) such requirements, violations, conflicts, defaults or
rights (i) which would not adversely affect the ability of Buyer to consummate
the transactions contemplated by this
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<PAGE>
Agreement or (ii) which become applicable as a result of any acts or omissions
by, or the status of or any facts pertaining to, the Company or Seller.
Section 4.3 Availability of Funds. As of the date hereof, Buyer has a net
---------------------
worth, calculated in accordance with generally accepted accounting principles
and assuming that Buyer's redeemable common stock is properly classified as
equity, of at least Ten Million and No/100 Dollars ($10,000,000.00). Buyer has
obtained commitment letters attached as Exhibit "B" and "C" from (i) NationsBank
of Tennessee, N.A. committing it to lend to Buyer an aggregate of up to $52
million and (ii) Ferrer Freeman Thompson & Co. committing it to purchase up to
$20 million of Convertible Bridge Notes from the Company (collectively, the
"Commitment Letters") both in connection with the transactions contemplated by
this Agreement and in each case subject to the terms and conditions set forth
therein (the financing contemplated by such letters being hereinafter referred
to as the "Financing").
Section 4.4 Litigation. There is no claim, action, suit, proceeding or
----------
governmental investigation pending or, to the Knowledge of Buyer (as hereinafter
defined), threatened against Buyer, by or before any court, governmental or
regulatory authority or by any third party which challenges the validity of this
Agreement or which would be reasonably likely to adversely affect or restrict
Buyer's ability to consummate the transactions contemplated hereby.
Section 4.5 Certain Fees. Except for the engagement of SunTrust Equitable
------------
Securities, neither Buyer nor any of its Affiliates has employed any financial
advisor or finder or incurred any liability for any financial advisory or
finders' fees in connection with this Agreement or the transactions contemplated
herein.
Section 4.6 Investment Representations. Buyer is acquiring the Shares
--------------------------
solely for the purpose of investment and not with a view to, or for offer or
sale in connection with, any distribution thereof. Buyer represents that it is
an "accredited investor" as defined in Rule 501 promulgated pursuant to the
Securities Exchange Act of 1934, as amended.
Section 4.7 Investigation by Buyer. Buyer has conducted its own independent
----------------------
review and analysis of the business, operations, technology, assets,
liabilities, results of operations, financial condition and prospects of the
Company and its Subsidiaries and acknowledges that Seller has provided Buyer
with access to the personnel, properties, premises and records of the Company
and its Subsidiaries for this purpose. In entering into this Agreement, Buyer
has relied solely upon its own investigation and analysis and the express
representations and warranties of Seller contained herein.
ARTICLE V
COVENANTS
---------
Section 5.1 Conduct of the Company's Businesses. Seller agrees that, during
-----------------------------------
the period from the date of this Agreement to the Closing, except as otherwise
contemplated by this Agreement, the Seller Disclosure Letter or consented to by
Buyer in writing:
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(a) Seller shall cause the Company to carry on its businesses in the
ordinary course in substantially the same manner as previously conducted and not
to engage in any new line of business or to enter into any agreement,
transaction or activity or to make any commitment except those in the ordinary
course of business and not otherwise prohibited under this Section 5.l;
(b) Seller shall not permit the Company or any Subsidiary to change or
amend its Certificate of Incorporation or Bylaws, as the case may be;
(c) Seller shall not permit the Company or any Subsidiary to issue, sell or
grant options, warrants or rights to purchase or subscribe to, or enter into any
arrangement or contact with respect to the issuance or sale of any of its
capital stock or rights or obligations convertible into or exchangeable for any
shares of its capital stock and not to make any changes (by split-up, stock
dividend, combination, reorganization or otherwise) in its capital structure;
(d) Seller shall not permit the Company to declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock or
other equity securities except as otherwise provided in Section 2.4 hereof, and
not to redeem, purchase or otherwise acquire any shares of its capital stock or
other securities or rights or obligations convertible into or exchangeable for
any shares of capital stock or other securities or obligations convertible into
such, or any options, warrants or other rights to purchase or subscribe to any
of the foregoing;
(e) Seller shall not permit the Company or any Subsidiary to acquire or to
enter into an agreement to acquire, by merger, consolidation or purchase of
stock or assets, any business or entity;
(f) Seller shall cause the Company and each Subsidiary to preserve intact
its corporate existence, goodwill and business organization, to keep its
officers and employees available to the Buyer and to preserve its relationships
with its customers, suppliers and others having business relations with it;
(g) Seller shall not permit the Company or any Subsidiary to (i) create,
incur or assume any short-term debt for borrowed money, except in the ordinary
course of business, (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other person, except in the ordinary course of business, (iii) make any
loans or advances to any other person, except in the ordinary course of
business, (iv) make any material capital contributions to, or material
investments in, any person, except in the ordinary course of business; or (v)
make any capital expenditure that would cause all capital expenditures since the
Balance Sheet Date, to exceed $l00,000;
(h) Seller shall not permit the Company or any Subsidiary to enter into,
modify or extend in any manner the terms of any employment, severance or similar
agreements with officers and directors or grant any increase in the compensation
of officers, directors, or employees, whether now or in the future payable,
including any increase pursuant to any option, bonus, stock purchase, pension,
profit-sharing, deferred compensation,
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retirement or other plan, arrangement, contact or commitment, other than raises
or bonuses granted in the ordinary course of business or pursuant to written
agreements in existence on the date of this Agreement;
(i) Seller shall cause the Company and each Subsidiary to perform in all
material respects all of their respective obligations under all customer
contracts (except those being contested in good faith), and not to amend (except
for amendments that may be effected without the consent of a customer) any
existing contract in a way that would result in the loss to it of material
benefit thereunder;
(j) Seller shall cause the Company and each Subsidiary to maintain in full
force and effect and in the same amounts policies of insurance comparable in
amount and scope of coverage to that it now maintains;
(k) Seller shall cause the Company and each Subsidiary to use its
reasonable efforts to continue to collect its accounts receivable and to pay its
accounts payable in the ordinary course of business and consistent with past
practices; and
(l) Seller shall cause the Company and each Subsidiary to prepare and file
all federal, state, local and foreign Tax Returns and other tax reports, filings
and amendments thereto required to be filed by it, and allow Buyer, at its
request, to review all such Tax Returns at the Company's offices prior to the
filing thereof, which review shall not interfere with the timely filing of such
returns; provide prompt notice to the Buyer of the assertion of any deficiency
or other claims for taxes by the Internal Revenue Service or any other taxing
authority after the date of this Agreement and allow the Buyer, at its request,
to participate in the settlement of any such deficiency or claim and refrain
from entering into any agreement or waiver extending the statutory period of
limitation applicable to any Tax Return of the Company or any Subsidiary for any
period without the Buyer's prior written consent, which shall not be
unreasonably withheld.
(m) In connection with the continued operation of the business of the
Company and the Subsidiaries between the date of this Agreement and the Closing,
the Company shall confer in good faith on a regular and frequent basis with one
or more representatives of the Buyer to report operational matters of
materiality and the general status of ongoing operations. The Company
acknowledges that the Buyer does not, and will not, waive any rights it may have
under this Agreement as a result of such consultations.
Section 5.2 Access to Information.
----------------------
(a) Between the date of this Agreement and the Closing, Seller shall (i)
give Buyer and its authorized representatives reasonable access to all books,
records contracts, accounts, personnel records, communications with regulatory
authorities and all other documents of the Company and its Subsidiaries which
are relevant to the business operations of the Company and its Subsidiaries, and
to all personnel of the Company and its Subsidiaries; and (ii) permit Buyer to
make inspections thereof as Buyer may request; provided however, that any such
investigation shall be conducted at the location(s) and on the terms specified
by the Company or Seller during normal business hours under the supervision of
Seller's personnel and in such a manner as to maintain the confidentiality of
this Agreement
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<PAGE>
and the transactions contemplated hereby and not interfere unreasonably with the
business operations of Seller and the Company.
(b) All information concerning Seller, the Company, or the Subsidiaries
furnished or provided by Seller or its Affiliates to Buyer or its
representatives (whether furnished before or after the date of this Agreement)
shall be held subject to the Confidentiality Agreement by and between Seller and
Buyer, dated as of September 4, 1998 (the "Confidentiality Agreement").
Notwithstanding anything to the contrary contained in this Agreement, (i)
neither Seller nor any Affiliate of Seller shall have any obligation to make
available or provide to Buyer or its representatives a copy of any information
applicable to Seller or any of its Affiliates which is not used in, or relevant
to, the operations of the Company or its Subsidiaries and (ii) following the
public announcement of the execution of this Agreement contemplated by Section
5.5, the Buyer, with the consent of Seller, which consent shall not be
unreasonably withheld, shall be permitted to disclose information regarding the
Company to the public to the extent the Buyer deems such disclosure necessary to
satisfy its disclosure obligations under state and federal securities laws or to
explain to the public its rationale for pursuing an acquisition of the Company.
(c) Buyer shall provide Seller with such documentation as Seller may
reasonably request to confirm to Seller's satisfaction the accuracy of the
representations made by Buyer in Section 4.3 and Buyer shall permit Seller to
conduct a reasonable due diligence investigation concerning the financial
capability, resources, condition and creditworthiness of Buyer.
(d) Nothing contained in this Section 5.2 shall be deemed to create any
duty or responsibility on the part of either party to investigate or evaluate
the value, validity or enforceability of any contract, lease or other asset
included in the assets of the other party. With respect to matters as to which
any party has made express representations or warranties herein, the parties
shall be entitled to rely upon such express representations and warranties
irrespective of any investigations made by such parties, except to the extent
that such investigations result in actual knowledge of the inaccuracy or
falsehood of particular representations and warranties.
Section 5.3 Consents.
---------
(a) Seller and Buyer shall cooperate, and use their reasonable best
efforts, to make all filings (including without limitation all filings required
under the HSR Act) and obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and other
third parties necessary to consummate the transactions contemplated by this
Agreement. In addition to the foregoing, Buyer agrees to provide such assurances
as to financial capability, resources and creditworthiness as may be reasonably
requested by any third party whose consent or approval is sought in connection
with the transactions contemplated hereby.
(b) With respect to any agreements for which any required consent or
approval is not obtained prior to the Closing, Seller and Buyer shall each use
their commercially reasonable best efforts to obtain any such consent or
approval after the Closing Date until such consent or approval has been
obtained.
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Section 5.4 Reasonable Best Efforts. Seller and Buyer shall cooperate,
------------------------
and use their commercially reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement.
Section 5.5 Public Announcements. The Seller and the Buyer will
--------------------
consult with each other before issuing any press release or otherwise making any
public statement with respect to the transactions contemplated by this
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation except as may be required by applicable law
or requirements of the New York Stock Exchange or the Nasdaq Stock Market, as
the case may be. The parties shall issue a joint press release, mutually
acceptable to the Seller and the Buyer, promptly upon execution and delivery of
this Agreement.
Section 5.6 HSR Act Compliance. As soon as practicable after the date
-------------------
hereof, Buyer will, and Seller will cause the ultimate parent entities of Seller
to, make such filings as may be required by the HSR Act with respect to the
consummation of the transactions contemplated by this Agreement. Thereafter,
Buyer will, and Seller will cause the ultimate parent entities of Seller to,
each file or cause to be filed as promptly as practicable with the United States
Federal Trade Commission and the United States Department of Justice any
supplemental information which may be requested pursuant to the HSR Act. All
such filings will comply in all material respects with the requirements of the
respective laws pursuant to which they are filed. Seller agrees that Buyer shall
control the HSR filings and the process for obtaining HSR clearance. The Buyer
agrees to consult with Seller and to keep Seller fully informed with respect to
the HSR process.
Section 5.7 Covenant to Satisfy Conditions. Seller will use its
------------------------------
commercially reasonable best efforts to ensure that the conditions set forth in
Article VI hereof are satisfied, insofar as such matters are within the control
of Seller, and Buyer will use its commercially reasonable best efforts to ensure
that the conditions set forth in Article VI hereof are satisfied, insofar as
such matters are within the control of Buyer. Seller and Buyer further covenant
and agree, with respect to a threatened or pending preliminary or permanent
injunction or other order, decree or ruling or statute, rule, regulation or
executive order that would adversely affect the ability of the parties hereto to
consummate the transactions contemplated hereby, to use all commercially
reasonable efforts to prevent or halt the entry, enactment or promulgation
thereof, as the case may be. None of Seller, the Company or Buyer shall
knowingly or intentionally take any action, or omit to take any action, if such
action or omission would, or reasonably might be expected to, result in any of
its representations and warranties set forth herein being or becoming untrue in
any material respect, or in any of the conditions to the consummation of the
transactions contemplated by this Agreement not being satisfied, or (unless such
action is required by applicable law) which would materially adversely affect
the ability of Seller, the Company or Buyer to obtain any consents or approvals
required for the consummation of the transactions contemplated by this Agreement
without imposition of a condition or restriction which would have a Material
Adverse Effect on the Company or any of its Subsidiaries or which would
otherwise materially impair the ability of Buyer or Seller to consummate the
transactions consummated by this Agreement in accordance with the terms of this
Agreement or materially delay such consummation.
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<PAGE>
Section 5.8 Employees; Employee Benefits.
----------------------------
(a) For the three-month period following the Closing, Seller
shall maintain coverage under its group medical plan, group dental plan, group
life and accidental death and dismemberment insurance plan, and short-term and
long-term disability plan for each employee of the Company. Buyer shall
reimburse Seller for the direct cost to Seller of providing such insurance
coverage to the Company's employees.
(b) With respect to any sales retention or "stay" bonuses
payable to employees of the Company in accordance with the employee benefit
arrangements described in Schedule 3.15 of the Seller Disclosure Letter, Seller
shall either pay such bonuses on or before the Closing Date or shall cause the
Company prior to the Closing to show on its Financial Statements and the
Preliminary Closing Balance Sheet, a liability equal to the amount of such
bonuses and all employment taxes thereon.
(c) Prior to the Closing the Buyer shall provide to Seller a
list of those employees of the Company whose employment Buyer intends to
terminate after the Closing (the "Identified Employees") and Seller shall cause
the Company prior to the Closing to show on its Financial Statements and the
Preliminary Closing Balance Sheet, a liability equal to the amount that the
Identified Employees would be eligible to receive under Company's severance pay
plan and any pay-in-lieu-of-vacation arrangement offered by the Company and all
employment taxes thereon computed as if the Company had terminated such
employees' employment at Closing. As to such Identified Employees, Seller shall
have the sole option to determine if the Identified Employees shall continue to
be employed by Seller or its Affiliates or be transferred to other divisions or
facilities of the Seller or its Affiliates. Buyer shall use its commercially
reasonable best efforts to retain as many of the Company employees as is
feasible. Buyer shall treat all service completed by an employee with the
Company or any Affiliate thereof, and any predecessor thereto, the same as
service completed with Buyer for all purposes, including waiting periods
relating to preexisting conditions under medical plans, vacations, severance
pay, eligibility to participate in, vesting or payment of benefits under, and
eligibility for early retirement or any subsidized benefit provided for under,
any employee benefit plan (including, but not limited to, any "employee benefit
plan" as defined in Section 3(3) of ERISA) maintained by Buyer on or after the
Closing Date, except for purposes of computing benefits under the actual benefit
formula in a defined benefit plan (as defined in Section 3(35) of ERISA). Prior
to the Closing, Seller shall furnish Buyer with a list of the length of service
with the Company or its Affiliates, or any predecessor thereof, for each of the
Employees. For purposes of computing deductible amounts (or like adjustments or
limitations on coverage) under any employee welfare benefit plan (including,
without limitation, any "employee welfare benefit plan" as defined in Section
3(1) of ERISA), expenses and claims previously recognized for similar purposes
under the applicable welfare benefit plan of the Company or any Affiliate shall
be credited or recognized under the comparable plan maintained after the Closing
Date by Buyer. Notwithstanding anything to the contrary set forth in this
Agreement, the Buyer shall not be required to permit the employees of the
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<PAGE>
Company to participate in the Buyer's 401(k) plan prior to the first day of the
first calendar quarter commencing after the Closing Date.
(d) Buyer shall for a period of six months following the
Closing Date, operate the Company in compliance with the Worker Adjustment
Retraining and Notification Act, 29 U.S.C. (S) 2101 et seq. (the "WARN Act")
and any other applicable similar state or local law concerning plant closings.
In the event Buyer's actions should trigger any notice requirement under the
WARN Act or any other applicable similar state or local law concerning plant
closings during the 90 days following the Closing Date, Buyer shall be solely
responsible for providing appropriate notice under such plant closing law. Buyer
shall indemnify Seller for any claims, losses, damages, costs or expenses
arising out of the Buyer's failure to provide proper notice pursuant to the WARN
Act or other law regarding plant closings or otherwise comply with the WARN Act
or such other laws regarding plant closings.
Section 5.9 Certain Tax Matters.
--------------------
(a) Certain Definitions. As used in this Agreement:
-------------------
(i) "Buyer Tax Group" means the affiliated group,
within the meaning of Section 1504(a) of the Code, of which Buyer is the
common parent.
(ii) "Independent Accountants" means KPMG Peat Marwick.
(iii) "Pre-Closing Period" means any taxable period
which ends on or before the Closing Date.
(iv) "Section 338(h)(10) Election" means the election to
be made by Buyer and Seller pursuant to Sections 338(g) and 338(h)(10) of
the Code as described in Section 5.9(b) hereof.
(v) "Seller Group" means the affiliated group, within
the meaning of Section 1504(a) of the Code, of which MedPartners, Inc. is
the common parent.
(b) Section 338(h)(l0) Election. Seller will cause the Seller
---------------------------
Group to join with Buyer in making the Section 338(h)(10) Election to treat the
transactions hereunder as the deemed sale of the assets of the Company and of
its Subsidiaries for federal and, where applicable, state income tax purposes.
Buyer and Seller shall cooperate fully with each other in the making of such
election. In particular, and not by way of limitation, in order to effect such
election, on or prior to the Closing Date, Buyer and Seller shall jointly
execute necessary copies of Internal Revenue Service Form 8023 and all
attachments required to be filed therewith pursuant to applicable Treasury
Regulations. Such Form shall be filed with the Internal Revenue Service on or
before the 15th day of the 9th month after the month of the Closing Date.
(c) Return Filing; Refunds; Credits; Transfer Taxes.
------------------------------------------------
(i) Seller shall prepare, or cause to be prepared, and
file, or cause to be filed, on a timely basis the Tax Returns of or
including the Company and its
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<PAGE>
Subsidiaries for all Pre-Closing Periods (the "Pre-Closing Period Returns")
and shall cause the income of the Company and its Subsidiaries to be
included in the consolidated federal income tax returns of the Seller Group
for all Pre-Closing Periods. Seller shall pay, or cause to be paid, all
Taxes with respect to the Company and its Subsidiaries shown to be due on
the Pre-Closing Period Returns, including any Taxes attributable to the
deemed assets sale resulting from the Section 338(h)(10) Election. Seller
will take no position on such returns that relate to the Company and its
Subsidiaries that would adversely affect the Company and its Subsidiaries
after the Closing Date. The income of the Company and its Subsidiaries will
be apportioned to the period up to and including the Closing Date and the
period after the Closing Date by closing the books of the Company and its
Subsidiaries as of the end of the Closing Date.
(ii) Buyer shall prepare, or cause to be prepared, and
shall file, or cause to be filed, on a timely basis all Tax Returns with
respect to the Company and its subsidiaries for periods ending after the
Closing. Buyer shall pay, or cause to be paid, all Taxes shown to be due on
such Tax Returns. Buyer shall prepare, or cause to be prepared, and shall
file, or cause to be filed, on a timely basis the Tax Return for the
taxable period ending on the Closing Date with respect to EMSA, L.P., which
will be deemed to terminate as of the Closing Date under Section 708(b) of
the Code. Buyer shall also be responsible for filing with such Tax Return
any elections under Section 754 of the Code with respect to EMSA, L.P.
(iii) Seller and Buyer shall reasonably cooperate, and
shall cause their respective Affiliates, officers, employees, agents,
auditors and representatives reasonably to cooperate, in preparing and
filing all Tax Returns (including amended returns and claims for refund),
including maintaining and making available to each other all records
necessary in connection with Taxes and in resolving all disputes and audits
with respect to all taxable periods relating to Taxes. Buyer and Seller
recognize that Seller and the Seller Group will need access, from time to
time after the Closing Date, to certain accounting and tax records and
information held by the Company to the extent such records and information
pertain to events occurring prior to the Closing Date; therefore, Buyer
agrees that from and after the Closing Date Buyer shall, and shall cause
the Company to, (a) retain and maintain such records until such time as
Seller reasonably determines that such retention and maintenance is no
longer necessary, and (b) allow Seller and its agents and representatives
(and agents and representatives of its Affiliates including the Seller
Group) to inspect, review and make copies of such records as Seller or the
Seller Group may reasonably deem necessary or appropriate from time to
time. Buyer shall indemnify Seller and the Seller Group from and against
any penalties, additions to tax or interest imposed on Seller or the Seller
Group as a result of any failure of Buyer to provide tax records or other
information to Seller or Seller Group in a reasonably timely manner.
(iv) Buyer shall not, and shall cause the Company not
to, dispose of or destroy any of the business records and files of the
Company relating to Taxes in existence on the Closing Date without first
offering to turn over possession thereof to Seller by written notice to
Seller at least thirty days prior to the proposed date of such disposition
or destruction.
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<PAGE>
(v) Any refunds and credits of Taxes of the Company or
similar benefit (including any interest or similar benefit) received from
or credited thereon by the applicable tax authority with respect to (a) any
Pre-Closing Period, or (b) Taxes for which the Seller has indemnified the
Buyer under the Agreement, shall be for the account of Seller and the
Seller Group, and if received or utilized by Buyer or the Company shall be
paid to Seller within five business days after Buyer or the Company
receives such refund or utilizes such credit.
(vi) Notwithstanding any other provisions of this
Agreement to the contrary, all sales, use, transfer, gains, stamp, duties,
recording and similar Taxes incurred in connection with the transactions
contemplated by this Agreement shall be paid by Buyer and Buyer shall, at
its own expense, accurately file or cause to be filed all necessary Tax
Returns and other documentation with respect to such Taxes and timely pay
all such Taxes. If required by applicable law, Seller will join in the
execution of any such Tax Returns or such other documentation.
(d) Elections. Buyer shall not, and shall cause the Company
---------
not to, make, amend or revoke any Tax election if such action would adversely
affect the Seller or any Person (other than the Company) as to whom or with whom
Seller has filed a consolidated return with respect to any taxable Pre-Closing
Period.
(e) Tax Sharing Agreements. Any Tax sharing agreement between
----------------------
any member of the Seller Group and any of the Company and its Subsidiaries is
terminated as of the Closing Date and will have no further effect for any
taxable year (whether the current year, future year or a past year).
Section 5.10 Supplemental Disclosure. Seller shall from time to time
-----------------------
prior to the Closing supplement or amend the Seller Disclosure Letter with
respect to any matter required to be set forth or described in such Seller
Disclosure Letter; provided that if the matter giving rise to such supplement or
amendment to the Seller Disclosure Letter (a) has a Material Adverse Effect or
materially alters Buyer's ability to manage and run the business of the Company
and the Subsidiaries in the manner in which such business was managed and run as
of the date hereof, Buyer shall have the right within five (5) days of receipt
by Buyer of such supplement or amendment to the Seller Disclosure Letter, to
terminate the Agreement pursuant to Section 7.1(d) hereof by written notice to
Seller. In the event that Seller supplements or amends the Seller Disclosure
Letter, Seller agrees to identify with specificity any revisions to the Seller
Disclosure Letter contained in such amendments or supplements and the matters
set forth in this Agreement to which they relate. The delivery of any supplement
or amendment to the Seller Disclosure Letter pursuant to this Section shall not
in any manner constitute a waiver by Buyer of any of the conditions contained in
Article VI below; provided, however, that the disclosure by Seller in any such
-------- -------
supplement or amendment of any matter shall not form the basis of a claim
against the Seller for misrepresentation or breach of a representation,
warranty, covenant or agreement. Seller shall, on or before January 8, 1991, use
its commercially reasonable best efforts to provide to Buyer (i) a schedule
setting forth all political contributions in excess of $100 made by the Company
or any of the Subsidiaries during the two calendar years ended on December 31,
1998; (ii) a schedule of all "shrink-wrapped" software used by the Company or
any of the Subsidiaries and the number of all licensed users of each item of
software; (iii) a reasonably complete inventory of all data
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<PAGE>
processing equipment and photocopiers owned by the Company or any Subsidiary and
the location of each item; and (iv) a true and correct copy of the master
contract entered into by Seller's Affiliate for the disposal of environmental
waste.
Section 5.11 No Solicitation. Buyer and the Company acknowledge and
---------------
agree (i) that they are parties to that certain Non-Compete, Non-Solicitation
and Standstill Agreement dated as of February 25, 1998 (the "Non-Compete
Agreement") and (ii) if this Agreement is terminated pursuant to Article VII,
they will remain bound by the terms of the Non-Compete Agreement until the
expiration or earlier termination thereof.
Section 5.12 Medical Malpractice and Professional Liability Matters.
-------------------------------------------------------
Seller and Buyer agree that, on or prior to the Closing Date, Seller shall
acquire for the benefit of Buyer insurance covering Medical Malpractice Claims
(as hereinafter defined) and other claims for conditions, claims, or actions
which arise out of or relate to events that occurred in connection with the
operations of the Company on or prior to Closing on an occurrence, first dollar
basis (the "Medical Malpractice/Professional Liability Coverage"). As used
herein, "Medical Malpractice Claim" shall mean any claim for medical malpractice
arising in connection with the operation of the business of the Company prior to
the Closing for which the Company or Seller may be liable pursuant to law or the
terms of any contract between the Company and/or Seller and any third party.
Section 5.13 Transition Services Agreement. Seller and Buyer shall
-----------------------------
enter into a Transition Services Agreement in a form reasonably satisfactory to
Seller and Buyer (the "Transition Services Agreement") concerning certain
transition services to be provided by Seller to the Company and by the Company
to Seller following the Closing. The Transition Services Agreement shall be for
a term mutually agreeable to Buyer and Seller and its Affiliates, not to exceed
one hundred eighty (180) days, and shall provide for reimbursement to Seller and
its Affiliates of the actual cost of providing transition services, with no
mark-up.
Section 5.14 No Shop. From the date of this Agreement until the
-------
earlier of (i) the Closing Date, or (ii) the termination of this Agreement,
Seller shall not, and shall cause the Company and officers, directors,
employees, affiliates and other agents not to, directly or indirectly, take any
action to solicit, initiate or encourage any offer or proposal or indication of
interest in a sale, merger, consolidation or other business combination
involving any equity interest in, or a substantial portion of the assets of the
Company (an "Acquisition Proposal"), other than in connection with the
transactions contemplated by this Agreement. Seller shall immediately advise
Buyer of the terms of any Acquisition Proposal that it or the Company receives
or of which it otherwise becomes aware after the date of this Agreement.
Section 5.15 Visits to Clients. Between the date of this Agreement and
-----------------
the Closing Date, and subject to such reasonable limitations as Seller shall
deem necessary, Seller shall permit Buyer to discuss and meet, and shall
cooperate in such discussions and meetings, with any client of the Company that
the Buyer so requests. Marta Prado, or such other officer of the Company as
shall be acceptable to Buyer, shall participate in such discussions.
Section 5.16 Audited Financial Statements. Seller shall use
----------------------------
commercially reasonable efforts to deliver to Buyer no later than March 1, 1999,
audited financial statements for the three years of operations of the Company
and its Subsidiaries ended on December 31,
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<PAGE>
1998 (audited balance sheets being required only for the two years then ended).
The Buyer shall pay or reimburse the Seller for the fees and expenses of the
accounting firm that Seller engages to prepare such audited financial statements
and Seller agrees to commence the preparation of such audited financial
statements promptly following the execution of this Agreement. Seller shall
cause the audit process to begin as soon as is practicable following the
execution of this Agreement.
Section 5.17 Noncompetition, Nonsolicitation and Confidentiality.
----------------------------------------------------
In consideration of the payment of the Purchase Price and other mutual
covenants provided for herein to Seller at the Closing, Seller agrees that:
(a) Noncompetition. During the period beginning on the Closing
--------------
Date and ending on the fifth anniversary of the Closing Date (the "Noncompete
Period"), neither Seller nor any of its Affiliates shall directly or indirectly
through any other Person own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage (whether as an owner,
operator, manager, employee, officer, director, consultant, advisor,
representative or otherwise) in any business which provides medical services to
correctional facilities or to military personnel or veterans or otherwise
competes with the businesses of the Company or its Subsidiaries, as such
businesses exist as of the Closing Date, or into which the Company has
demonstrably planned to enter as of the Closing Date (the "Company Activities"),
within the United States or other geographical area in which the Company or its
Subsidiaries engage or demonstrably plan to engage in such businesses as of the
Closing Date (the "Restricted Territory"). Notwithstanding the foregoing, Seller
and its Affiliates may own twenty-five percent (25%) or less of any class of
equity securities of any entity that engages in the Company Activities within
the Restricted Territory. The Parties agree that the covenant set forth in this
Section 5.17 is reasonable with respect to its duration, geographical area and
scope. If the final judgment of a court of competent jurisdiction declares that
any term or provision of this Section 5.17 is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
(b) Nonsolicitation. During the Noncompete Period, neither
---------------
Seller nor any of its Affiliates shall directly or indirectly through another
Person (i) induce or attempt to induce any employee of the Company or any of its
Subsidiaries to leave the employ of the Company or such Subsidiary, or in any
way interfere with the relationship between the Company or any of its
Subsidiaries and any employee thereof, (ii) induce or attempt to induce any
owner of a customer, supplier, licensee, franchisee or other business relation
(a "Business Contact") of the Company or any of its Subsidiaries to cease doing
business with the Company or such Subsidiary or intentionally interfere with the
relationship between any such Business Contact and the Company or any of its
Subsidiaries, or (iii) encourage or provide guidance or advice to any other
person with respect to doing any of the forgoing set forth in clauses (i)-(ii).
(c) Trade Secrets. Seller and its Affiliates shall hold in
-------------
confidence at all times after the date hereof all trade secrets of the Company,
and shall not disclose, publish
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or make use of trade secrets of the Company at any time after the date hereof
without the prior written consent of Buyer. Nothing in this Agreement shall
diminish the rights of the Company or Buyer regarding the protection of trade
secrets of the Company and other intellectual property pursuant to applicable
law.
(d) Confidential Information. During the Noncompete Period,
------------------------
Seller and its Affiliates shall hold in confidence all confidential information
of the Company and will not disclose, publish or make use of confidential
information of the Company without the prior written consent of Buyer.
Notwithstanding the foregoing, nothing herein shall be deemed to create a breach
of the covenants and agreements herein for disclosures made by Seller, its
Affiliates, the Company or its Subsidiaries to third parties pursuant to a
confidentiality agreement during the bid process.
(e) Remedy for Breach. Seller acknowledges and agrees that
-----------------
in the event of a breach by Seller of any of the provisions of this Section
5.17, monetary damages shall not constitute a sufficient remedy. Consequently,
in the event of any such breach, the Company, Buyer and/or their respective
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions hereof, in each case without the
requirement of posting a bond or proving actual damages.
Section 5.18 Good Standing. Seller shall use its commercially
-------------
reasonable best efforts to cause the Company and its Subsidiaries to be in good
standing to do business as of Closing in each jurisdiction in which the Company
or its Subsidiaries conducts business.
Section 5.19 EMSA Limited Partnership. At or before Closing, Seller
------------------------
shall cause all partnership equity interests of EMSA Limited Partnership to be
transferred to Company and EMSA Correctional Care, Inc. and Company shall be the
sole general partner and EMSA Correctional Care, Inc. shall be the sole limited
partner of such limited partnership.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE PARTIES
----------------------------------------
Section 6.1 Conditions to Each Party's Obligation. The respective
-------------------------------------
obligation of each party to consummate the transactions contemplated herein is
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) No statute, rule or regulation shall have been enacted,
promulgated or enforced by any court or governmental authority which prohibits
or restricts the consummation of the transactions contemplated hereby;
(b) There shall not be in effect any judgment, order,
injunction or decree of any court of competent jurisdiction enjoining the
consummation of the transactions contemplated hereby;
(c) There shall not be any suit, action, investigation, inquiry
or other proceeding instituted, pending or threatened by any governmental or
other regulatory or
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administrative agency or commission which seeks to enjoin or otherwise prevent
consummation of the transactions contemplated hereby;
(d) All consents, waivers, approvals and authorizations of (or
filing or registration with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained, in form and substance
acceptable to Seller or Buyer, as the case may be, except where the failure to
obtain such consent, waiver, approval or authorization or filing or registration
with, would not have a Material Adverse Effect.
Section 6.2 Conditions to Obligations of Seller. The obligations of
------------------------------------
Seller to consummate the transactions contemplated hereby are further subject to
the satisfaction (or waiver) at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Buyer contained in
Article IV of this Agreement shall be true and correct in all material respects
on the date hereof and as of the Closing as if made at and as of such time,
except for changes permitted or contemplated hereby and except for
representations and warranties which are as of a specific date; provided,
however, that any such representation or warranty that is already qualified by
reference to materiality shall be true and correct;
(b) Buyer shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior to
the Closing pursuant to the terms hereof; and
(c) Buyer shall have delivered to Seller or its Affiliates
those items set forth in Section 1.5 hereof;
(d) Seller shall have received an opinion, dated as of the
Closing Date, of King & Spalding, counsel to Buyer, which shall be addressed to
Seller, and shall be in form and substance satisfactory to Seller, subject to
customary assumptions and exceptions.
Section 6.3 Conditions to Obligations of Buyer. The obligations of
----------------------------------
Buyer to consummate the transactions contemplated hereby are further subject to
the satisfaction (or waiver) at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Seller contained in
Article III of this Agreement shall be true and correct in all material respects
on the date hereof and as of the Closing as if made at and as of such time,
except for changes permitted or contemplated hereby and except for
representations and warranties which are as of a specific date; provided,
however, that any such representation or warranty that is already qualified by
reference to materiality shall be true and correct;
(b) Seller shall have performed in all material respects
obligations under this Agreement required to be performed by it at or prior to
the Closing pursuant to the terms hereof;
(c) Seller shall have delivered to Buyer those items set forth
in Section 1.4 hereof;
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(d) Buyer shall have received Financing in the amount and on the terms
set forth in the Commitment Letters;
(e) Buyer shall have received an opinion of Foley & Lardner, counsel to
Seller, dated the Closing Date, in form and substance reasonable satisfactory to
Buyer's counsel, with regard to the transactions contemplated by this Agreement,
subject to customary assumptions and exceptions;
(f) The Company shall not have suffered a Material Adverse Effect from
the date hereof to the Closing Date;
(g) MedPartners, Inc. shall have executed that certain Guaranty in the
form of Exhibit D hereto; and
(h) Buyer shall have received a consent, in form and substance
satisfactory to it, from the Commonwealth of Pennsylvania Department of
Corrections with respect to the change of control of EMSA Correctional Care,
Inc. that will occur as a result of the transactions contemplated by this
Agreement; and
(i) Seller shall have taken, or shall have caused an Affiliate to take,
whatever action is necessary to cause employees of the Company who are
participants in the 401(k) Plan of an Affiliate of Seller to terminate their
active participation in such 401(k) Plan, and to cause such 401(k) Plan to
permit a distribution to participants of their vested account balances in
accordance with Section 401(k)(10)(A)(iii) of the Code in connection with the
transactions contemplated by this Agreement (subject to the repayment of any
loans from such plans to any such participants to the extent required to be
repaid under the terms of such 401(k) Plan); and
(j) Seller and the professional corporations that employ physicians,
optometrists, dentists, and other licensed professionals ("Licensed
Professionals") who provide services to Seller or any of it Subsidiaries shall
have terminated all agreements or understandings between themselves with respect
to the provision of medical services to the Seller or any of it Subsidiaries and
any employment agreements between such Licensed Professionals and the
professional corporations shall be assigned to the Company or its Subsidiaries,
as designated by Buyer, effective as of the Closing.
ARTICLE VII
TERMINATION
-----------
Section 7.1 Termination. This Agreement may be terminated and the
------------
transactions contemplated hereby may be abandoned:
(a) at any time, by mutual written consent of Seller and Buyer;
(b) if the transactions contemplated hereby shall have been permanently
enjoined by a court of competent jurisdiction, provided that no party hereto who
brought or is affiliated with the party who brought the action seeking the
permanent injunction of the transactions contemplated hereby may seek
termination of this Agreement pursuant to this Section 7.1(b);
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(c) if the transactions contemplated hereby or any of the conditions to
Closing hereunder become impossible to perform or obtain, provided that no party
hereto who caused or is affiliated with any Person who caused such impossibility
may seek termination of this Agreement pursuant to this Section 7.1(c);
(d) by Buyer, following receipt of any supplement or amendment to the
Seller Disclosure Letter, by written notice to Seller if (i) the matter which
gives rise to such supplement or amendment to the Seller Disclosure Letter
involves any matter which has a Material Adverse Effect or materially alters
Buyer's ability to manage and run the business of the Company and its
Subsidiaries in a manner comparable to the manner in which such business was
managed and run as of the date hereof; and (ii) the notice of termination
pursuant to this Section 7.1(d) is given by Buyer to Seller within five (5) days
of Buyer's receipt of the supplement or amendment to the Seller Disclosure
Letter; or
(e) by Seller or Buyer, at any time on or after February 15, 1999, if
the Closing shall not have occurred on or prior to such date and all regulatory
approvals have been obtained or any waiting periods under the HSR Act have
expired, provided, however, that a party shall not be entitled to terminate this
Agreement pursuant to this Section 7.1(e) if such party's breach of this
Agreement has prevented the consummation of the transactions contemplated hereby
at or prior to such time.
Section 7.2 Procedure and Effect of Termination. In the event of the
------------------------------------
termination of this Agreement and the abandonment of the transactions
contemplated hereby pursuant to Section 7.1 hereof, written notice thereof shall
be given by Seller or Buyer, as the case may be, to the other party, and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without any other action by Seller or Buyer. If this Agreement is
terminated pursuant to Section 7.1 hereof:
(a) each party shall return to the other party all documents, work
papers, summaries, analyses, and other materials (whether in written or
computerized form) made, compiled or obtained by such party in connection with
the transaction contemplated hereby, whether so obtained before or after the
execution hereof, or, upon prior written notice to the other party, shall
destroy all such documents, work papers, summaries, analyses, and other
materials and deliver notice to the parties seeking destruction that such
destruction has been completed. Any confidential information received by any
party hereto with respect to the other party shall be treated in accordance with
the Confidentiality Agreement and Section 5.2(b) hereof, which agreement shall
survive the Closing or earlier termination of this Agreement; and
(b) all filings, applications and other submissions made pursuant to
this Agreement shall, at the option of Seller and to the extent practicable, be
withdrawn from the agency or other Person to which made.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
----------------------------
Section 8.1 Survival.
---------
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<PAGE>
(a) Survival of Representations And Warranties. Each of the
-------------------------------------------
representations and warranties contained herein or in any document delivered in
connection with this Agreement (except as otherwise specifically provided in
such other document) will survive and remain in full force and effect until June
30, 2000 except for (a) the representations and warranties set forth in (i)
Section 3.1 and Section 3.2 (the organization and existence of Seller or the
Company and enforceability of this Agreement against Seller or the Company);
(ii) Section 3.4 (the ownership of the Shares); (iii) Section 3.3 (the
capitalization of the Company); (iv) Section 3.23 (the liability of the Seller
or Company for broker's or other similar fees); and (v) Section 3.15 (employee
benefit matters) which representations and warranties shall survive the Closing
indefinitely and (b) for representations and warranties set forth in Section
3.17 (Taxes) which representations and warranties shall survive until the
expiration of the statute of limitations applicable to Taxes and (c)
representations and warranties relating to Section 3.7(b) (Receivables) and
Section 3.7(c) (Inventory) which representations and warranties shall survive
until the final determination and delivery of the Final Closing Balance Sheet as
set forth in Section 1.2(a). The representations and warranties set forth in
Sections 3.1, 3.2, 3.3, 3.4, 3.15, 3.17 and 3.23 shall be referred to as the
"Excluded Representations."
(b) Survival of Covenants. Unless a specified period is set forth in
----------------------
this Agreement (in which event such specified period will control), all post-
Closing covenants contained in this Agreement will survive the Closing and
remain in effect indefinitely. The covenants contained in this Article VIII will
in all events survive the Closing indefinitely.
Section 8.2 Limitations On Indemnification.
-------------------------------
(a) With Respect To Certain Representations And Warranties. No
-------------------------------------------------------
Indemnitee (as hereinafter defined) will be entitled to make a claim against an
Indemnifying Party (as hereinafter defined) pursuant to Section 8.3(a)(i) or
8.3(b)(i) unless and until the aggregate amount of claims which may be asserted
for Indemnifiable Losses (as hereinafter defined) pursuant to such Sections
exceeds $670,000 and then only to the extent of the excess. Buyer shall be
entitled to make a claim against an Indemnifying Party without regard to the
limitation set forth in the previous sentence to the extent that such claim
relates to the Excluded Representations or a claim asserted with respect to
Section 8.3(a)(iv).
(b) With Respect To Seller's Obligations. Notwithstanding any other
-------------------------------------
provision of this Agreement, the indemnification obligations of Seller under
Section 8.3(a)(i), except with respect to Excluded Representations or a claim
asserted with respect to Section 8.3(a)(iv), will not exceed $6,700,000.00 in
the aggregate.
(c) Exclusive Rights and Obligations. Except as otherwise specifically
---------------------------------
provided in this Agreement, as between Seller or any of its Affiliates, on the
one hand, and Buyer or any of its Affiliates, on the other hand, the
indemnification rights and obligations set forth in this Article VIII will be
the exclusive indemnification rights and obligations with respect to this
Agreement.
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<PAGE>
Section 8.3 Indemnification.
----------------
(a) Indemnification By Seller. Subject to Sections 8.1 and 8.2, Seller
--------------------------
will indemnify, defend and hold harmless Buyer, its Affiliates (which for
purposes of the indemnification referred to in subparagraph (iv) below, shall
include Ferrer Freeman Thompson & Co. and SunTrust Equitable Securities, Inc.
but shall not include NationsBank of Tennessee, N.A.) and their respective
----- ---
directors, officers, employees, agents and representatives from and against any
and all claims, demands or suits (by any person or entity, including without
limitation any governmental agency), losses, liabilities, actual or punitive
damages, fines, penalties, obligations, payments, costs and expenses, paid or
incurred, whether or not relating to, resulting from or arising out of any Third
Party Claim (as hereinafter defined), including without limitation the costs and
expenses of any and all investigations, actions, suits, proceedings, demands,
assessments, judgments, remediation, settlements and compromises relating
thereto and reasonable fees and expenses of attorneys and other experts in
connection therewith (individually and collectively, "Indemnifiable Losses")
relating to, resulting from or arising out of any of the following:
(i) any breach or violation by Seller or the Company as of the Closing
of any of the representations or warranties of Seller or the Company
contained in this Agreement or any document delivered in connection with
this Agreement;
(ii) any breach by Seller or the Company of any covenant of Seller or
the Company contained in this Agreement or in any document delivered in
connection with this Agreement;
(iii) any liability for Taxes payable by the Company on or after the
Closing Date with respect to any taxable period ending on or prior to the
Closing Date (treating any taxable period that begins before and ends after
the Closing Date as if such taxable period consisted of two taxable periods
with the first period ending as of the Closing Date and the second period
beginning on the first day after the Closing Date);
(iv) any liability with respect to any claim asserted against the
Company, Buyer or their respective Affiliates by the Person with which the
Seller conducted negotiations and entered into a definitive agreement
regarding the acquisition of the Company (other than Buyer) arising out of
or resulting from the termination of the definitive agreement between
Seller and such Person; and
(v) any action, suit, claim or proceeding incident to any of the
foregoing or the enforcement of this Section 8.3(a).
(b) Indemnification By Buyer. Subject to Sections 8.1 and 8.2, Buyer
-------------------------
will indemnify, defend and hold harmless Seller, each of its Affiliates and
their respective directors, officers, employees, agents and representatives from
and against any and all Indemnifiable Losses relating to, resulting from or
arising out of any of the following:
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<PAGE>
(i) any breach or violation by Buyer as of the Closing of any of the
representations or warranties of Buyer contained in this Agreement or any
document delivered in connection with this Agreement;
(ii) any breach by Buyer of any covenant of Buyer contained in this
Agreement or in any document delivered in connection with this Agreement;
(iii) any liability for Taxes of the Company with respect to any taxable
period ending after the Closing Date (treating any taxable period that
begins before and ends after the Closing Date as if such period consisted
of two taxable periods with the first period ending as of the Closing Date
and the second period beginning on the first day after the Closing Date);
and
(iv) any action, suit, claim or proceeding incident to any of the
foregoing or the enforcement of this Section 8.3(b).
(c) Cumulative Rights. The rights of Buyer under each of the clauses of
------------------
Section 8.3(a) and the rights of Seller under each of the clauses of Section
8.3(b) are cumulative.
(d) Indemnity Payment: Indemnitee: Indemnifying Party. For purposes of
--------------------------------------------------
this Agreement, (i) "Indemnity Payment" means any amount of Indemnifiable Losses
required to be paid pursuant to this Section 8.3; (ii) "Indemnitee" means any
person or entity entitled to indemnification under this Agreement; and (iii)
"Indemnifying Party" means any person or entity that may be required to provide
indemnification under this Agreement.
Section 8.4 Defense of Claims.
------------------
(a) Third Party Claims. (i) If any Indemnitee receives notice of the
-------------------
assertion of any claim or of the commencement of any action or proceeding by any
entity who is not a party to this Agreement or an Affiliate of such a party (a
"Third Party Claim") against such Indemnitee, against which an Indemnifying
Party is obligated to provide indemnification under this Agreement, the
Indemnitee will give such Indemnifying Party reasonably prompt written notice
thereof, but in any event no later than 15 calendar days after receipt of such
notice of such Third Party Claim. Such notice will describe the Third Party
Claim in reasonable detail, and will indicate the estimated amount, if
reasonably practicable, of the Indemnifiable Loss that has been or may be
sustained by the Indemnitee. The Indemnifying Party will have the right to
participate in or, by giving written notice to the Indemnitee no later than 30
calendar days after receipt of the above-described notice of such Third Party
Claim, to elect to assume the defense of any Third Party Claim at such
Indemnifying Party's own expense and by such Indemnifying Party's own counsel
(reasonably satisfactory to the Indemnitee), and the Indemnitee will cooperate
in good faith in such defense. The Indemnitee will have the right to participate
in the defense of any Third Party Claim assisted by counsel of its own choosing
and at its own expense, provided that, if the named parties to any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnitee or if the Indemnifying Party proposes that the same counsel
represent both the Indemnitee and the Indemnifying Party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them, then the
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Indemnitee shall have the right to retain its own counsel at the cost and
expense of the Indemnifying Party. If the Indemnitee has not received written
notice within such 30 calendar day period that the Indemnifying Party has
elected to assume the defense of such Third Party Claim, the Indemnitee may, at
its option, elect to settle or assume such defense, assisted by counsel of its
own choosing, and the Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Indemnifiable Losses paid or incurred in connection
therewith.
(ii) If, within the 30 calendar days set forth above, an Indemnitee
receives written notice from an Indemnifying Party that such Indemnifying Party,
has elected to assume the defense of any Third Party Claim as provided in
Section 8.4(a)(i), the Indemnifying Party will not be liable for any legal
expenses subsequently incurred by the Indemnitee in connection with the defense
thereof (except as provided in paragraph (a) above); provided, however, that if
the Indemnifying Party fails to take reasonable steps necessary to defend
diligently such Third Party Claim within 30 calendar days after receiving
written notice from the Indemnitee that the Indemnitee believes the Indemnifying
Party has failed to take such steps, the Indemnitee may, at its option, elect to
settle or assume its own defense, assisted by counsel of its own choosing, and
the Indemnifying Party will be liable for all costs, expenses, settlement
amounts or other Indemnifiable Losses paid or incurred in connection therewith.
Without the prior written consent of the Indemnitee, the Indemnifying Party will
not enter into any settlement of any Third Party Claim or cease to defend
against such claim, if pursuant to or as a result of such settlement or
cessation, (i) injunctive or other equitable relief would be imposed against the
Indemnitee or (ii) such settlement or cessation would lead to liability or
create any financial or other obligation on the part of the Indemnitee for which
the Indemnitee is not entitled to indemnification hereunder. The Indemnifying
Party shall not consent to the entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to each Indemnitee of a release from all liability in
respect of such claim. The Indemnifying Party shall not be entitled to control,
and the Indemnitee shall be entitled to have sole control over, the defense or
settlement of any claim to the extent that the claim seeks an order, injunction
or other equitable relief against the Indemnitee which, if successful, could
materially interfere with the business, operations, assets, condition (financial
or otherwise) or prospects of the Indemnitee (and the cost of such defense shall
constitute an amount for which the Indemnitee is entitled to indemnification
hereunder). If a firm offer is made to settle a Third Party Claim, which offer
the Indemnifying Party is permitted to settle under this Section 8.4(a)(ii), and
the Indemnifying Party desires to accept and agree to such offer, the
Indemnifying Party will give written notice to the Indemnitee to that effect. If
the Indemnitee fails to consent to such firm offer within 30 calendar days after
its receipt of such notice, the Indemnitee may continue to contest or defend
such Third Party Claim and, in such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim will not exceed the amount of
such settlement offer, plus costs and expenses paid or incurred by the
Indemnitee through the end of such 30-day period.
(b) Direct Claims. Any claim by an Indemnitee for indemnification other
--------------
than indemnification against a Third Party Claim (a "Direct Claim') will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, and the Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to such Direct Claim. If the Indemnifying
Party does not so respond within such 30 calendar day period, the Indemnifying
Party will be deemed to have rejected such claim, in which event the Indemnitee
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<PAGE>
will be free to pursue such remedies as may be available to the Indemnitee under
this Article VIII.
(c) Failure to Give Timely Notice. A failure to give timely notice as
------------------------------
provided in this Section 8.4 will not affect the rights or obligations of any
party hereunder except and only to the extent that, as a result of such failure,
any party which was entitled to receive such notice was deprived of its right to
recover any payment under its applicable insurance coverage or was otherwise
directly and materially damaged as a result of such failure.
(d) Subrogation. If the amount of any Indemnifiable Loss, at any time
------------
subsequent to the making of an Indemnity Payment, is reduced by recovery,
settlement or otherwise under or pursuant to any insurance coverage, or pursuant
to any claim, recovery, settlement or payment by or against any other entity,
the amount of such reduction, less any costs, expenses or premiums incurred in
connection therewith, will promptly be repaid by the Indemnitee to the
Indemnifying Party. Upon making any Indemnity Payment the Indemnifying Party
will, to the extent of such Indemnity Payment, be subrogated to all rights of
the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnity Payment
relates; provided, however, that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss and (ii) until the Indemnitee recovers full payment of its
Indemnifiable Loss, any and all claims of the Indemnifying Party against any
such third party on account of said Indemnity Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision hereof,
each such indemnitee and Indemnifying Party will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above-described
subrogation and subordination rights.
(e) Payment. With respect to Third Party Claims for which
--------
indemnification is payable hereunder, such indemnification shall be paid by the
Indemnifying Party promptly upon (i) the entry of a judgment against the
Indemnitee and the expiration of any applicable appeal period; (ii) the entry of
any unappealable judgment or final appellate decision against the Indemnitee; or
(iii) the entry of an unappealable judgment or final appellate permitted under
Section 8.4. Notwithstanding the foregoing, provided that there is no dispute as
to whether Indemnitee is entitled to indemnification hereunder, expenses of the
Indemnitee for which the Indemnifying Party is responsible shall be reimbursed
on a current basis by the Indemnifying Party.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Fees and Expenses. Except as set forth in this Section 9.1,
------------------
whether or not the transactions contemplated herein are consummated pursuant
hereto, Seller, on the one hand, and Buyer, on the other hand, shall pay all
fees and expenses incurred by, or on behalf of, Seller or Buyer, respectively,
in connection with, or in anticipation of, this Agreement and the consummation
of the transactions contemplated hereby. Seller, on the one hand, and Buyer, on
the other hand, shall indemnify and hold harmless the other from and against any
and all claims or liabilities for financial advisory and finders' fees incurred
by
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reason of any action taken by such party or otherwise arising out of the
transactions contemplated by this Agreement by any Person claiming to have been
engaged by such party.
Section 9.2 Further Assurances. From time to time after the Closing
-------------------
Date, at the reasonable request of the other party hereto and at the expense of
the party so requesting, each of the parties hereto shall execute and deliver to
such requesting party such documents and take such other action as such
requesting party may reasonably request in order to consummate more effectively
the transactions contemplated hereby.
Section 9.3 Notices. All notices, requests, demands, waivers and other
--------
communications required or permitted to be given under this Agreement shall be
in writing and may be given by any of the following methods: (a) personal
delivery; (b) facsimile transmission; (c) registered or certified mail, postage
prepaid, return receipt requested; or (d) overnight delivery service. Notices
shall be sent to the appropriate party at its address or facsimile number given
below (or at such other address or facsimile number for such party as shall be
specified by notice given hereunder):
If to Buyer, to:
America Service Group Inc.
105 Westpark Drive, Suite 300
Brentwood, Tennessee 37027
Fax No.: (615) 376-1309
Attention: Michael Catalano
President and Chief Executive Officer
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Fax No.: (404) 572-5147
Attention: Philip A. Theodore
If to Seller, to:
c/o MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Fax No. (205) 982-7709
Attention: Legal Services
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<PAGE>
with a copy to:
Foley & Lardner
111 North Orange Avenue
Suite 1800
Orlando, Florida 32801
Attention: Jennifer S. Brown
Fax No. (407) 648-1743
All such notices, requests, demands, waivers and communications shall be
deemed received upon (i) actual receipt thereof by the addressee, (ii) actual
delivery thereof to the appropriate address, or (iii) in the case of a facsimile
transmissions upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error. In the case of
notices sent by facsimile transmission, the sender shall contemporaneously mail
a copy of the notice to the addressee at the address provided for above.
However, such mailing shall in no way alter the time at which the facsimile
notice is deemed received.
Section 9.4 Severability. Should any provision of this Agreement for any
-------------
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any of the other provisions of this Agreement,
which remaining provisions shall remain in full force and effect and the
application of such invalid or unenforceable provision to Persons or
circumstances other than those as to which it is held invalid or unenforceable
shall be valid and enforced to the fullest extent permitted by law.
Section 9.5 Binding Effect Assignment. This Agreement and all of the
--------------------------
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned, directly or indirectly, including, without limitation, by operation
of law, by any party hereto without the prior written consent of the other
parties hereto.
Section 9.6 No Third Party Beneficiaries. This Agreement is solely for
-----------------------------
the benefit of Seller and its successors and permitted assigns with respect to
the obligations of Buyer under this Agreement, and for the benefit of Buyer, and
its respective successors and permitted assigns with respect to the obligations
of Seller under this Agreement, and, except to the extent otherwise provided in
Section 5.9 hereof with respect to the Seller Group, this Agreement shall not be
deemed to confer upon or give to any other third party any remedy, claim
liability, reimbursement, cause of action or other right.
Section 9.7 Interpretation.
---------------
(a) The Article and Section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement.
-41-
<PAGE>
(b) As used in this Agreement, the term "Person" shall mean and include
an individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(c) As used in this Agreement, the term "Affiliate" shall mean the (i)
ownership of more than 25% of the equity securities of any Person, or (ii) the
right to receive more than 25% of the net profits of any Person, or (iii) the
ability to appoint more than 25% of the board of directors (or similar governing
body) of any Person.
Section 9.8 Jurisdiction and Consent to Service. Without limiting the
------------------------------------
jurisdiction or venue of any other court, each of Seller and Buyer (a) agrees
that any suit, action or proceeding arising out of or relating to this Agreement
may be brought solely in the state or federal courts of Florida; (b) consents to
the exclusive jurisdiction of each such court in any suit, action or proceeding
relating to or arising out of this Agreement; (c) waives any objection which it
may have to the laying of venue in any such suit, action or proceeding in any
such court; and (d) agrees that service of any court paper may be made in such
manner as may be provided under applicable laws or court rules governing service
of process.
Section 9.9 Entire Agreement. This Agreement, the Confidentiality
-----------------
Agreement, the Seller Disclosure Letter, the Buyer Disclosure Letter and other
documents referred to herein or delivered pursuant hereto which form a part
hereof constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, between the parties or any of them with
respect to the subject matter hereof.
Section 9.10 Governing Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Florida (regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
Section 9.11 Specific Performance. The parties acknowledge and agree
---------------------
that any breach of the terms of this Agreement would give rise to irreparable
harm for which money damages would not be an adequate remedy and accordingly the
parties agree that, in addition to any other remedies, each shall be entitled to
enforce the terms of this Agreement by a decree of specific performance without
the necessity of proving the inadequacy of money damages as a remedy.
Section 9.12 Counterparts. This Agreement may be executed in
-------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 9.13 Amendment; Modification; Waiver. This Agreement may be
-------------------------------
amended, modified or supplemented at any time by written agreement of Seller and
Buyer. Any failure of Seller or Buyer to comply with any term or provision of
this Agreement may be waived, with respect to Buyer, by Seller and, with respect
to Seller, by Buyer, by an instrument in writing signed by or on behalf of the
appropriate party, but such waiver or
-42-
<PAGE>
failure to insist upon strict compliance with such term or provision shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure to comply.
Section 9.14 Knowledge. "To the Knowledge of Seller or Company" or any
----------
similar phrase contained in this Agreement shall mean the actual knowledge of
the Company Executives. For purposes hereof, the "Company Executives" shall
consist of: Marta Prado, Robert Castille, Jim Brigham, John Hendrik and Alice
McCarty. "To the Knowledge of Buyer" or any similar phrase contained in this
Agreement shall mean the actual knowledge of the Buyer Executives. For purposes
hereof, the "Buyer Executives" shall consist of: Michael Catalano, Bruce Teal
and Gerald Boyle.
Section 9.15 Disclosure Letters and Exhibits. The Seller Disclosure
--------------------------------
Letter and the Buyer Disclosure Letter and all exhibits hereto are hereby
incorporated into this Agreement and are hereby made a party hereof as if set
out in full in this Agreement.
[Signature Page Follows]
-43-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
INPHYNET ADMINISTRATIVE SERVICES, INC.
By: /s/ James H. Dickerson, Jr.
---------------------------------------
Name: James H. Dickerson, Jr.
-------------------------------------
Title: President and Treasurer
------------------------------------
AMERICA SERVICE GROUP INC.
By: /s/ Michael Catalano
---------------------------------------
Name: Michael Catalano
-------------------------------------
Title: President and CEO
------------------------------------
-44-
<PAGE>
EXHIBIT A
---------
Seller Disclosure Letter
-1-
<PAGE>
EXHIBIT B
---------
NationsBank Commitment Letter
B-1
<PAGE>
EXHIBIT C
---------
Ferrer Freeman Thompson & Co. Commitment Letter
C-1
<PAGE>
EXHIBIT D
---------
Guaranty
D-1
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement, dated January 26, 1999
(this "Amendment"), is by and between INPHYNET ADMINISTRATIVE SERVICES, INC., a
Florida corporation (the "Buyer"), and AMERICA SERVICE GROUP INC., a Delaware
corporation (the "Seller").
Background
----------
A. The Buyer and the Seller have executed and delivered a Stock Purchase
Agreement, dated December 18, 1998 (the "Stock Purchase Agreement").
B. The Buyer and the Seller desire to amend the Stock Purchase Agreement.
Agreements
----------
1. Definitions. Any capitalized term not otherwise defined in this Amendment
-----------
shall have the same meaning as in the Stock Purchase Agreement.
2. Amendment of Schedules; Additional Representations and Warranties. Copies
-----------------------------------------------------------------
of amended and restated Schedules 3.5, 3.10, 3.12, 3.14 and 3.15 are attached to
this Amendment. The Seller represents and warrants to the Buyer as follows: (i)
that EMSA Limited Partnership ("EMSA L.P.") will assign all of its interests in
the capital stock of EMZA, Inc., which interests are disclosed in Schedule 3.5,
to an Affiliate, at or before Closing; (ii) that the written lease for the
Company's headquarters in Florida was entered into by an Affiliate of the Seller
and the Company has not entered into a lease agreement with the Affiliate; (iii)
that the oral agreement relating to the employment of Marta Prado disclosed in
Schedule 3.14 is an agreement between Ms. Prado and MedPartners, Inc.; and (iv)
from and after 5:00 p.m. (Eastern Standard Time) on December 2, 1998, the Seller
possessed the right to terminate the Stock Purchase Agreement, dated on or about
November 25, 1998, between Seller and EMSA Group, Inc., and Seller duly and
validly terminated such agreement prior to Seller's execution of a non-binding
letter of intent with Buyer on December 8, 1998.
3. Amendment of Section 8.3(a). The parenthetical phrase included in the
---------------------------
first sentence of Section 8.3(a) shall be deleted and replaced by a
parenthetical phrase reading as follows: "(which for purposes of the
indemnification referred to in subparagraph (iv) below, shall include Ferrer
Freeman Thompson & Co., Health Care Capital Partners, L.P., Health Care
Executive Partners, L.P. and SunTrust Equitable Securities, Inc. and their
respective Affiliates, but shall not include NationsBank, N.A.)".
---------
<PAGE>
4. Execution of Escrow Agreement. Simultaneously with the execution and
-----------------------------
delivery of this Agreement, (i) the Buyer, the Seller and NationsBank, N.A., as
Escrow Agent, are executing and delivering an Escrow Agreement, dated as of the
date hereof, in the form attached to this Amendment as Exhibit "A" and (ii) the
Buyer is depositing into the escrow fund created by such Escrow Agreement the
sum of $2,000,000 in cash in immediately available funds, such funds to be held
and disbursed pursuant to the terms of such Escrow Agreement. Seller shall be
responsible for all fees and expenses of the Escrow Agent in accordance with
Section 5.5 of the Escrow Agreement.
5. Post Closing Covenants. The Seller shall (i) use reasonable efforts to
----------------------
cause EMZA, Inc. to change its name to a name that is dissimilar to the name of
the Company and its Subsidiaries and (ii) notwithstanding the establishment of
the escrow fund referred to in paragraph 4 above, Seller shall pay any amount of
the premium for the Medical Malpractice/Professional Liability Coverage in
excess of the amount of the escrow fund in order to obtain the coverage required
pursuant to Section 5.12 of the Agreement. Seller acknowledges and agrees that
a claim by the Buyer against Seller for non-performance of its obligation to pay
such portion of the insurance premium or to pay any amounts relating to
liability or expenses exceeding such coverage, if any, shall not be subject to
the limitations on the indemnification obligations of the Seller set forth in
Sections 8.2(a) and 8.2(b) of the Agreement.
6. Assets to be Transferred. It is the intent of the parties to the Agreement
------------------------
to transfer to Buyer all tangible personal property which is owned by the
Company or Subsidiaries, a preliminary listing of which is attached hereto as
Exhibit A (the "Personal Property List"). Within thirty (30) days following the
- ---------
Closing Date, Buyer and Seller shall mutually agree upon a complete and accurate
listing of personal property owned by the Company or Subsidiaries and shall
agree to necessary additions or deletions to the Personal Property List.
7. Noncompetition, Nonsolicitation and Confidentiality. Buyer and Seller
---------------------------------------------------
acknowledge and agree that, as of the Closing, the noncompetition,
nonsolicitation and confidentiality provisions of Section 5.17 of the Agreement
supersede in its entirety that certain Non-Compete, Non-Solicitation and
Standstill Agreement dated as of February 25, 1998 and that such agreement shall
terminate on the Closing Date and be of no further force and effect.
8. Effect on Stock Purchase Agreement. Except as expressly modified by this
----------------------------------
Amendment, the Parties ratify and confirm the Stock Purchase Agreement in all
respects.
[Signatures appear on the following page]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
BUYER:
-----
AMERICA SERVICE GROUP INC.
By: /s/ Michael Catalano
-------------------------------------
Michael Catalano
President and Chief Executive Officer
SELLER:
------
INPHYNET ADMINISTRATIVE SERVICES, INC.
By: /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: President and Treasurer
3
<PAGE>
EXHIBIT 2.4
PURCHASE AGREEMENT
AMONG
ST. LUKE'S EPISCOPAL HEALTH SYSTEM
AND
METHODIST HEALTH CARE SYSTEM
"PURCHASERS"
AND
MEDPARTNERS, INC.,
"PARENT"
AND
CAREMARK INC.,
KS-PSI OF TEXAS, L.P.,
CAREMARK RESOURCES CORPORATION,
MEDPARTNERS PHYSICIAN SERVICES, INC.,
CAREMARK PHYSICIAN SERVICES OF TEXAS INC.,
AND MEDTEX, L.P.
"COMPANIES"
DATED MARCH 11, 1999
<PAGE>
INDEX OF SCHEDULES
SCHEDULES:
2.2 Transferred Assets Outside Restricted Area
2.2(a) Inventory
2.2(b) Assigned Leases
2.2(c) Assigned Contracts
2.2(d) Tangible Personal Property
2.2(f) License Rights
2.2(g) Prepaid Expenses
2.2(i) Real Property
2.2(k) Intellectual Property
2.2(n) Other Assets
2.2(o) Net Working Capital Formula
2.5 Retained Assets
APPENDICES:
Appendix A Affiliated Practice
Appendix B Uniform Terms
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is entered into on March 11, 1999 by and among St.
Luke's Episcopal Health System, a Texas nonprofit corporation ("SLEHS"),
Methodist Health Care System, a Texas nonprofit corporation ("MHCS") and any
permitted assignee (collectively "Purchasers"), MedPartners, Inc., a Delaware
corporation ("Parent"), and Caremark Inc., a California corporation, KS-PSI of
Texas, L.P., a Delaware limited partnership, Caremark Resources Corporation, a
Delaware corporation, MedPartners Physician Services, Inc., a Delaware
corporation, Caremark Physician Services of Texas Inc., a Delaware corporation,
and MedTex, L.P., a Texas limited partnership (collectively the "Companies").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Companies provide certain business management services to the
physician practice described on Appendix A hereto (the "Affiliated Practice")
----------
according to the terms of the Amended and Restated Management Service Agreement
("MSA") dated as of December 31, 1992 with the Affiliated Practice (such
business management services are referred to herein as the "Business"); and
WHEREAS, the Companies desire to sell to Purchasers and Purchasers desire
to purchase from the Companies certain assets and rights owned by the Companies
and used in the operation of the Business, and Purchasers desire to assume
certain liabilities, all on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
I. UNIFORM TERMS AND CONDITIONS
----------------------------
I.1 Incorporation by Reference. Subject to the terms hereof, the Uniform
--------------------------
Terms and Conditions attached hereto as Appendix B (the "Uniform Terms") are
----------
hereby made a part of and incorporated herein as if fully restated herein and
are specifically included within the defined term "Agreement" as used herein and
therein. The terms of the Purchase Agreement shall control in the event of a
conflict with the Uniform Terms. Capitalized terms not defined herein shall
have the meanings provided in the Uniform Terms.
II. PURCHASE TERMS
--------------
II.1 Transactions. At the Closing, (i) the Companies will transfer,
------------
convey and assign to Purchasers all of the Transferred Assets (as defined in
Section 2.2); (ii) Purchasers will receive and accept ownership of the
Transferred Assets; (iii) Purchasers will assume and agree to pay or perform the
Assumed Liabilities (as defined in Section 2.4); and (iv) Purchasers will pay to
the Companies
<PAGE>
the consideration as provided herein. The Companies will retain the Retained
Assets (as defined in Section 2.5) and the Retained Liabilities (as defined in
Section 2.6).
II.2 Transferred Assets. Subject to the terms and conditions herein, and
------------------
in reliance upon the representations and warranties set forth in the Uniform
Terms, the Companies and Parent agree to sell, convey, assign, transfer and
deliver to Purchasers, and Purchasers agree to purchase and acquire all of the
Companies' and Parent's right, title and interest (but in the case of the real
property, with the title warranties called for herein) in and to (i) the assets,
properties and businesses of Companies and Parent used in connection with the
Business, as a going concern, of every kind and description, located in the
Restricted Territory whether tangible or intangible, real, personal or mixed, as
such assets shall exist on the Closing Date, and (ii) all other assets,
properties and businesses of Companies and Parent located outside the Restricted
Territory and described in Schedule 2.2, which are used exclusively in the
------------
operation of the Business, whether tangible or intangible, real, personal or
mixed, as such assets shall exist on the Closing Date (collectively the
"Transferred Assets"), excluding only the Retained Assets (as defined in Section
2.5 below), such transfer being deemed to be effective as of the Effective Time,
including but not limited to:
(a) All of the inventory and supplies that are owned by the Companies
and used exclusively in the operation of the Business, the current categories
and amounts of which are set forth on Schedule 2.2(a);
---------------
(b) All of the leases (including any capital leases), lease purchase
arrangements and license agreements including but not limited to those set forth
on Schedule 2.2(b) (the "Assigned Leases");
---------------
(c) All of the contracts, agreements, purchase orders and commitments
including but not limited to those listed on Schedule 2.2(c) including the MSA
---------------
or other similar related agreements with the Affiliated Practice (the "Assigned
Contracts");
(d) All of the tangible personal property (including instruments,
equipment, furniture and machinery) including but not limited to those listed on
Schedule 2.2(d) ("Tangible Personal Property");
- ---------------
(e) Copies of all books and records of the Companies and Parent
exclusively related to the Transferred Assets;
(f) All rights under franchises, licenses, permits, certificates,
approvals and other governmental authorizations owned by the Companies and
related to the ownership of the Transferred Assets including but not limited to
those listed on Schedule 2.2(f) (the "License Rights"), except for such License
---------------
Rights that are not transferable, which non-transferrable License Rights are
also set forth in Schedule 2.2(f);
---------------
(g) The Companies' prepaid expenses, deposits and other similar items
listed on Schedule 2.2(g);
---------------
(h) The rights of the Companies under the MSA;
2
<PAGE>
(i) Good and indefeasible title in fee simple to full, undivided
ownership in the real property identified on Schedule 2.2(i) attached hereto
---------------
(collectively, the "Real Property") together with (i) all buildings, structures,
fixtures, other improvements, construction, construction-in-progress, including
without limitation, the construction-in-progress on the Real Property known as
2727 Holcombe Boulevard, Houston, Texas (the "Holcombe Property"), of every kind
and nature presently situated on, in or under or hereafter erected, installed or
used in, on or about the Real Property or the Leased Real Property (as
hereinafter defined) (the "Improvements"; the Real Property and the Improvements
being collectively referred to herein as the "Premises"), (ii) all and singular
the rights, easements and appurtenances pertaining to the Premises, (iii) all
right, title and interest of the Company in and to any and all roads, easements,
alleys, streets and rights-of-way bounding the Real Property, together with all
rights of ingress and egress unto the Premises, (iv) strips or gores, if any,
between the Real Property and abutting properties, and (v) any and all oil, gas
and minerals lying under, in, on or about or constituting a part of the Real
Property;
(j) Any Company Plans to the extent provided in Section 3.10 of the
Uniform Terms or any assets transferred from any Company Plans or Affiliates
Plan in accordance with Section 3.10 of the Uniform Terms;
(k) All intangible property, including but not limited to, the
patents, trademarks, trade names, business names (including all names associated
with the Business and the name "Kelsey-Seybold" as applied to or used by , the
Companies in connection with the Business), service marks, logos, trade secrets,
copyrights and all applications and registrations therefore and licenses thereof
(the "Intellectual Property"), including, without limitation, the items
identified in Schedule 2.2(k);
---------------
(l) All telephone numbers in the Restricted Territory;
(m) [intentionally deleted];
(n) Those other assets listed on Schedule 2.2(n);
---------------
(o) The Net Working Capital Amount, provided however, if the actual
Net Working Capital Amount (as defined in the Uniform Terms and described in
Schedule 2.2(o)) is less than Ten Million Dollars ($10,000,000), the Companies
- ---------------
will, on the Closing Date or one (1) day after completion of the process for
calculating Net Working Capital set forth in this Section 2.2(o), whichever is
--------------
later, pay to Purchasers an amount equal to the sum of Ten Million Dollars
($10,000,000) minus the Net Working Capital Amount. Such payment will be a cash
payment by wire transfer of immediately available funds to such account or
accounts as the Purchasers shall designate. The parties agree to the following
process to determine the Net Working Capital Amount:
(i) Within seven (7) days after the date of this Agreement,
Parent shall prepare a draft of the Net Working Capital Amount in
accordance with the formula set forth in Schedule 2.2(o) and based on the
--------------
financial records of the Business as of February 28, 1999.
3
<PAGE>
(ii) Ernst & Young LLP, on behalf of Purchasers, shall, within
fourteen (14) days after receipt of the draft, review and comment on this
draft, and if the parties agree, this draft shall be the basis for
determining the Net Working Capital Amount, and this draft shall be revised
only to reflect the updates based on the financial records of the Business
as of the Measurement Date as evaluated by Ernst & Young LLP.
(iii) If the parties fail to agree on this draft within five (5)
days after receipt of Ernst & Young LLP's comments and such disagreement,
in the aggregate, exceeds One Hundred Thousand Dollars ($100,000), then
this disagreement shall be submitted to Deloitte & Touche LLP or such other
independent accounting firm as mutually agreed to by the parties (the
"Independent Firm") for final determination, to be binding on the parties,
which determination shall be completed within ten (10) days of submittal.
The Independent Firm determination shall be the Net Working Capital Amount,
revised only to reflect the updates based on the financial records of the
Business as of the Measurement Date as determined by Independent Firm; and
(p) All of the tangible personal property (including instruments,
equipment, furniture and machinery) intended for the Holcombe Property as
disclosed in the due diligence materials provided by Parent and Companies to
Purchasers; and
(q) Parent and the Companies shall assign all rights, interests and
warranties under all construction and related agreements relating to the
Holcombe Property and the improvements constructed or being constructed thereon.
Parent and the Companies shall be responsible, as provided elsewhere in this
Agreement for the payment in full of all costs, expenses and liabilities
associated or incurred in connection with the completion of such construction
and improvements; provided, however that Purchasers shall be responsible for any
Purchasers-requested change orders entered into between Purchasers and any
contractors after the Closing Date to the extent such change orders, if any,
increase the costs for construction otherwise payable by Parent or the Companies
hereunder. Prior to the Closing Date, the parties shall make a good faith
determination of (i) all sums owed and unpaid by Parent and the Companies for
construction on the Holcombe Property (including retainage amounts held and as
required by Applicable Law and applicable contract) and (ii) all items required
to be completed pursuant to the applicable construction contract (the "Punch
List Items").
Based upon the determinations made pursuant to subsections (i) and (ii)
above, the parties at or prior to the Closing Date shall execute a mutually
acceptable escrow agreement to provide a mechanism for the funding of all Punch
List Items and the payment of any remaining sums owed by Parent and/or the
Companies under the applicable Construction Contracts for the Holcombe Property.
Parent or the Companies shall, at Closing, fund such amounts with an escrow
agent acceptable to the parties hereto.
Notwithstanding the foregoing, if and to the extent the assignment of any
lease or contract, requires the consent of another person, then unless waived
by Purchasers: (i) such lease or contract shall not be deemed assigned
hereunder until such consent is obtained if the attempted assignment would
constitute a breach thereof; and (ii) Purchasers shall cooperate with the
Companies in seeking
4
<PAGE>
such consent or entering into reasonable arrangements, designed to provide
Purchasers the benefits thereunder.
II.3 Purchase Price. Purchasers agrees that, subject to the terms and
--------------
conditions of this Purchase Agreement, and in consideration for the aforesaid
sale, transfer, conveyance, assignment and delivery of the Transferred Assets to
Purchasers, and the assumption of the Assumed Liabilities by Purchasers, on the
Closing Date Purchasers shall assume the Assumed Liabilities and deliver to
Parent a cash payment by wire transfer of immediately available funds to such
account or accounts as Parent shall designate in the aggregate amount of One
Hundred Forty-Nine Million Four Hundred Seventy Thousand Eight Hundred Eighty
Dollars ($149,470,880) plus an amount equal to Eighteen Thousand One Hundred
Fifty-Eight Dollars ($18,158.00) multiplied by the number of calendar days after
the Measurement Date through but not including the Closing Date (the "Purchase
Price"). This Purchase Price shall be allocated as follows:
(a) $61,100,000 for the Holcombe Property; and
(b) The balance of the Purchase Price for all other Transferred
Assets.
The amount of the total cash payment paid by Purchasers to the Companies
under the provisions of this Section 2.3 and the allocation in Section 2.3(b)
shall be reduced by the total of all amounts which are unpaid or outstanding on
the Closing Date (to the extent such amount is not used in the calculation of
Net Working Capital) for the acquisition of equipment for the Holcombe Property
as disclosed in the due diligence materials provided by Parent and Companies to
Purchasers.
II.4 Assumption of Obligations and Liabilities. At the Closing,
-----------------------------------------
Purchasers shall assume and agree to pay or perform, promptly as they become
due, all obligations and liabilities of the Companies related to the Transferred
Assets or arising from the operation of the Business subsequent to the Effective
Time (the "Assumed Liabilities"), excluding only the Retained Liabilities. Such
Assumed Liabilities are limited to:
(a) The most recent balances of accrued expenses and trade payables
identified in the Financial Information attached as Schedule 1.4 to the Uniform
------------
Terms and those additional expenses and trade payables accrued or incurred in
the ordinary course of business between the date of such balances and the
Closing Date.
(b) All liabilities and obligations relating to the Transferred Assets
or arising out of the operation of the Business following the Effective Time
regardless of whether Purchasers continues to operate the Business in a manner
consistent with the operation of the Business prior to the Effective Time; and
(c) The Company Plans included in the Transferred Assets.
II.5 Retained Assets. Notwithstanding anything to the contrary herein,
----------------
the term "Transferred Assets" shall not include (i) cash, cash equivalents,
money market funds, life insurance policies or the cash surrender value or
similar attribute thereof which is not otherwise part of the Net
5
<PAGE>
Working Capital Amount; (ii) investments of any type or kind including, but not
limited to, marketable securities, the stock of any corporation, bonds or
limited partnership or other closely held investments; (iii) the Companies'
stock record books, tax returns and minute books; (iv) those assets listed on
Schedule 2.5 hereto; (v) all rights to the use of the name "MedPartners";
- ------------
(vi) the Excluded Agreements (as defined in the Uniform Terms); (vii) the right
of the Companies under any Assigned Contract or Assigned Lease to be indemnified
for any Retained Liability (as defined in Section 2.6); and (viii) all interests
that either the Companies or Parent has in any Company Plan or Affiliates Plan
that are not transferred to Purchasers in accordance with Section 3.10 of the
Uniform Terms (collectively, the "Retained Assets").
II.6 Retained Liabilities. Except for the Assumed Liabilities, Purchasers
--------------------
shall not assume or be deemed to have assumed and shall not be responsible for
any other obligation or liability of the Companies or Parent, including without
limitation: (i) any and all obligations regarding any foreign, Federal, state
or local income, sales, use, franchise, property or other Tax liabilities
relating to the period prior to the Closing Date; (ii) any and all obligations
or liabilities relating to any fees or expenses of the Companies' or Parent's
counsel, accountants or other experts incident to the negotiation and
preparation of the Transaction Documents and consummation of the Transactions;
(iii) any and all obligations under the Excluded Agreements; (iv) any and all
liabilities relating to the Transferred Assets or arising from the operations of
the Business prior to the Effective Time except as otherwise specifically
enumerated in this Section 2.6; (v) any liabilities not specifically set forth
in the Financial Information; (vi) any severance, bonus, retention or other
severance and related costs not included in the Net Working Capital Amount with
respect to the Companies' Employees; and (vii) any and all liabilities related
to the Construction Contracts and related agreements for the construction of the
improvements to the Holcombe Property whether arising prior to the Effective
Time or thereafter (collectively the "Retained Liabilities").
II.7 Prorations. Except as otherwise set forth in Section 2.3, prorations
----------
relating to the Transferred Assets (including, but not limited to, personal
property, real estate, occupancy and other similar property taxes, and utilities
and related matters) will be made as agreed by the parties to the extent
possible at the Closing, with the Companies liable to the extent such items
relate to any time period on or prior to the Closing Date and Purchasers shall
be liable to the extent any such item relates to periods from and after the
Closing Date. In the event that the amount of any of such items is not known at
the Closing, the proration shall be made as soon as possible after the Closing
by settlement payments between the parties. In connection with the proration of
both real and personal property ad valorem taxes, if actual tax figures for the
year of Closing are not available at the Closing Date, an estimated proration of
taxes shall be made using tax figures from the preceding year; however, when
actual taxes for the year of Closing are available, a corrected proration of
taxes shall be made. If such taxes for the year of Closing increase over those
for the preceding year, the Companies or Parent shall pay to Purchaser a prorata
portion of such increase, computed to the Closing Date, and conversely, if such
taxes for the year of Closing decrease from those of the preceding year,
Purchaser shall pay to Seller a prorata portion of such decrease, computed to
the Closing Date, any such payment to be made within ten (10) days after
notification by either party that such adjustment is necessary. The Companies
shall, on or before the Closing Date, furnish to Purchaser and the Title Company
all information necessary to compute the prorations provided for in this
section. In no event shall Purchaser assume any liability with respect to any
subsequent assessment of ad valorem taxes for years prior to Closing due to any
change in the usage or
6
<PAGE>
ownership of any Real Property, and with respect to any such assessment, such
assessment shall be the sole responsibility of the Companies from which the
Companies shall indemnify, defend and hold Purchaser fully harmless. This
covenant shall not merge with the special warranty deeds to be delivered at
Closing but shall survive the Closing.
II.8 Cash Management from Measurement Date to Closing Date.
-----------------------------------------------------
(a) Loan. On the Measurement Date, Parent will make an intercompany
----
cash loan to KS-PSI of Texas, L.P. ("KS-PSI") in the amount of One Million
Dollars ($1,000,000). KS-PSI will use the proceeds of such loan solely to fund
the working capital requirements under the MSA for the period beginning on the
day after the Measurement Date and ending on the Closing Date (the "Cash
Management Period"). On or before the Closing, Parent will be repayed by KS-PSI
such One Million Dollars ($1,000,000) loan in full without interest.
(b) Cash Inflows. During the Cash Management Period, KS-PSI will
------------
continue to maintain the bank accounts and/or lock boxes for the Business
(collectively, the "Bank Accounts") for the collective receipt of all
collections on accounts receivable and all other cash inflows of the Business
(the "Transition Cash Inflows"), and all Transition Cash Inflows will be
immediately deposited in the Bank Accounts in favor of Purchasers.
(c) Cash Outflows. During the Cash Management Period, KS-PSI will
-------------
fund all accounts payable and other cash outflows (including, without
limitation, making payments for the clearing of all checks which were issued on
or before the Measurement Date and taken into account as either reductions in
determining the Cash Amount or reductions in determining the Net Working Capital
Amount) of the Business through the Bank Accounts.
II.9 5.01(a). Parent shall, prior to the Closing Date, cause Purchaser or
-------
Purchaser's designee to be substituted for Parent as the sole corporate member
in MedPartners - Texas, Inc., a Texas nonprofit corporation certified under
Section 5.01(a) of the Texas Medical Practice Act (the "5.01(a)"), such
substitution of corporate membership to be in accordance with applicable state
law and the governing bylaws of the 5.01(a)
III. MISCELLANEOUS
-------------
III.1 Notices. Any notice sent in accordance with the provisions of this
-------
Section 3.1 shall be deemed to have been received (even if delivery is refused
or unclaimed) on the date which is: (i) the date of posting, if sent by
certified U.S. mail or by Express U.S. mail or private overnight courier; or
(ii) the date on which sent, if sent by facsimile transmission with confirmation
and with the original to be sent by certified U.S. mail, addressed as follows:
7
<PAGE>
If to SLEHS:
St. Luke's Episcopal Health System
6720 Bertner Avenue
Suite B-111, MC4-262
Houston, Texas 77030
Attn: President and Chief Executive Officer
Telephone: (713) 791-3006
Facsimile: (713) 794-6182
With a copy to:
McDermott, Will & Emery
2049 Century Park East
Los Angeles, California
Attn: Jeffrey Lemkin, Esq.
Telephone: (310) 551-9309
Facsimile: (310) 277-4730
With a copy to:
Winstead Sechrest & Minick
910 Travis Street, Suite 2400
Houston, TX 77002-5895
Attn: Denis Clive Braham, Esq.
Telephone: (713) 650-2743
Facsimile: (713) 650-2400
If to MHCS:
Methodist Health Care System
6565 Fannin Street D-200
Houston, Texas 77030-2707
Attn: President and Chief Executive Officer
Telephone: (713) 790-3366
Facsimile: (713) 790-2605
With a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, MI 48226-3583
Attn: Chris Rossman, Esq.
Telephone: (313) 465-7528
Facsimile: (313) 465-8013
8
<PAGE>
With a copy to:
Winstead Sechrest & Minick
910 Travis Street, Suite 2400
Houston, TX 77002-5895
Attn: Denis Clive Braham, Esq.
Telephone: (713) 650-2743
Facsimile: (713) 650-2400
If to Parent
or the Companies:
MedPartners, Inc.
300 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attn: General Counsel
Telephone: (205) 982-4012
Facsimile: (205) 985-0636
With a copy to:
Jones Day Reavis & Pogue
555 West Fifth Street
Suite 4600
Los Angeles, California 90013-1025
Attn: Ross Stromberg, Esq.
Telephone: (213) 243-2463
Facsimile: (213) 243-2539
[SIGNATURES ON NEXT PAGE]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day
and year first written above.
PURCHASERS:
ST. LUKE'S EPISCOPAL HEALTH SYSTEM
By: /s/ Michael Jhin
-----------------------------
Name: Michael Jhin
---------------------------
Title: President and CEO
--------------------------
METHODIST HEALTH CARE SYSTEM
By: /s/ Peter W. Butler
-----------------------------
Name: Peter W. Butler
---------------------------
Title: President and CEO
--------------------------
PARENT:
MEDPARTNERS, INC.
By: /s/ E. M. Crawford
-----------------------------
Name: E. M. Crawford
---------------------------
Title: President and CEO
--------------------------
THE COMPANIES:
CAREMARK INC.
By: /s/ E. M. Crawford
-----------------------------
Name: E. M. Crawford
---------------------------
Title: President and CEO
--------------------------
10
<PAGE>
KS-PSI OF TEXAS, L.P.
By: MedPartners Physician Services, Inc.
Its: General Partner
By: /s/ E. M. Crawford
-----------------------------
Name: E. M. Crawford
---------------------------
Title: President and CEO
CAREMARK RESOURCES CORPORATION
By: /s/ E. M. Crawford
-----------------------------
Name: E. M. Crawford
---------------------------
Title: President and CEO
--------------------------
MEDPARTNERS PHYSICIAN SERVICES, INC.
By: /s/ E. M. Crawford
-----------------------------
Name: E. M. Crawford
---------------------------
Title: President and CEO
--------------------------
MEDTEX, L.P.
By: MedGP, Inc.
Its: General Partner
By: /s/ E. M. Crawford
-----------------------------
Name: E. M. Crawford
---------------------------
Title: President and CEO
--------------------------
CAREMARK PHYSICIAN SERVICES OF TEXAS INC.
By: /s/ E. M. Crawford
-----------------------------
Name: E. M. Crawford
---------------------------
Title: President and CEO
--------------------------
11
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APPENDIX A
AFFILIATED PRACTICE
Kelsey-Seybold Medical Group, P.A., a Texas professional association
<PAGE>
EXHIBIT 3.2
FOURTH 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 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.
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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 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 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
2
<PAGE>
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.
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
3
<PAGE>
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.
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. Until these
Bylaws are further amended, the number of Directors shall be no less than nine,
and no more than fifteen. 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 of the total number of the shares at the time outstanding
having the right to vote for such Directors, summarily order an election to
4
<PAGE>
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.
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
5
<PAGE>
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.
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.
6
<PAGE>
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 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.
7
<PAGE>
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 cancelled. No new certificates shall be
issued until the former certificate, or certificates, for the same number of
shares have been surrendered and cancelled, 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
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
8
<PAGE>
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.
ARTICLE IX
INDEMNIFICATION
Section 1. Mandatory Indemnification of Directors and Officers.
---------------------------------------------------
(a) The Corporation shall indemnify, and shall pay in advance the
expenses of, each Director and officer of the Corporation and each person who is
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise 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) and such
obligation to indemnify and to advance expenses shall continue as to a person
who has ceased to be a Director or officer of the Corporation or a director or
officer of any other such corporation, partnership, joint venture, trust or
other enterprise and shall inure to the benefit of his or her heirs, executors
and administrators.
(b) If a claim under Section 1(a) of this Article IX 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 2. Discretionary Indemnification of Employees and Agents. The
-----------------------------------------------------
Corporation may, but shall have no obligation to, indemnify and may pay in
advance the expenses of employees and agents of the Corporation and persons who
are serving at the request of the Corporation as an employee or agent of another
9
<PAGE>
corporation, partnership, joint venture, trust or other enterprise to the
fullest extent permissible under Delaware law and to the extent approved by the
Board of Directors from time to time.
Section 3. Expenses as a Witness. To the extent that any Director,
---------------------
officer, employee or agent of the Corporation, or any person who is serving at
the request of the Corporation as an officer, director, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise is,
by reason of such position or position with such other entity, 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 or 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 expenses, 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 and
with any person who is or was serving at the request of the Corporation as an
officer, director, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, 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 by Sections 1 and
--------------
3 of this Article IX 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. Further, the mandatory indemnification and expense advancement for
officers of the Corporation and such other persons who serve at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise set forth in Section 1 of this Article
IX shall apply solely with respect to acts or omissions of such officers and
directors occurring on or after August 6, 1998.
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.
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
10
<PAGE>
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 Fourth Amended and Restated Bylaws were approved by
resolution of the Board of Directors of the Corporation on the 10th
day of March, 1999.
11
<PAGE>
EXHIBIT 4.6
- --------------------------------------------------------------------------------
[LOGO OF MEDPARTNERS] COMMON STOCK
-----NUMBER----- -----SHARES----
MDM CUSIP 58503X 10 7
MedPartners, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT SEE REVERSE FOR
IS THE OWNER OF CERTAIN DEFINITIONS
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
MedPartners, Inc., transferable on the books of the Corporation in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shareholder
subject to all of the provisions of the Certificate of Incorporation of the
Corporation as amended and restated, and its Bylaws, as amended and restated,
copies of which are on file with the Transfer Agent, to all provisions of which
the holder of the Certificate, by acceptance hereof, assets. This Certificate is
not valid until countersigned and registered by the Transfer Agent and
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
[CORPORATE SEAL OF
MEDPARTNERS
APPEARS HERE]
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
TRANSFER AGENT AND REGISTRAR,
BY /s/ Joseph S. Spadaford
----------------------- AUTHORIZED SIGNATURE:
/s/ Tracy P. Thrasher /s/ Larry R. House
- -------------------------- --------------------------------
SECRETARY CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
<TABLE>
<CAPTION>
MedPartners, Inc.
This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement
between MedPartners, Inc. and Chemical Bank dated as of March 1, 1995, as amended and assumed by MedPartners/Mullikin, Inc., now
known as MedPartners, Inc. (the "Company"), on November 28, 1995, and as assumed by First Chicago Trust Company of New York (the
"Rights Agent") as of September 5, 1996 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company
will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued
to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null
and void.
Medpartners, Inc. will furnish to any stockholder, upon request and without charge, a full statement of the powers,
designations, preferences, and relative, participating, optional, or other special rights of each class of stock or series thereof
and the qualifications, limitations or restrictions of such preferences and/or rights and the authority of the Board of Directors to
fix and determine the relative rights and preferences of series of preferred and preference stock.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-________________ Custodian__________________
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with
right of survivorship and under Uniform Gifts to Minors Act
not as tenants in common
____________________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------
__________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
__________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________
___________________________________________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
_________________________________________________________________________________________________________ Attorney
to transfer the said Shares on the books of the within-named Corporation with full power of substitution in
the premises.
Dated _________________________________
_________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
----------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION"
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT
TO RULE 17Ad-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
----------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
----------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of September 20, 1997,
between MEDPARTNERS, INC., a Delaware corporation (together with any successor
corporation, "MedPartners"), and JOHN J. ARLOTTA, a resident of Whitefish Bay,
Wisconsin ("Executive").
WITNESSETH:
WHEREAS, MedPartners and its subsidiaries and affiliates are engaged in
providing medical practice management services throughout the United States; and
WHEREAS, MedPartners currently employs Executive as Chief Operating Officer
of Caremark Pharmaceutical Group, and Executive is willing to continue such
employment;
WHEREAS, MedPartners and Executive desire to enter into this Agreement to
document their understandings and agreements with respect to Executive's
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
September 20, 1997, 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
September 20, 1997, and shall remain in full force and effect through December
31, 1999. Such term shall be automatically extended for an additional year upon
expiration of its initial term or any renewal term, unless, at least 60 days
prior to such expiration, either Executive or MedPartners gives the other party
written notice of intent to terminate the Agreement at the end of such term.
1
<PAGE>
Section 3. Powers and Duties.
Executive shall be employed by MedPartners during the term of employment
under this Agreement as Chief Operating Officer of Caremark Pharmaceutical
Group. 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 President and Chief
Operating Officer of MedPartners ("President").
In carrying out his duties under this Agreement, Executive shall have such
powers and duties usually incident to the office of Chief Operating Officer of
Caremark Pharmaceutical Group. 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 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; provided, however, Executive shall be permitted to continue his present
investment and involvement with CustomerCare Corporation based in Milwaukee,
Wisconsin.
Section 4. Place of Performance.
The headquarters for the performance of Executive's duties shall be located
in Northbrook, Illinois, 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 $300,000 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 President.
2
<PAGE>
(b) Executive shall be eligible to receive a guaranteed annual Performance
Bonus of up to 50% of his Base Salary in accordance with MedPartners' Incentive
Compensation Plan. All bonus payments shall be made after February 15 of the
year following the year for which such bonus payments are earned.
(c) In addition to any stock options heretofore granted by MedPartners
to Executive, Executive shall receive options to purchase 100,000 shares of
MedPartners' Common Stock, to vest 100% on October 1, 1999 with no vesting to
occur prior to that date except as otherwise provided in Section 10(c) hereof.
Except for the vesting provisions described in the preceding sentence, such
options shall be subject to the terms and provisions of MedPartners' Stock
Option Plan and the documents relating thereto.
(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) four (4) weeks of vacation during each year of this Agreement;
(b) payment of dues for such professional societies and associations of
which Executive is a member in furtherance of his duties hereunder;
(c) consideration, at least annually, by the Board of Directors for the
grant to Executive of options to purchase Common Stock of MedPartners, subject
to the terms of MedPartners' stock option plans;
(d) relocation costs if Executive elects to move from Whitefish Bay,
Wisconsin to the Chicago area in accordance with MedPartners' relocation policy
for executives, which shall include, without limitation, costs for movement of
household goods and certain closing costs associated with the sale of
Executive's prior residence and purchase of Executive's new residence; and
(e) participation in the MedPartners executive benefits program, which
shall include, without limitation, an automobile allowance, an allowance for
personal estate and tax planning services and split-dollar life insurance.
3
<PAGE>
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) willful refusal by Executive to follow a lawful
order of the Chairman of the Board, Chief Executive Officer, President, the
Board of Directors or other executive of MedPartners to whom Executive reports
that is consistent with the duties of Executive, subject, however, to
Executive's right to receive written notice of the order not followed by
Executive and the opportunity to promptly follow the order; (ii) any act of
moral turpitude or Executive's willful engagement in conduct materially
injurious to the business interests of MedPartners or any of its subsidiaries
and affiliates (as determined by the President in his reasonable judgment);
(iii) Executive's conviction for any felony; or (iv) Executive's material breach
of his duties, responsibilities and obligations under this Agreement (except due
to Executive's incapacity as a result of physical or mental illness) that has
not been corrected or remedied within 60 days after Executive's receipt of
written notice from MedPartners specifying such breach; provided, however, (A)
such cure period may be extended if Executive is working diligently to cure such
breach and reasonably needs an extension to effect such cure, and (B) no such
cure period will be provided if, in the President's reasonable judgment, such
breach cannot be sufficiently corrected or remedied so as to avoid any material
detriment to MedPartners.
(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
4
<PAGE>
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 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
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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 Executive Vice
President 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) A reduction in Executive's Base Salary, as the same may be
increased from time to time, other than a reduction in connection with an
across-the-board salary reduction affecting MedPartners' employees at a
comparable level to Executive;
(ii) A material reduction in Executive's title, duties or
responsibilities unless replaced with a new title, duties or new
responsibilities of comparable stature or value to MedPartners within 30 days;
(iii) A material breach of this Agreement by MedPartners that is not
remedied within 30 days after receiving written notice from Executive of such
failure;
(iv) Any purported termination for Cause or Disability without
reasonable grounds therefor;
(v) Any change in Executive's primary work location from the
Chicago, Illinois area; or
(vi) Executive ceases to be operationally responsible for the
Caremark Pharmaceutical Group business.
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(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 that Executive wishes to
terminate this Agreement for any reason other than Good Reason not less than 90
days after such notice is given, such termination to be effective on the date
specified in such notice;
(b) Executive gives notice to MedPartners 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; or
(f) MedPartners gives notice to Executive that MedPartners wishes to
terminate this Agreement for any reason other than for Cause or due to
Executive's death, Disability or Retirement Date not less than 90 days after
such notice is given, such termination to be effective on the date specified in
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; and
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(ii) 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 Executive's Performance Bonus under Section 5(b)
through the date of termination, calculated on the basis of the sum of the total
achievable amounts of 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; 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.
(c) Upon the occurrence of an event of termination described in Sections
9(b) or 9(f), 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 Executive's Performance Bonus under Section 5(b)
through the date of termination, calculated on the basis of the sum of the total
achievable amounts of 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;
(iii) 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 a period of two
years;
(iv) continued payment of the total achievable amounts of Executive's
Performance Bonus under Section 5(b) for the current fiscal year (or, if
greater, of the total achievable amounts of Executive's Performance Bonus in
effect for the fiscal year most recently ended) for a period of two years;
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(v) 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;
(vi) subject to the terms and eligibility requirements of any such
plan, continued coverage for a period of two years following the date of
termination under any executive benefits program, 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 (vi) 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 (vi), 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;
(vii) a right to immediately vest in 100% of all options to purchase
Common Stock of MedPartners that have been granted to Executive by MedPartners
(including, without limitation, the options described in Section 5(c) hereof)
and a period of at least 90 days following termination for Executive to exercise
all such options in accordance with the terms thereof; and
(viii) 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.
(d) Payment of severance compensation under paragraph (c) of this Section
10 shall be conditioned upon Executive signing a Separation Agreement and
General Release in substantially the form attached hereto as Exhibit A, or such
other form of similar scope and content as may be mutually agreed by the
parties.
(e) Subject to Section 12 hereof, Executive shall be entitled to receive
severance compensation to the extent provided in this Agreement regardless of
whether Executive obtains other employment following termination of his
employment with MedPartners.
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
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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 an individual, entity or
group effecting a 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
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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
(but in any event for a period of not less than one year), Executive shall not,
directly or indirectly, (i) 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 businesses 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, or (ii) hire, permit the hiring of, offer to
hire, entice away or otherwise persuade or attempt to persuade any employee
(including any employee during the six (6) month period prior to Executive's
termination of service), officer, affiliated health care provider, supplier or
any prospective health care provider or supplier then negotiating with
MedPartners, to discontinue or alter its or their relationship with MedPartners
or any of its subsidiaries and affiliates; 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
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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. Change in Control.
Upon a Change in Control, Executive shall have no additional benefits beyond
those described in this Agreement, except that immediately upon the occurrence
of a Change in Control, Executive shall vest 100% in all options to purchase
Common Stock of MedPartners granted to Executive by MedPartners including,
without limitation, the options described in Section 5(c) hereof.
Section 14. 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 14, 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 15. Claims; Arbitration.
(a) All claims by Executive for compensation and benefits under this
Agreement shall be directed to and determined by the President and shall be in
writing. Any denial by the President 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 President shall afford a reasonable opportunity to Executive for a
review of a decision denying a claim and shall further allow Executive to appeal
any such decision to the President within 60 days after notification by the
President 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 Chicago, Illinois, 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.
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(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. (S) 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.
John J. Arlotta 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) Subject to Section 10(c)(viii), 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 16. 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 17. 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 18. 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 19. 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 20. Entire Agreement.
This instrument shall be governed by the laws of the State of Illinois 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 21. 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.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
MEDPARTNERS, INC.
_____________________________ By:__________________________________
JOHN J. ARLOTTA Title:_______________________________
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EXHIBIT A
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
1. General Release. I, John J. Arlotta ("Executive"), release, dismiss
---------------
and forever discharge MedPartners, Inc. ("MedPartners") and its affiliated
corporations and stockholders, officers, directors, employees, agents,
predecessors, successors, transferees and assigns from any and all actions,
causes of action, suits, damages, debts, claims, counterclaims, obligations and
liabilities of whatever nature, known or unknown, resulting or arising out of,
directly or indirectly, my employment relationship or the termination of my
employment relationship with MedPartners, including, without limitation by
reason of specification, any claims for breach of contract of any kind, wrongful
discharge of any kind, any tort claims of any kind, and any claims arising under
any federal, state, or local laws or ordinances prohibiting any form of
discrimination, including, without limitation by reason of specification, the
Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act
of 1964, the Older Workers Benefits Protection Act, the Americans with
Disabilities Act, the Civil Rights Act of 1991, and any common law claims now or
hereafter recognized. The foregoing release shall not, however, constitute a
release by Executive of MedPartners from its obligations under this Agreement.
2. Separation Date. Executive acknowledges that the last day of his
---------------
employment with MedPartners was ______________, ________________, 199__.
3. Non-Admission. Executive agrees and acknowledges that neither this
-------------
Agreement nor MedPartners' offer to enter into this Agreement should be
construed as an admission by MedPartners that it has acted wrongfully towards
Executive or any other employee, and that MedPartners expressly denies any
liability to, or wrongful acts against Executive on the part of itself, its
employees or its agents.
4. Severance Consideration. In full consideration and as material
-----------------------
inducement of signing this Agreement, MedPartners will, contingent upon the
expiration of the revocation period set forth in paragraph 7(e) herein, pay or
provide the compensation and benefits required to be paid under Section 10(c) of
the Employment Agreement dated as of September 20, 1997 between MedPartners and
Executive.
5. Other Employment Documents. MedPartners specifically retains the right
--------------------------
to enforce terms and provisions of Executive's Employment Agreement,
Confidentiality and Conflict of Interest Agreement and Property Agreement, Stock
Option Agreement and related documents, and other documents signed by Executive,
to the extent such terms and provisions survive termination of Executive's
employment.
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6. Confidentiality. Executive represents and agrees that Executive will
---------------
keep the terms, amount and fact of this Agreement completely confidential except
that Executive may disclose information concerning this Agreement (a) to his
immediate family, investment advisor, tax advisor, outplacement advisor,
accountant and attorney, provided that they agree to keep this information
confidential, (b) to the extent necessary to enforce the terms of this Agreement
or (c) if required by applicable law or court order.
7. Compliance with Law. Executive hereby acknowledges and agrees that
-------------------
this Agreement and the termination of his employment and all actions taken in
connection therewith are in compliance with the Age Discrimination in Employment
Act and the Older Workers Benefits Protection Act and that the release set forth
in paragraph 1 hereof shall be applicable, without limitation, to any claims
brought under these Acts. Executive further acknowledges and agrees that:
(a) The release given by Executive in this Agreement are given solely
in exchange for the consideration set forth in paragraph 4 of this Agreement and
such consideration is in addition to anything of value to which Executive
received prior to entering into this Agreement;
(b) By entering into this Agreement, Executive does not waive rights
or claims that may arise after the date of this Agreement is executed;
(c) Executive has been advised to consult an attorney prior to
entering into this Agreement, and this provision of this Agreement satisfies the
requirement of the Older Workers Benefits Protection Act that Executive be so
advised in writing;
(d) Executive has had at least twenty-one (21) days within which to
consider this agreement; and
(e) For a period of seven (7) days following execution of this
Agreement, Executive may revoke this Agreement and this Agreement shall not
become effective or enforceable until such seven (7) day period has expired.
8. Knowledgeable Decision by Executive. Executive has read all of the
-----------------------------------
terms of this Agreement and has had an opportunity to discuss it with
individuals of Executive's own choice, as limited by paragraph 6 of this
Agreement, who are not associated with MedPartners. Executive understands the
terms of this Agreement and that this Agreement releases MedPartners forever
from any legal action arising from Executive's employment relationship and the
termination of his employment relationship by MedPartners. Executive signs this
Agreement of his own free will in exchange for the consideration to be given to
Executive, which Executive acknowledges is adequate and satisfactory. Neither
MedPartners nor its agents, representatives,
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or employees have made any representations to Executive concerning the terms or
effects of this Agreement, other than those contained in the Agreement.
In witness whereof, the parties have executed this Agreement this ____ day
of __________________, 199__.
Executive: MedPartners:
MEDPARTNERS, INC.
/s/ John J. Arlotta By: /s/ Larry R. House
- ----------------------------- -----------------------------
JOHN J. ARLOTTA Title: President and CEO
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of March 15, 1998,
between MEDPARTNERS, INC., a Delaware corporation (together with any successor
corporation, "Company"), and ROSALIO JIMENEZ LOPEZ, M.D., a resident of La
Palma, California ("Executive").
WITNESSETH:
WHEREAS, Company and its subsidiaries and affiliates are engaged in
managing physician practices and providing health care services in locations
throughout the United States; and
WHEREAS, Executive is currently employed by Company as Chief Medical
Officer, and Company desires to continue Executive's employment in such capacity
pursuant to the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises, and other mutual promises
and covenants hereinafter contained, Company and Executive do hereby agree, for
their mutual benefit, as follows:
Section 1. Employment.
Executive shall be employed by Company under this Agreement, effective
March 15, 1998 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
March 15, 1998, and shall remain in full force and effect through December 31,
2000. Such term shall be automatically extended for an additional year upon
expiration of its initial term or any renewal term, unless, at least 90 days
prior to such expiration, either Executive or Company gives the other party
written notice of intent to terminate the Agreement at the end of such term.
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Section 3. Powers and Duties.
Executive shall be employed by Company during the term of employment under
this Agreement as the Chief Medical Officer of Company. In addition, Executive
shall also hold similar offices with Company' 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 Company ("CEO") or the CEO's
designee.
In carrying out his duties under this Agreement, Executive shall have such
powers and duties usually incident to the office of Chief Medical 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 Company 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 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 Company's other locations in the proper conduct of his
responsibilities under this Agreement. Due to the national scope of Company's
business, Company may require Executive to spend a reasonable amount of time
traveling, as his duties and the business of Company and its subsidiaries and
affiliates may require.
Section 5. Compensation.
For all services rendered by Executive pursuant to this Agreement, Company
shall pay Executive the following compensation:
(a) Executive shall be paid a Base Salary of $425,000.00 per year, payable
in accordance with Company's standard payroll practices for executive employees.
Executive's Base Salary shall be reviewed annually during the term of this
Agreement by the CEO or the CEO's designee.
(b) Executive shall be eligible to receive an annual Performance Bonus of
up to 50% of his Base Salary, based on Company's bonus plan in effect for its
executives. All bonus
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payments shall be made after January 1 of the year following the year for which
such bonus payments are earned.
(c) 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
Company to its employees and/or to its senior executives, such as life
insurance, health and dental, retirement, savings and disability plans which
Company has in effect or may adopt from time to time. Without limiting the
generality of the foregoing, Company shall provide Executive the following
during the term of this Agreement:
(a) reasonable vacation during each year of this Agreement;
(b) payment of dues for such professional societies and associations of
which Executive is a member in furtherance of his duties hereunder;
(c) consideration, at least annually, by the Board of Directors for the
grant to Executive of options to purchase Common Stock of Company, subject to
the terms of Company' stock option plans; and
(d) participation in the Company executive benefits program which shall
include, without limitation, an automobile allowance, an allowance for personal
estate and tax planning services, an insurance allowance for split-dollar life
insurance for Executive and Executive's spouse and payment of country club
membership initiation fees and dues.
Section 7. Expenses.
Executive is authorized to incur reasonable expenses in promoting the
business of Company and its subsidiaries and affiliates, including expenses, to
the extent used for business purposes, for entertainment, travel and similar
items. Company will reimburse Executive for all such expenses, upon the
presentation by him of an itemized account of such expenditures in accordance
with the Company expense reimbursement procedures.
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Section 8. Definitions.
As used in this Agreement, the following terms shall have the meanings set
forth below:
(a) "Cause" shall mean (i) failure of Executive to comply with a lawful
order or request of the Chairman of the Board, CEO, President, the Board of
Directors or other executive of Company to whom Executive reports that is
consistent with the duties of Executive; (ii) any act of moral turpitude or
other conduct by the Executive amounting to fraud, dishonesty, negligence,
willful misconduct or insubordination, as determined by the CEO in his
reasonable judgment; (iii) Executive's engagement in conduct detrimental to the
operations, reputation or business interests of the Company or any of its
subsidiaries and affiliates, as determined by the CEO in his reasonable
judgment; (iv) Executive's conviction for any felony; (v) inattention to or
unsatisfactory performance of Executive's duties or performance objectives
assigned to him from time to time during the term of this Agreement; or (vi) any
other breach by Executive of this Agreement or any other agreement between
Company and Executive.
(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
Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities
of Company 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 Company, (2) any acquisition
by Company, (3) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Company or any
corporation controlled by Company, 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 of Company (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 Company' 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
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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 Company (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 Company or all or substantially all of
Company' 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 Company 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 Company of a complete
liquidation or dissolution of Company.
(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
Company-sponsored long-term disability program covering Executive, and Executive
qualifies for such benefits. In the absence of a Company-sponsored long-term
disability program covering Executive, Executive shall be presumed totally and
permanently disabled if so determined by the [TITLE OF 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) A reduction in Executive's Base Salary, as the same may be
increased from time to time, other than a reduction in connection with an
across-the-board salary reduction affecting Company' employees at a comparable
level to Executive;
(ii) A material reduction in Executive's title or responsibilities
unless replaced with a new title or new responsibilities of comparable stature
or value to Company within 30 days;
(iii) A material breach of this Agreement by Company that is not
remedied within 30 days after receiving written notice from Executive of such
failure;
(iv) Any purported termination for Cause or Disability without
reasonable grounds therefor; or
(v) 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 Company' 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 Company 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;
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(b) Executive gives notice to Company 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) Company gives notice to Executive that Company 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) Company gives notice to Executive prior to the occurrence of a Change
in Control that Company wishes to terminate this Agreement for any reason other
than for Cause or due to Executive's death, Disability or Retirement Date not
less than 90 days after such notice is given, such termination to be effective
on the date specified in such notice.
(g) Company gives notice to Executive following the occurrence of a Change
in Control that Company 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
(h) Executive gives notice to Company 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 Company 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) 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 a period of six
(6) months; and
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(iii) payment of any life insurance, disability or other benefits, if
any, for which Executive is then eligible under the terms of Company' 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 Executive's Performance Bonus under Section 5(b)
through the date of termination, calculated on the basis of the sum of the total
achievable amounts of 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;
(iii) a lump sum payment equal to six (6) months 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);
(iv) payment of any life insurance, disability or other benefits, if
any, for which Executive is then eligible under the terms of Company' employee
retirement, benefit and welfare plans; and
(v) a right to immediately vest in 100% of all options to purchase
Common Stock of Company that have been granted to Executive by Company 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) or 9(f), 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 Executive's Performance Bonus under Section 5(b)
through the date of termination, calculated on the basis of the sum of the total
achievable amounts of 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;
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(iii) 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 a period of three
(3) years;
(iv) continued payment of the total achievable amounts of Executive's
Performance Bonus under Section 5(b) for the current fiscal year (or, if
greater, of the total achievable amounts of Executive's Performance Bonus in
effect for the fiscal year most recently ended) for a period of three (3) years;
(v) payment of any life insurance, disability or other benefits, if
any, for which Executive is then eligible under the terms of Company' employee
retirement, benefit and welfare plans;
(vi) subject to the terms and eligibility requirements of any such
plan, continued coverage, for a period of three (3) years following the date of
termination, under any employee retirement, benefit and welfare plans of Company
for which Executive is then eligible; provided that, (A) if Executive's
participation in any such plan is not permitted under the terms thereof, Company
will use reasonable best efforts to provide or arrange comparable coverage for
Executive, (B) Company' obligation under this paragraph (vi) 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 Company plan pursuant to this
paragraph (vi), 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 Company and relating specifically to Executive; and
(vii) a right to immediately vest in 100% of all options to purchase
Common Stock of Company that have been granted to Executive by Company and a
period of at least 90 days following termination for Executive to exercise all
such options in accordance with the terms thereof.
(d) Upon the occurrence of an event of termination described in Section
9(g) or 9(h), 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 Executive's Performance Bonus under Section 5(b)
through the date of termination, calculated on the basis of the sum of the total
achievable amounts of 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;
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(iii) a lump sum payment equal to three (3) times 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);
(iv) a lump sum payment equal to three (3) times the total achievable
amounts of Executive's Performance Bonus under Section 5(b) for the current
fiscal year (or, if greater, of the total achievable amounts of Executive's
Performance Bonus in effect for the fiscal year most recently ended);
(v) payment of any life insurance, disability or other benefits, if
any, for which Executive is then eligible under the terms of Company' employee
retirement, benefit and welfare plans;
(vi) subject to the terms and eligibility requirements of any such
plan, continued coverage, for a period of three (3) years following the date of
termination, under any employee retirement, benefit and welfare plans of Company
for which Executive is then eligible; provided that, (A) if Executive's
participation in any such plan is not permitted under the terms thereof, Company
will use reasonable best efforts to provide or arrange comparable coverage for
Executive, (B) Company' obligation under this paragraph (vi) 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 Company plan pursuant to this
paragraph (vi), 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 Company and relating specifically to Executive; and
(vii) a right to immediately vest in 100% of all options to purchase
Common Stock of Company that have been granted to Executive by Company and a
period of at least 90 days following termination for Executive to exercise all
such options in accordance with the terms thereof.
(e) Payment of severance compensation under paragraphs (c) and (d) of this
Section 10 shall be conditioned upon Executive signing a Separation Agreement
and General Release in substantially the form attached hereto as Exhibit A, or
such other form of similar scope and content as may be mutually agreed by the
parties.
Section 11. Certain Additional Payments By Company.
(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 Company 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
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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 Company 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 Company. 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 Company. Any Gross-Up Payment,
as determined pursuant to this Section 11, shall be paid by Company to Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon Company 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 Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that Company 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 Company to or for Executive's benefit.
(b) Executive shall notify Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by Company 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 Company of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such
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claim prior to the expiration of the 30-day period following the date on which
it gives such notice to Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If Company notifies
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive shall:
(i) give Company any information reasonably requested by Company
relating to such claim,
(ii) take such action in connection with contesting such claim as
Company 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 Company,
(iii) cooperate with Company in good faith in order effectively to
contest such claim, and
(iv) permit Company to participate in any proceeding relating to such
claim; provided, however, that Company 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, Company 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 Company shall determine; provided, however, that if
Company directs Executive to pay such claim and sue for a refund, Company 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, Company' 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 Company pursuant
to Section 11(b), Executive becomes entitled to receive any refund with respect
to such claim, Executive shall (subject to Company' complying with the
requirements of this Section 11(b)) promptly pay to Company the amount of such
refund (together with any interest paid or credited
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thereon after taxes applicable thereto). If, after Executive's receipt of an
amount advanced by Company pursuant to Section 11(b), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and Company 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
(but in any event for a period of not less than one year), Executive shall not,
directly or indirectly, (i) 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 businesses of Company, or
any subsidiary or affiliate thereof, in any county in a state where Company or
its subsidiaries or affiliates are conducting such business at the time of such
termination, or (ii) hire, permit the hiring of, offer to hire, entice away or
otherwise persuade or attempt to persuade any employee (including any employee
during the six (6) month period prior to Executive's termination of service),
officer, affiliated health care provider, supplier or any prospective health
care provider or supplier then negotiating with Company, to discontinue or alter
its or their relationship with Company or any of its subsidiaries and
affiliates; 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
Company 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 Company great and irreparable injury and
damage. Accordingly, Executive hereby agrees that Company 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
Company may have for damages or otherwise.
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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 Company or its
subsidiaries and affiliates to Executive or his assignee, transferee, pledgee or
to any other person whatsoever, and Company 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 CEO and shall be in
writing. Any denial by the CEO 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 CEO shall afford a reasonable opportunity to Executive for a review of a
decision denying a claim and shall further allow Executive to appeal any such
decision to the Board Of Directors within 60 days after notification by the CEO
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 the State of California, 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. (S) 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.
Rosalio Jimenez Lopez, M.D. For Company:
--------------------------- ---------------------------
(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
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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, Company 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) Each party shall pay its own legal fees and other expenses associated
with any dispute arising under this Agreement.
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 Company and its subsidiaries under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Company. 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 Company in Birmingham, Alabama, Attention: CEO
and Legal Department (if such notice is addressed to Company).
15
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Section 19. Entire Agreement.
This instrument shall be governed by the laws of the State of California
and contains the entire agreement of the parties with respect to the subject
matter hereof and supersedes Executive's Employment Agreement dated as of
September 1, 1997 previously executed by the parties and any other agreements,
whether written or oral, between the parties relating to the subject matter
hereof. 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, INC.
_______________________________ By:_______________________________
ROSALIO JIMENEZ LOPEZ, M.D. Title:______________________________
Date Executed:___________________ Date Executed:______________________
16
<PAGE>
EXHIBIT A
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
1. General Release. I, _____________________________ ("Executive"),
---------------
hereby release and discharge forever MedPartners, Inc. ("Company") and each of
its divisions, affiliates and subsidiaries, and each of their respective current
and former directors, officers, boards, administrators, shareholders, employees,
trustees, agents, attorneys, related and affiliated companies and entities,
predecessors, successors and assigns (hereinafter collectively referred to as
the "Released Parties"), of and against all liabilities, claims, causes of
action, charges, complaints, obligations, costs, losses, damages, injuries,
attorneys' fees, and other legal responsibilities (collectively referred to as
"claims"), of any form whatsoever, including but not limited to any claims in
law, equity, contact or tort, or any claims under the California Labor Code,
California Business and Professions Code, California Fair Employment and Housing
Act, Title VII of the Civil Rights Act of 1964, as amended, Americans With
Disabilities Act, Employee Retirement Income Security Act (except of vested
benefits with are not affected by this Agreement), the Age Discrimination in
Employment Act, or any other claim under any local ordinance or federal or state
statute, or any claims for wages, stock, commissions, overtime, sick pay,
vacation pay, paid leave benefits, severance pay, bonuses, penalties, interest
or any other compensation, employment perquisites or benefits, whether known or
unknown, unforeseen, unanticipated, unsuspected or latent, which Executive or
his successors in interest now own or hold, or have at any time heretofore owned
or held, or may at any time own or hold by reason of any matter or thing arising
from any cause whatsoever prior to the date of execution of this instrument, and
without limiting the generality of the foregoing, from all claims, demands and
causes of action based upon, relating to, or arising out of Executive's
employment relationship with Company or any of the Released Parties and the
termination of that relationship, or arising from Company's rejection of any
application of Executive subsequent to the Separation Date (as hereinafter
defined) to be employed by Company or any of Company's affiliated organizations,
in any capacity, at any location, at any time.
2. Separation Date. Executive acknowledges that the last day of his
---------------
employment with Company was ______________, ________________, 199__. Following
the Separation Date, Executive agrees to cooperate with Company in effecting a
smooth transition of his duties and to cooperate with Company in connection with
any litigation or other business matters relating to Company activities during
the period Executive was employed by Company. Executive shall receive no
additional compensation for such cooperation, except for reimbursement of
reasonable out-of-pocket fees and expenses submitted in accordance with standard
Company policies and procedures.
3. Non-Admission. Executive agrees and acknowledges that neither this
-------------
Agreement nor Company's offer to enter into this Agreement should be construed
as an admission by
17
<PAGE>
Company that it has acted wrongfully towards Executive or any other employee,
and that Company expressly denies any liability to, or wrongful acts against
Executive on the part of itself, its employees or its agents.
4. Severance Consideration. In full consideration and as material
-----------------------
inducement of signing this Agreement, Company will, upon the expiration of the
revocation period set forth in paragraph 7(e) herein, pay or provide the
compensation and benefits described in Paragraph 5(a) of the Employment
Agreement dated as of September 1, 1997 with Company.
5. Other Employment Documents. Company specifically retains the right to
--------------------------
enforce terms and provisions of Executive's Employment Agreement,
Confidentiality and Conflict of Interest Agreement and Property Agreement, Stock
Option Agreement and related documents, and other documents signed by Executive
to the extent such terms and provisions survive termination of Executive's
employment.
6. Confidentiality. Executive represents and agrees that Executive will
---------------
keep the terms, amount and fact of this Agreement completely confidential and
that Executive will not hereafter disclose any information concerning this
Agreement to anyone, except Executive's immediate family, investment advisor,
tax advisor, outplacement advisor, accountant and attorney, provided that they
agree to keep this information confidential, or to enforce the terms of this
Agreement.
7. Compliance with Law. Executive hereby acknowledges and agrees that
-------------------
this Agreement and the termination of his employment and all actions taken in
connection therewith are in compliance with the Age Discrimination in Employment
Act and the Older Workers Benefits Protection Act and that the release set forth
in paragraph 1 hereof shall be applicable, without limitation, to any claims
brought under these Acts. Executive further acknowledges and agrees that:
(a) The release given by Executive in this Agreement are given solely
in exchange for the consideration set forth in paragraph 4 of this Agreement and
such consideration is in addition to anything of value to which Executive
received prior to entering into this Agreement;
(b) By entering into this Agreement, Executive does not waive rights
or claims that may arise after the date of this Agreement is executed;
(c) Executive has been advised to consult an attorney prior to
entering into this Agreement, and this provision of this Agreement satisfies the
requirement of the Older Workers Benefits Protection Act that Executive be so
advised in writing;
(d) Executive has had at least twenty-one (21) days from
________________, 199__ within which to consider this agreement; and
18
<PAGE>
(e) For a period of seven (7) days following execution of this
Agreement, Executive may revoke this Agreement and this Agreement shall not
become effective or enforceable until such seven (7) day period has expired.
8. Executive further understands and agrees that all rights under Section
1542 of the California Civil Code are hereby expressly waived by Executive.
Said Section reads as follows:
"Section 1542. [Certain claims not affected by general release.] A
general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the
release, which if known to him must have materially affected his
settlement with the debtor."
Notwithstanding the provisions of Section 1542, and for the purpose of
implementing a full and complete release and discharge of all claims, Executive
expressly acknowledges that this Agreement is intended to include in its effect,
without limitation, all claims which Executive does not know or suspect to exist
in his favor at the time of execution hereof, and that the settlement agreed
upon contemplates the extinguishment of any such claim or claims.
9. Knowledgeable Decision by Executive. Executive has read all of the
-----------------------------------
terms of this Agreement and has had an opportunity to discuss it with
individuals of Executive's own choice, as limited by paragraph 6 of this
Agreement, who are not associated with Company. Executive understands the terms
of this Agreement and that this Agreement releases Company forever from any
legal action arising from Executive's employment relationship and the
termination of his employment relationship by Company. Executive signs this
Agreement of his own free will in exchange for the consideration to be given to
Executive, which Executive acknowledges is adequate and satisfactory. Neither
Company nor its agents, representatives, or employees have made any
representations to Executive concerning the terms or effects of this Agreement,
other than those contained in the Agreement.
In witness whereof, the parties have executed this Agreement this ____ day
of __________________, 199__.
Executive: Company:
MEDPARTNERS, INC.
/s/ Rosalio J. Lopez By: /s/ Richard M. Scrusny
- ----------------------------- ----------------------------------
Title: Chief Executive Officer
-------------------------------
19
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EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
May 7, 1998 by and between MedPartners, Inc., a Delaware corporation
("Employer") and James H. Dickerson, Jr. ("Officer").
WHEREAS, Employer desires to retain the services of Officer and Officer
desires to serve Employer in the capacity of Executive Vice President and Chief
Financial Officer; and
WHEREAS, Employer and Officer desire to set forth the terms and conditions
of Officer's employment with Employer under this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and agreements contained in this Agreement, the parties agree
as follows:
1. Term. Employer agrees to employ Officer, and Officer agrees to serve
----
Employer, in accordance with the terms of this Agreement, for a term (the
"Term") beginning on the date of this Agreement and ending, unless earlier
terminated in accordance with the provisions of this Agreement, on May 6, 2001.
2. Employment of Officer.
---------------------
(1) Specific Position. Employer and Officer agree that, subject to
-----------------
the provisions of this Agreement, Employer will employ Officer and Officer will
serve Employer as Executive Vice President and Chief Financial Officer. Employer
agrees that Officer's duties under this Agreement shall be the usual and
customary duties of an Executive Vice President and Chief Financial Officer and,
consistent with the foregoing, as are determined from time-to-time by the Chief
Executive Officer of Employer, and shall not be inconsistent with the provisions
of the Certificate of Incorporation of Employer or applicable law.
(2) Promotion of Employer's Business. Subject to the provisions of
--------------------------------
Section 2(c), during the Term Officer shall devote his full business time and
energy to the business, affairs and interests of Employer and related matters,
and shall use his best efforts and abilities to promote Employer's interests.
Officer agrees that he will diligently endeavor to perform services contemplated
by this Agreement in accordance with the policies established by the Chief
Executive Officer of Employer and the Board of Directors of Employer (the
"Board"), subject to the provisions of the second sentence of Section 2(a).
(3) Permitted Activities. Officer may serve as an officer, director,
--------------------
agent or employee of any direct or indirect subsidiary or other affiliate of
Employer but may not serve as
<PAGE>
an officer, director, agent or employee of any other business enterprise without
the written approval of the Chief Executive Officer of Employer.
(4) Principal Office. Officer's principal office and normal place of
----------------
work shall be at Employer's principal executive offices in Birmingham, Alabama.
3. Salary. During the Term, Employer shall pay Officer a base salary in
------
the amount of $400,000 per calendar year (pro-rated for any partial calendar
year during the Term) payable in equal semi-monthly installments, less state and
federal tax and other legally required and Officer-authorized withholdings. Such
base salary shall be subject to review and adjustment by the Board (or a
Committee of the Board) from time-to-time consistent with past practice;
provided, however, that, during the Term, such base salary may not be reduced
- -------- -------
below any previous level paid during the Term as a result of such review, unless
the salaries of all executive officers of Employer are reduced in the same
proportionate manner, but in no event shall such base salary be reduced below
$400,000 per calender year during the Term.
4. Signing Bonus. Promptly following execution hereof, Employer shall pay
-------------
Officer a signing bonus in the amount of $100,000, less state and federal tax
and other legally required and Officer-authorized withholdings.
5. Incentive Compensation. During the Term, Officer shall be eligible to
----------------------
receive from Employer annual incentive compensation in an amount up to one
hundred percent (100%) of Officer's base salary (pro-rated for any partial
calender year during the Term), less state and federal tax and other legally
required and Officer-authorized withholdings. The incentive compensation
contemplated by this Section 5 shall be payable to Officer solely at the
discretion of the Chief Executive Officer of Employer based upon Officer's
performance hereunder; provided, further, that promptly following execution
-------- -------
hereof Employer shall pay Officer $100,000 (less state and federal tax and other
legally required and Officer-authorized withholdings), which payment shall
represent an advance of incentive compensation payable to Officer pursuant to
this Section 5 for Employer's fiscal year ending December 31, 1998 and shall be
deemed earned by Officer upon Officer's receipt thereof. The incentive
compensation which Officer shall be eligible to earn under this Section 5 shall
be subject to review and adjustment by the Board (or a Committee of the Board)
from time-to-time consistent with past practice.
6. Non-Qualified Stock Options. Officer shall receive a stock option award
---------------------------
(the "Award") covering non-qualified stock options to acquire 400,000 shares of
common stock, par value $.001 per share, of Employer (the "Common Stock"), which
Award shall be made under the MedPartners, Inc. 1998 New Employee Stock Option
Plan (the "New Employee Plan") and shall be subject to the terms and conditions
of the New Employee Plan and the applicable stock option agreement evidencing
the Award thereunder. Employer and Officer further acknowledge and agree that
the: (a) Award constitutes a material inducement for Officer to enter into this
Agreement; and (b) stock option agreement evidencing the Award shall provide,
among other things, for accelerated vesting of the options evidenced thereby in
the case of the sale, transfer or other disposition, in a transaction or series
of related transactions, of a majority of the assets of
-2-
<PAGE>
any one of the Employer's three major lines of business as of the date hereof
(consisting of its physician practice management services business, pharmacy
benefit management services business and contract management services business).
7. Benefits.
--------
(1) Fringe Benefits. In addition to the compensation and other
---------------
remuneration provided for in Sections 3, 4, 5 and 6, Officer shall be entitled,
during the Term, to such other benefits of employment with Employer as are now
or may after the date of this Agreement be in effect for (i) salaried officers
of Employer or (ii) senior executives of Employer, including, without
limitation, all special bonus and deferred compensation, pension, stock option,
life and other insurance, disability (insured and uninsured), medical and dental
and other benefit plans or programs.
(2) Relocation Package. Officer shall be entitled to receive
------------------
Employer's standard relocation package as set forth in the MedPartners, Inc.
Relocation Policy and Procedure Statement attached hereto as Exhibit A.
(3) Expenses. During the Term, Employer shall reimburse Officer
--------
promptly for all reasonable travel, entertainment, parking, business meeting and
similar expenditures in pursuit and furtherance of Employer's business upon
receipt of reasonable supporting documentation as required by Employer's
policies applicable to its officers generally.
8. Termination.
-----------
(1) Termination Due to Resignation and Termination For Cause.
--------------------------------------------------------
Officer's employment under this Agreement shall be terminated and, except as
provided in this Section 8, all of Officer's rights to receive salary and other
benefits (except for salary, incentive compensation and other benefits accrued
through the date of termination) shall terminate upon the occurrence of (i)
Officer's resignation, other than for "good reason" as defined in Section 8(e),
or (ii) termination by Employer for "cause," as defined below. Employer shall
have the right, exercisable upon 30 days' written notice, to terminate, without
liability except as provided in the parenthetical in the preceding sentence,
Officer's employment for "cause" if Officer (i) materially breaches any material
term of this Agreement, (ii) is convicted by a court of competent jurisdiction
of a felony, (iii) refuses, fails or neglects to perform his duties under this
Agreement in a manner substantially detrimental to the business of the Employer,
(iv) engages in illegal or other wrongful conduct substantially detrimental to
the business or reputation of Employer, or (v) develops or pursues interests
substantially adverse to Employer; provided, however, that in the case of
-------- -------
clauses (i), (iii) or (v), no such termination shall be effective unless (1)
Employer shall have given Officer 30 days' prior written notice of any conduct
or deficiency in performance by Officer that Employer believes could, if not
discontinued or corrected, lead to Officer's termination under this Section 8(a)
in order that Officer shall have had an opportunity to cure such noncomplying
conduct or performance, and (2) Officer shall not have cured such noncomplying
conduct or performance during such notice period. In the event Officer's
-3-
<PAGE>
employment under this Agreement is terminated pursuant to this Section 8(a), any
stock option or other stock-based compensation award then held by Officer shall
be governed by the terms of the plan and/or agreement pursuant to which such
award was granted.
(2) Termination Due to Death or Disability. Officer's employment and
--------------------------------------
all of his rights to receive salary and other benefits under this Agreement may
be terminated by Employer upon Officer's death, or on 30 days' written notice
from Employer if Officer has been unable to perform substantially all of his
duties under this Agreement for a period of 180 days, or can reasonably be
expected to be unable to do so for such period, as the result of physical or
mental impairment; provided, however, that upon any termination by Employer
-------- -------
pursuant to this Section 8(b), Officer (or in the event of his death, his
estate) shall be entitled to receive the Specified Amount (as defined below), in
cash in a lump sum payment on the date of termination and any stock option or
other stock-based compensation award to Officer shall be governed by the terms
of the plan and/or agreement pursuant to which such award was granted. The term
"Specified Amount" shall mean the sum of: (i) the total of all salary payments
pursuant to Section 3 that would thereafter have come due during the Term had
there been no such termination; and (ii) any portion or portions of any bonus or
other cash incentive compensation that had been accrued with respect to Officer
on the books of Employer through the date of termination pursuant to this
Section 8(b) or otherwise.
(3) Termination Without Cause. Subject to compliance with the
-------------------------
provisions of Section 8(d), Employer shall have the right, exercisable on 30
days' written notice, to terminate Officer's employment under this Agreement
without cause at any time during the Term.
(4) Payments Upon Termination Without Cause. If Officer is terminated
---------------------------------------
by Employer without cause pursuant to Section 8(c), then (i) Officer shall be
entitled to receive the Specified Amount in a lump sum payment in cash on the
date of such termination; (ii) any stock option or other stock-based
compensation award to Officer shall be governed by the terms of the plan and/or
agreement pursuant to which such award was granted; and (iii) Officer shall be
entitled to continue to receive during the remainder of the Term the life and
other insurance, disability and medical and dental benefits contemplated by
Section 7 as if there had been no such termination.
(5) Termination By Officer For Good Reason. Officer shall be entitled
--------------------------------------
to terminate his employment under this Agreement for "good reason" and in such
event shall be entitled to all of the salary, benefits and other rights provided
in this Agreement as though the termination was initiated by Employer without
"cause" pursuant to Section 8(c). For purposes of this Agreement, "good reason"
shall mean any of the following events, which event shall continue for 30 days
after notice to the Employer, unless the event occurs with Officer's express
prior written consent:
(1) the assignment to Officer of any duties inconsistent with
Officer's status as Executive Vice President and Chief Financial Officer of
Employer;
-4-
<PAGE>
(2) a reduction by Employer in Officer's annual base salary below
$400,000 per calender year;
(3) the failure of Employer to comply with Sections 3, 4, 5, 6 or 7 of
this Agreement; or
(4) any other material breach of this Agreement by Employer.
(6) Termination Upon a Change of Control. In the event of a Change of
------------------------------------
Control (as hereinafter defined), Officer shall have the right to request at any
time during the 30 day period following the consummation of such Change of
Control that the surviving corporation or organization in such Change of Control
(the "Surviving Entity") acknowledge and confirm in writing to Officer that the
Surviving Entity has assumed all of Employer's rights and obligations hereunder
in connection with such Change of Control (the "Employment Confirmation"). If
the Surviving Entity in a Change of Control shall fail to provide Officer with
an Employment Confirmation within 30 days of Officer's written request for same,
then Officer shall be entitled to terminate his employment hereunder during the
period commencing 31 days after Officer's written request for an Employment
Confirmation and terminating 61 days after Officer's written request for an
Employment Confirmation. In the event Officer terminates his employment
hereunder pursuant to the immediately preceding sentence of this Section 8(f),
then Officer shall be entitled to: (i) those payments and rights provided under
Section 8(d) as though the termination has been initiated by Employer without
cause pursuant to Section 8(c); and (ii) a Gross-Up Payment (as hereinafter
defined), to the extent provided by the second paragraph of this Section 8(f).
For purposes hereof, a Change of Control shall be deemed to have taken place
upon the occurrence of any of the following events: (a) the acquisition after
the date of this Agreement, in one or more transactions, of beneficial ownership
(within the meaning of Rule 13d-3(a)(1) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) by any person or entity (other than
Officer) or group of persons or entities (other than Officer) who constitute a
group (within the meaning of Section 13(d)(3) of the Exchange Act) of any
securities of Employer such that as a result of such acquisition such person or
entity or group beneficially owns (within the meaning of Rule 13d-3(a)(1) under
the Exchange Act) more than 50% of Employer's then outstanding voting securities
entitled to vote on a regular basis for a majority of the Board; or (b) the sale
of all or substantially all of the assets of Employer (including, without
limitation, by way of merger, consolidation, lease or transfer) in a transaction
where Employer or the holders of common stock of Employer do not receive (i)
voting securities representing a majority of the voting power entitled to vote
on a regular basis for the Board of Directors of the acquiring entity or of an
affiliate that controls the acquiring entity or (ii) securities representing a
majority of the equity interests in the acquiring entity or of an affiliate that
controls the acquiring entity.
A Gross-Up Payment (as hereinafter defined) shall be payable upon
termination of employment pursuant to this Section 8(f) on and subject to the
following terms and conditions:
-5-
<PAGE>
(i) If Employer determines that any payment, option vesting or other
benefit (a "Termination Payment") to Officer under this Section 8(f) is or will
be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") or an Excise Tax is properly
assessed against Officer based on a Termination Payment, Employer shall pay to
Officer, at the time the applicable Termination Payment is made or the Excise
Tax is assessed, an additional amount (the "Gross-Up Payment") such that the net
amount retained by Officer, after the payment in full of any Excise Tax on such
Termination Payment and any federal, state and local income tax and Excise Tax
on the Gross-Up Payment and any related interest and penalties, shall be not
less than the amount or value of such Termination Payment. For purposes of
determining whether any such Termination Payment will be subject to the Excise
Tax, Employer shall take into account any other payments, option vesting or
benefits received or to be received by Officer in connection with an event
giving rise to a Termination Payment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with Employer, with any
person whose actions result in the Change of Control or with any person
affiliated with Employer or such person) in accordance with Section 280G of the
Code and any related regulations (whether temporary, proposed or final) and
Internal Revenue Service Rulings and applicable case law.
(ii) For purposes of determining the amount of any Gross-Up Payment,
Officer shall be deemed to pay federal income taxes at the highest marginal rate
of federal income taxation in the calendar year in which the applicable
Termination Payment or Gross-Up Payment is made, and shall be deemed to pay
state and local income taxes at the highest marginal rates of taxation in the
state and locality of Officer's residence on the date the applicable Termination
Payment or Gross-Up Payment is made, net of the maximum reduction in federal
income taxes that could be obtained from deduction of such state and local
taxes.
(iii) If the Excise Tax or income tax payable with respect to a
Gross-Up Payment as finally determined exceeds the amount taken into account or
paid to Officer at the time the applicable Termination Payment or Gross-Up
Payment is made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the applicable Gross-Up Payment),
Employer shall make an additional Gross-Up Payment in respect of such excess at
the time that the amount of such excess is finally determined.
(iv) If a Gross-Up Payment is made as a result of the assessment of an
Excise Tax, Officer at Employer's request and expense shall take such action as
reasonable and appropriate to challenge such assessment or recover (on
Employer's behalf) such Excise Tax.
-6-
<PAGE>
9. Trade Secrets, Confidentiality and Noncompetition.
-------------------------------------------------
(a) Trade Secrets. Officer agrees and covenants that, both during the
-------------
Term and after termination of his employment, Officer will hold in a fiduciary
capacity for the benefit of Employer, and shall not directly or indirectly use
or disclose, except as authorized by Employer in connection with the performance
of Officer's duties, any Trade Secret, as defined hereinafter, that Officer may
have or acquire during the Term for so long as the such information remains a
Trade Secret. The term "Trade Secret" as used in this Agreement shall mean
information including, but not limited to, technical or non-technical data, a
formula, a pattern, a compilation, a program, a device, a method, a technique, a
drawing, a process, financial data, financial plans, product plans, or a list of
actual or potential customers or suppliers, including without limitation,
information received by Employer or Officer from any client or potential client
of Employer, which:
(i) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value
from its disclosure or use; and
(ii) is the subject of reasonable efforts by Employer or the
client from which the information was received to maintain
its secrecy.
(b) Confidentiality. In addition to the covenants set forth in
---------------
Section 9(a) and not in limitation thereof, Officer agrees that, during the Term
and for a period of five (5) years after termination of his employment, Officer
will hold in a fiduciary capacity for the benefit of Employer and shall not
directly or indirectly use or disclose, except as authorized by Employer in
connection with the performance of Officer's duties, any Confidential or
Proprietary Information, as defined hereinafter, that Officer may have or
acquire (whether or not developed or compiled by Officer and whether or not
Officer has been authorized to have access to such Confidential or Proprietary
Information) during the Term. The term "Confidential or Proprietary
Information" as used in this Agreement means any secret, confidential or
proprietary information of Employer, including information received by Employer
or Officer from any client or potential client of Employer, not otherwise
included in the definition of "Trade Secret" in Section 9(a) above. The term
"Confidential or Proprietary Information" does not include information that has
become generally available to the public by the act of one who has the right to
disclose such information without violating any right of the client to which
such information pertains.
(c) Restrictions Supplemental to State Law. The restrictions set
--------------------------------------
forth in Sections 9(a) and (b) are in addition to and not in lieu of protections
afforded to trade secrets and confidential information under applicable state
law. Nothing in this Agreement is intended to or shall be interpreted as
diminishing or otherwise limiting Employer's right under applicable state law to
protect its trade secrets and confidential information.
-7-
<PAGE>
(d) Noncompetition. In order to protect any confidential information
--------------
that Officer may learn during the Term and in order to protect any goodwill that
Employer has earned and may earn during the Term, Officer agrees that, if
Officer voluntarily terminates this Agreement without good reason during the
Term he shall not, at any location within a fifty (50) mile radius of any office
of Employer or any subsidiary thereof, for a period of 12 months after such
termination, provide services, as an employee, officer, director, consultant or
otherwise, which services are substantially similar to the services performed by
Officer under this Agreement, for any company, firm or entity that is engaged in
Employer's Business (as hereinafter defined). For purposes hereof, Employer's
Business shall consist of: (a) the provision of physician practice management
services; (b) the provision of prescription benefit management services; (c) the
organization and management of physicians and other healthcare professionals
engaged in the delivery of emergency, radiology and teleradiology services,
primary care and temporary staffing and support services to hospitals, clinics,
managed care organizations, correctional facilities, Department of Defense
facilities and government-affiliated physician groups; and (d) the provision of
occupational health services to corporate industrial clients.
10. Miscellaneous.
-------------
(a) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and shall be binding upon Employer, its successors and assigns, and Employer
shall be entitled to assign its rights and obligations hereunder to the
surviving corporation or organization in a Change of Control without the consent
of Officer. The obligations and duties of Officer under this Agreement shall be
personal and not assignable by Officer.
(b) Notices. Any notice, request, instruction or other document to be
-------
given under this Agreement by any party to the others shall be in writing and
delivered in person or by courier, telegraphed, telexed or sent by facsimile
transmission or mailed by certified mail, postage prepaid, return receipt
requested (such mail notice to be effective on the date such receipt is
acknowledged), as follows:
If to Officer:
James H. Dickerson, Jr.
5109 Club Ridge Drive West
Birmingham, Alabama 35242
If to Employer:
MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attn: Chief Executive Officer
-8-
<PAGE>
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains the entire agreement of
----------------
the parties relating to the subject matter hereof, and it replaces and
supersedes any prior agreements between the parties relating to said subject
matter.
(d) Waiver and Amendment. No provision of this Agreement may be
--------------------
waived except by a written agreement signed by the waiving party. The waiver of
any term or of any condition of this Agreement shall not be deemed to constitute
the waiver of any other term or condition. This Agreement may be amended only
by a written agreement signed by each of the parties hereto.
(e) Governing Law. This Agreement shall be construed under and
-------------
governed by the internal laws of the State of Alabama.
(f) Arbitration. Except for a claim by Employer for injunctive
-----------
relief, any disputes or controversies arising out of or relating to this
Agreement including any breach hereof, Officer's employment or termination of
employment by Employer, including any claim of employment discrimination, or the
arbitrability of any matter under this Agreement, shall be settled by
arbitration in Birmingham, Alabama, in accordance with the Federal Arbitration
Act and the employment dispute arbitration rules of the American Arbitration
Association. Employer agrees to pay the administrative costs and expenses
required by such arbitration, including the fees and expenses of the
arbitrator(s). The determination and findings of such arbitrators shall be
final and binding on all parties and may be enforced, if necessary, in any court
of competent jurisdiction in the federal or state courts in Birmingham, Alabama.
(7) Attorneys' Fees in Action by Employee on Contract. In the event
-------------------------------------------------
of litigation or arbitration between Officer and Employer arising out of or as a
result of this Agreement or the acts of the parties pursuant to this Agreement,
or seeking an interpretation of this Agreement, if Officer is the party in such
litigation or arbitration, in addition to any other judgment or award, he shall
be entitled to receive such sums as the court or panel hearing the matter shall
find to be reasonable as and for attorneys' fees.
(8) Remedies of Employer. Officer acknowledges that the services he
--------------------
is obligated to render under the provisions of this Agreement are of a special,
unique and intellectual character, which gives this Agreement peculiar value to
Employer. The loss of these services cannot be reasonably or adequately
compensated in damages in an action at law and it would be difficult (if not
impossible) to replace such services. Accordingly, Officer agrees and consents
that, if he materially violates any of the material provisions of this
Agreement, including, without limitation, Section 9, Employer, in addition to
any other rights and remedies available under this Agreement or under applicable
law, shall be entitled during the remainder of the Term (and, in the case of
Section 9, after the Term to the extent provided in Section 9) to
-9-
<PAGE>
seek injunctive relief, from a court of competent jurisdiction, restraining
Officer from committing or continuing any violation of this Agreement, or from
the performance of services to any other business entity, or both.
(9) Captions. Captions have been inserted solely for the convenience
--------
of reference and in no way define, limit or describe the scope or substance of
any provisions of this Agreement.
(10) Severability. If this Agreement shall for any reason be or become
------------
unenforceable by any party, this Agreement shall thereupon terminate and become
unenforceable by the other party as well. In all other respects, if any
provision of this Agreement is held invalid or unenforceable, the remainder of
this Agreement shall nevertheless remain in full force and effect and, if any
provision is held invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect in all
other circumstances; provided, however, that if any one or more of the terms
-------- -------
contained in Section 9 shall for any reason be held to be excessively broad with
regard to time, duration, geographic scope or activity, that term shall not be
deleted but shall be reformed and construed in a manner to enable it to be
enforced to the greatest extent compatible with applicable law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Attest: MEDPARTNERS, INC.
By:
----------------------- By: /s/ E. M. Crawford
---------------------------
Name: E. Mac Crawford
--------------------- President and Chief Executive Officer
Title:
--------------------
/s/ James H. Dickerson, Jr.
---------------------------
James H. Dickerson, Jr.
-10-
<PAGE>
EXHIBIT A
---------
[Attach MedPartners, Inc. Relocation Policy and Procedures Statement]
-11-
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June 16, 1998 between
MEDPARTNERS, INC., a Delaware corporation (together with any successor
corporation, "Employer"), and Edward L. Hardin, Jr. ("Officer").
WITNESSETH:
WHEREAS, MedPartners and its subsidiaries and affiliates are engaged in
providing physician practice management services, pharmacy benefit management
services, disease management services and hospital-based physician services
(collectively, "Health care Services") throughout the United States; and
WHEREAS, Employer desires to avail itself of Officer's talents and
expertise in management of the Healthcare Services business of MedPartners, and
to employ him as Executive Vice-President and General Counsel of MedPartners,
and Officer is willing to accept such employment.
NOW THEREFORE, in consideration of the premises, and other mutual promises
and covenants hereinafter contained Employer and Officer do hereby agree, for
their mutual benefit, as follows:
Section 1. Employment.
- ---------
Officer shall be employed by MedPartners under this Agreement, effective on
the date hereof, and Officer 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
June 16, 1998 (the "Commencement Date"), 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 Commencement Date,
unless written notice of non-extension is provided by Employer to Officer at
least 30 days prior to such anniversary.
Section 3. Powers and Duties.
- ---------
In carrying out his duties under this Agreement, Officer shall have such
powers and duties usually incident to the offices of Executive Vice-President
and General Counsel and consistent with the foregoing, as are determined from
time-to-time by the Chief Executive Officer of Employer and shall not be
inconsistent with the provisions of the Certificate of Incorporation of Employer
or applicable law.
<PAGE>
Officer shall devote substantially all of his time and energies during
business hours to the supervision arid conduct, faithfully and to the best of
his ability, of the business and affairs of MedPartners; provided that it shall
not be a violation of this Agreement for the Officer to serve on the Board of
Directors of American Sports Medicine Institute, The Bombay Cafe, Inc., The
Merritt House Companies, and American Sports Fishing Company. The Officer shall
not be restricted 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 and which do not conflict with the
Employer's policies on conflicts of interest.
Officer may continue to devote time and attention to his former law
practice so as to facilitate the orderly resolution and/or transition of cases,
controversies and other matters associated with such law practice which are
pending as of the date hereof, provided such time and attention does not
interfere or conflict with the performance of Officer's duties hereunder in the
good faith determination of the Chief Executive Officer of Employer and provided
such time does not exceed five (5) business days. Officer also may serve as an
officer, director, agent or employee of any direct or indirect subsidiary or
other affiliate of Employer, but may not serve as an officer, director or agent
or employee of any other business enterprise without the written approval of the
Chief Executive Officer of the Employer.
Section 4. Place of Performance.
- ---------
The Officer shall perform his duties at the principal offices of
MedPartners located in Birmingham, Alabama, but from time to time Officer 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 Officer 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.
- ---------
During the Term, Employer shall pay Officer a salary in the amount of
$450,000 per year (pro-rated for any partial year during the Term) payable in
equal semi-monthly installments, less state and federal tax and other legally
required and Officer-authorized withholdings. Such salary shall be subject to
review and adjustment by the Board (or a Committee of the Board) from time-to-
time consistent with past practice; provided however, that during the Term, such
-------- -------
salary may not be reduced below any previous level paid during the Term as a
result of such review, unless the salaries of all executive officers of Employer
are reduced in the same proportionate manner, but in no event shall such base
salary be reduced below $450,000 per calendar year during the Term.
2
<PAGE>
Section 6. Incentive Compensation.
- ---------
During the Term, Officer shall be eligible to receive from Employer annual
incentive compensation in an amount up to one hundred percent (100%) of
Officer's base salary (pro-rated for any particular calendar year during the
term, except for 1998), where the incentive compensation will be in an amount up
to $400,000.00, less state and federal tax and other legally required and
Officer-authorized withholdings. The incentive compensation contemplated by
this Section 6 shall be payable to Officer solely at the discretion of the Chief
Executive Officer of Employer based upon Officer's performance. The incentive
compensation which Officer shall be eligible to earn under this Section 6 shall
be subject to review and adjustment by the Board (or a Committee of the Board)
from time-to-time consistent with past practice.
Section 7. Non-Qualified Stock Options
- ---------
Officer shall receive a stock option award (the "Award") covering non-
qualified stock options to acquire 400,000 shares of common stock, par value
$.001 per share, of Employer (the "Common Stock"), which Award shall be made
under the MedPartners, Inc. 1998 New Employee Stock Option Plan (the "New
Employee Plan") and shall be subject to the terms and conditions of the New
Employee Plan and the applicable stock option agreement evidencing the Award
thereunder. Employer and Officer further acknowledge and agree that the: (a)
Award constitutes a material inducement for Officer to enter into this
Agreement; and (b) stock option agreement evidencing the Award shall provide,
among other things, for accelerated vesting of the options evidenced thereby in
the case of the sale, transfer or other disposition, in a transaction or series
of related transactions, of a majority of the assets of any one of the
Employer's three major lines of business as of the date hereof (consisting of
its physician practice management services business, pharmacy benefit management
services business and contract management services business).
Section 8. Benefits
- ---------
(a) Fringe Benefits. In addition to the compensation and other
---------------
remuneration provided for in Sections 5,6, and 7, Officer shall be
entitled, during the term, to such other benefits of employment with
Employer as are now or may after the date of this Agreement, be in
effect for (i) salaried officers of Employers or (ii) senior
executives of Employer, including, without limitation, all special
bonus and deferred compensation, pension, stock option, life and
other insurance, disability (insured and uninsured), medical and
dental and other benefit plans or programs.
(b) Expenses. During the Term, Employer shall reimburse Officer promptly
--------
for all reasonable travel, entertainment, parking, business meeting
and similar expenditures in pursuit and furtherance of Employer's
business upon receipt of
3
<PAGE>
reasonable supporting documentation as required by Employer's
policies applicable to its officers generally.
Section 9. Termination
- ---------
(a) Termination Due to Resignation and Termination For Cause. Officer's
--------------------------------------------------------
employment under this Agreement shall be terminated and, except as
provided in this Section 9, all of Officer's rights to receive
salary and other benefits (except for salary, incentive compensation
and other benefits accrued through the date of termination) shall
terminate upon the occurrence of (i) Officer's resignation, other
than for "good reason" as defined in Section 9(e), or (ii)
termination by Employer for "cause", as defined below. Employer
shall have the right, exercisable upon 30 days' written notice, to
terminate, without liability except as provided in the parenthetical
in the preceding sentence, Officer's employment for "cause" if
Officer (i) materially breaches any material term of this Agreement,
(ii) is convicted by a court of competent jurisdiction of a felony,
(iii) refuses, fails or neglects to perform his duties under this
Agreement in a manner substantially detrimental to the business of
the Employer, (iv) engages in illegal or other wrongful conduct
substantially detrimental to the business or reputation of Employer,
or (v) develops or pursues interests substantially adverse to
Employer; provided, however, that in the case of clauses (i), (iii)
-------- -------
or (v), no such termination shall be effective unless (1) Employer
shall have given Officer 30 days' prior written notice of any
conduct or deficiency in performance by Officer that Employer
believes could, if not discontinued or corrected, lead to Officer's
termination under this Section 9(a) in order that Officer shall have
had an opportunity to cure such noncomplying conduct or performance,
and (2) Officer shall not have cured such noncomplying conduct or
performance during such notice period. In the event Officer's
employment under this Agreement is terminated pursuant to this
Section 9(a), any stock option or other stock-based compensation
award then held by Officer shall be governed by the terms of the
plan and/or agreement pursuant to which such award was granted.
(b) Termination Due to Death or Disability. Officer's employment and all
--------------------------------------
of his rights to receive salary and other benefits under this
Agreement may be terminated by Employer upon Officer's death, or on
30 days' written notice from Employer if Officer has been unable to
perform substantially all of his duties under this Agreement for a
period of 180 days, or can reasonably be expected to be unable to do
so for such period, as the result of physi cal or mental impairment;
provided, however, that upon any termination by Employer pursuant to
-------- -------
this Section 9(b), Officer (or in the event of his death, his
estate) shall be entitled to receive the Specified Amount (as
defined below), in cash in a lump sum payment on the date of
termination and any stock option or other stock-based compensation
award to
4
<PAGE>
Officer shall be governed by the terms of the plan and/or agreement
pursuant to which such award was granted. The term "Specified Amount"
shall mean the sum of: (i) the total of all salary payments pursuant
to Section 5 that would thereafter have come due during the Term had
there been no such termination; and (ii) any portion or portions of
any bonus or other cash incentive compensation that had been accrued
with respect to Officer on the books of Employer through the date of
termination pursuant to this Section 9(b) or otherwise.
(c) Termination Without Cause. Subject to compliance with the provisions
-------------------------
of Section 9(d), Employer shall have the right, exercisable on 30
days' written notice, to terminate Officer's employment under this
Agreement without cause at any time during the Term.
(d) Payments Upon Termination Without Cause. If Officer is terminated by
---------------------------------------
Employer without cause pursuant to Section 9(c), then (i) Officer
shall be entitled to receive the Specified Amount in a lump sum
payment in cash on the date of such termination; (ii) any stock option
or other stock-based compensation award to Officer shall be governed
by the terms of the plan and/or agreement pursuant to which such award
was granted; and (iii) Officer shall be entitled to continue to
receive during the remainder of the Term the life and other insurance,
disability and medical and dental benefits contemplated by Section 8
as if there had been no such termination.
(e) Termination By Officer For Good Reason. Officer shall be entitled to
--------------------------------------
terminate his employment under this Agreement for "good reason" and in
such event shall be entitled to all of the salary, benefits and other
rights provided in this Agreement as though the termination was
initiated by Employer without "cause" pursuant to Section 9(c). For
purpose of this Agreement, "good reason" shall mean any of the
following events, which event shall continue
(i) The assignment to Officer of any duties inconsistent with
Officer's status as Executive Vice President and General
Counsel of Employer;
(ii) a reduction by Employer in Officer's annual base salary below
$450,000 per calendar year;
(iii) the failure of Employer to comply with Sections 5,6, 7, or 8 of
this Agreement; or
(iv) any other material breach of this Agreement by Employer.
(f) Termination Upon a Change of Control. In the event of a Change in
------------------------------------
Control (as hereinafter defined), Officer shall have the right to
request at any time during the 30 day period following the
consummation of such Change of Control that the surviving corporation
or organization in such Change of Control (the "Surviving Entity")
acknowledge and confirm in writing to Officer that the Surviving
Entity
5
<PAGE>
has assumed all of Employer's rights and obligations hereunder
in connection with such Change of Control (the "Employment
Confirmation"). If the Surviving Entity in a Change of Control shall
fail to provide Officer with an Employment Confirmation confirming
continued employment within 30 days of Officer's written request for
same, then Officer shall be entitled to terminate his employment
hereunder during the period commencing 31 days after Officer's written
request for an Employment Confirmation and terminating 61 days after
Officer's written request for an Employment Confirmation. In the event
Officer terminates his employment hereunder pursuant to the
immediately preceding sentence of this Section 9(f), then Officer
shall be entitled to: (i) those payments and rights provided under
Section 9(d) as though the termination has been initiated by Employer
without cause pursuant to Section 9(c); and (ii) a Gross-Up Payment
(as hereinafter defined), to the extent provided by the second
paragraph of this Section 9(f). For purposes hereof, a Change of
Control shall be deemed to have taken place upon the occurrence of any
of the following events: (a) the acquisition after the date of this
Agreement, in one or more transactions, of beneficial ownership
(within the meaning of Rule 13d-3(a)(1) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) by any person or entity
(other than Officer) or group of persons or entities (other than
Officer) who constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act) of any securities of Employer such that
as a result of such acquisition such person or entity or group
beneficially owns (within the meaning of Rule 13d-3(a)(1) under the
Exchange Act) more than 50% of Employer's then outstanding voting
securities entitled to vote on a regular basis for a majority of the
Board; or (b) the sale of all or substantially all of the assets of
Employer (including, without limitation, by way of merger,
consolidation, lease or transfer) in a transaction where Employer or
the holders of common stock of Employer do not receive (i) voting
securities representing a majority of the voting power entitled to
vote on a regular basis for the Board of Directors of the acquiring
entity or of an affiliate that controls the acquiring entity or (ii)
securities representing a majority of the equity interests in the
acquiring entity or of an affiliate that controls the acquiring
entity.
A Gross-Up Payment (as hereinafter defined) shall be payable upon
termination of employment pursuant to this Section 9(f) on and subject to the
following terms and conditions:
(i) If Employer determines that any payment, option vesting
or other benefit (a "Termination Payment") to Officer
under this Section 9(f) is or will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") or
an Excise Tax is properly assessed against Officer based
on a Termination Payment, Employer shall pay to Officer,
at
6
<PAGE>
the time the applicable Termination Payment is made or
the Excise Tax is assessed, an additional amount (the
"Gross-Up Payment") such that the net amount retained by
Officer, after the payment in full of any Excise Tax on
such Termination Payment and any federal, state and local
income tax and Excise Tax on the Gross-Up Payment and any
related interest and penalties, shall be not less than
the amount or value of such Termination Payment. For
purposes of determining whether any such Termination
Payment will be subject to the Excise Tax, Employer shall
take into account any other payments, option vesting or
benefits received or to be received by Officer in
connection with an event giving rise to a Termination
Payment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with
Employer, with any person whose actions result in the
Change of Control or with any person affiliated with
Employer or such person) in accordance with Section 280G
of the Code and any related regulations (whether
temporary, proposed or final) and Internal Revenue
Service Rulings and applicable case law.
(ii) For purposes of determining the amount of any Gross-Up
Payment, Officer shall be deemed to pay federal income
taxes at the highest marginal rate of federal income
taxation in the calendar year in which the applicable
Termination Payment or Gross-Up Payment is made, and
shall be deemed to pay state and local income taxes at
the highest marginal rates of taxation in the state and
locality of Officer's residence on the date the
applicable Termination Payment or Gross-Up Payment is
made, net of the maximum reduction in federal income
taxes that could be obtained from deduction of such state
and local taxes.
(iii) If the Excise Tax or income tax payable with respect to a
Gross-Up Payment as finally determined exceeds the amount
taken into account or paid to Officer at the time the
applicable Termination Payment or Gross-Up Payment is
made (including by reason of any payment the existence or
amount of which cannot be determined at the time of the
applicable Gross-Up Payment), Employer shall make an
additional Gross-Up Payment in respect of such excess at
the time that the amount of such excess is finally
determined.
(iv) If a Gross-Up Payment is made as a result of the
assessment of an Excise Tax, Officer at Employer's
request and expense shall take such action as reasonable
and appropriate to challenge such assessment or recover
(on Employer's behalf) such Excise Tax.
Section 10. Trade Secrets, Confidentiality and Noncompetition
- ----------
7
<PAGE>
(a) Trade Secrets. Officer agrees and covenants that, both during
-------------
the Term and after termination of his employment, Officer will
hold in a fiduciary capacity for the benefit of Employer, and
shall not directly or indirectly use or disclose, except as
authorized by Employer in connection with the performance of
Officer's duties, any Trade Secret, as defined hereinafter, that
Officer may have or acquire during the Term for so long as the
such information remains a Trade Secret. The term "Trade Secret"
as used in this Agreement shall mean information including, but
not limited to, technical or non-technical data, a formula, a
pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans,
product plans, or a list of actual or potential customers or
suppliers, including without limitation, information received by
Employer or Officer from any client or potential client of
Employer, which:
(i) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value
from its disclosure or use; and
(ii) is the subject of reasonable efforts by Employer or the
client from which the information was received to maintain
its secrecy.
(b) Confidentiality. In addition to the convenants set forth in
---------------
Section 10(a) and not in limitation thereof, Officer agrees that,
during the Term and for a period of five (5) years after
termination of his employment, Officer will hold in a fiduciary
capacity for the benefit of Employer and shall not directly or
indirectly use or disclose, except as authorized by Employer in
connection with the performance of Officer's duties, any
Confidential or Proprietary Information, as defined hereinafter,
that Officer may have or acquire (whether or not developed or
compiled by Officer and whether or not Officer has been
authorized to have access to such Confidential or Proprietary
Information) during the Term. The term "Confidential or
Proprietary Information" as used in this Agreement means any
secret, confidential or proprietary information of Employer,
including information received by Employer or Officer from any
client or potential client of Employer, not otherwise included in
the definition of "Trade Secret" in Section 10(a) above. The
term "Confidential or Proprietary Information" does not include
information that has become generally available to the public by
the act of one who has the right to disclose such information
without violating any right of the client to which such
information pertains.
8
<PAGE>
(c) Restrictions Supplemental to State Law. The restrictions set
--------------------------------------
forth in Sections 10(a) and (b) are in addition to and not in
lieu of protections afforded to trade secrets and confidential
information under applicable state law. Nothing in this
Agreement is intended to or shall be interpreted as diminishing
or otherwise limiting Employer's right under applicable state law
to protect its trade secrets and confidential information.
(d) Noncompetition. In order to protect any confidential information
--------------
that Officer may learn during the Term and in order to protect
any goodwill that Employer has earned and may earn during the
Term, Officer agrees that, if Officer voluntarily terminates this
Agreement without good reason during the Term he shall not, at
any location within a fifty (50) mile radius of any office of
Employer or any subsidiary thereof, for a period of 12 months
after such termination, provide services, as an employee,
officer, director, consultant or otherwise, which services are
substantially similar to the services performed by Officer under
this Agreement, for any company, firm or entity that is engaged
in Employer's Business (as hereinafter defined). For purposes
hereof, Employer's Business shall consist of: (a) the provision
of physician practice management services; (b) the provision of
prescription benefit management services; (c) the organization
and management of physicians and other healthcare professionals
engaged in the delivery of emergency, radiology and teleradiology
services, primary care and temporary staffing and support
services to hospitals, clinics, managed care organizations,
correctional facilities, Department of Defense facilities and
government-affiliated physician groups; and (d) the provision of
occupational health services to corporate industrial clients.
Section 11. Miscellaneous
- ----------
(a) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and shall be binding upon Employer, its successors and
assigns, and Employer shall be entitled to assign its rights and
obligations hereunder to the surviving corporation or
organization in a Change of Control without the consent of
Officer. The obligations and duties of Officer under this
Agreement shall be personal and not assignable by Officer.
(b) Notices. Any notice, request, instruction or other document to
-------
be given under this Agreement by any party to the others shall be
in writing and delivered in person or by courier, telegraphed,
telexed or sent by facsimile transmission or mailed by certified
mail, postage prepaid, return receipt
9
<PAGE>
requested (such mail notice to be effective on the date such
receipt is acknowledged), as follows:
If to Officer:
Edward L. Hardin, Jr.
10 Augusta Way
Birmingham, AL 35242
If to Employer:
MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, AL 35244
Attn: Chief Executive Officer
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties relating to the subject matter hereof, and it
replaces and supersedes any prior agreements between the parties
relating to said subject matter.
(d) Waiver and Amendment. No provision of this Agreement may be
--------------------
waived except by a written agreement signed by the waiving party.
The waiver of any term or of any condition of this Agreement
shall not be deemed to constitute the waiver of any other term or
condition. This Agreement may be amended only by a written
agreement signed by each of the parties hereto.
(e) Governing Law. This Agreement shall be construed under and
-------------
governed by the internal laws of the State of Alabama.
(f) Arbitration. Except for a claim by Employer for injunctive
-----------
relief, any disputes or controversies arising out of or relating
to this Agreement including any breach hereof, Officer's
employment or termination of employment by Employer, including
any claim of employment discrimination, or the arbitrability of
any matter under this Agreement, shall be settled by arbitration
in Birmingham, Alabama, in accordance with the Federal
Arbitration Act and the employment dispute arbitration rules of
the American Arbitration Association. Employer agrees to pay the
administrative costs and expenses required by such arbitration,
including
10
<PAGE>
the fees and expenses of the arbitrator(s). The determination and
findings of such arbitrators shall be final and binding on all
parties and may be enforced, if necessary, in any court of
competent jurisdiction in the federal or state courts in
Birmingham, Alabama.
(g) Attorneys' Fees in Action by Employee on Contract. In the event
-------------------------------------------------
of litigation or arbitration between Officer and Employer arising
out of or as a result of this Agreement or the acts of the
parties pursuant to this Agreement, or seeking an interpretation
of this Agreement, if Officer is the party in such litigation or
arbitration, in addition to any other judgment or award, he shall
be entitled to receive such sums as the court or panel hearing
the matter shall find to be reasonable as and for attorneys'
fees.
(h) Remedies of Employer. Officer acknowledges that the services he
--------------------
is obligated to render under the provisions of this Agreement are
of a special, unique and intellectual character, which gives this
Agreement peculiar value to Employer. The loss of these services
cannot be reasonably or adequately compensated in damages in an
action at law and it would be difficult (if not impossible) to
replace such services. Accordingly, Officer agrees and consents
that, if he materially violates any of the material provisions of
this Agreement, including, without limitation, Section 10,
Employer, in addition to any other rights and remedies available
under this Agreement or under applicable law, shall be entitled
during the remainder of the Term (and, in the case of Section 10,
after the Term to the extent provided in Section 10) to seek
injunctive relief, from a court of competent jurisdiction,
restraining Officer from committing or continuing any violation
of this Agreement, or from the performance of services to any
other business entity, or both.
(i) Captions. Captions have been inserted solely for the convenience
--------
of reference and in no way define, limit or describe the scope or
substance of any provisions of this Agreement.
(j) Severability. If this Agreement shall for any reason be or
------------
become unenforceable by any party, this Agreement shall thereupon
terminate and become unenforceable by the other party as well.
In all other respects, if any provision of this Agreement is held
invalid or unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect and, if any
provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full
force and effect in all other circumstances; provided, however,
-------- -------
that if any one or more of the terms contained in Section 10
shall for any reason be held to be excessively broad with regard
to time, duration, geographic scope or
11
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activity, that term shall not be deleted but shall be reformed
and construed in a manner to enable it to be enforced to the
greatest extent compatible with applicable law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Attest: MEDPARTNERS, INC.
By: By: /s/ E. M. Crawford
------------------------------ --------------------------------
Name: E. Mac Crawford
---------------------------- President and Chief Executive
Title: Officer
---------------------------
/s/ Edward L. Hardin, Jr.
--------------------------------
Edward L. Hardin, Jr.
12
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EXHIBIT A
---------
[Attach MedPartners, Inc. Relocation Policy and Procedures Statement]
13
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EXHIBIT 10.18
AMENDED AND RESTATED
MEDPARTNERS, INC. INCENTIVE COMPENSATION PLAN
The Amended and Restated MedPartners, Inc. Incentive Compensation Plan
(the "Incentive Compensation Plan") is the result of the assumption and adoption
by MedPartners, Inc., a Delaware corporation, of the Caremark International Inc.
1992 Incentive Compensation Plan (the "Caremark Plan"), pursuant to the
provisions of that certain Plan and Agreement of Merger, dated as of May 13,
1996, by and among MedPartners, Inc., PPM Merger Corporation and Caremark
International Inc.
1. PURPOSE
-------
The purpose of this Incentive Compensation Plan is to increase
stockholder value and to advance the interests of MedPartners, Inc. and its
subsidiaries (collectively, "MedPartners" or the "Company") by awarding equity
and performance based incentives designed to attract, retain and motivate
employees. As used in this Incentive Compensation Plan, the term "subsidiary"
means any business, whether or not incorporated, in which MedPartners has an
ownership interest.
2. ADMINISTRATION
--------------
2.1 Administration by the Committee.
-------------------------------
The Incentive Compensation Plan shall be administered by the
Compensation Committee of the Board of Directors of MedPartners or by any other
committee appointed by the Board of Directors of MedPartners (the "Committee"),
which Committee shall consist solely of two or more Non- Employee Directors
("Non-Employee Directors") as such are defined in Rule 16b-3 promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision.
2.2 Authority.
---------
Subject to the provisions of this Incentive Compensation Plan, the
Committee shall have the authority to:
(a) manage and control the operation of this Incentive Compensation
Plan;
(b) interpret and construe any provision of this Incentive
Compensation Plan and any Award Agreement granted under it;
(c) prescribe, amend and rescind rules and regulations relating to
this Incentive Compensation Plan;
<PAGE>
(d) make awards under this Incentive Compensation Plan, in such forms
and amounts and subject to such restrictions, limitations and conditions as
it deems appropriate, including, without limitation, awards which are made
in combination with or in tandem with other awards (whether or not
contemporaneously granted) or compensation in lieu of current or deferred
compensation;
(e) modify the terms of, cancel and reissue, or repurchase outstanding
awards;
(f) prescribe the form of agreement, certificate, or other instrument
evidencing any award under this Incentive Compensation Plan (an "Award
Agreement"), provided that any such Award Agreement shall incorporate by
reference all of the terms and provisions of this Incentive Compensation
Plan as in effect at the time of grant and shall include such other terms
and provisions not contrary to the Incentive Compensation Plan as shall be
approved and adopted by the Committee;
(g) correct any defect or omission and reconcile any inconsistency in
this Incentive Compensation Plan or in any award hereunder; and
(h) make all other determinations and take all other actions as it
deems necessary or desirable for the implementation and administration of
this Incentive Compensation Plan.
The determination of the Committee on matters within its authority
shall be conclusive and binding on MedPartners and all other persons.
3. PARTICIPATION
-------------
Subject to the terms and conditions of this Incentive Compensation
Plan, the Committee shall determine and designate from time to time the
employees, directors and consultants of MedPartners who shall receive awards
under this Incentive Compensation Plan ("Participants").
4. SHARES SUBJECT TO THE INCENTIVE COMPENSATION PLAN
-------------------------------------------------
4.1 Number of Shares Reserved.
-------------------------
Shares of common stock, $.001 par value per share, of MedPartners
("Common Stock") shall be available for awards under this Incentive Compensation
Plan. To the extent provided by resolution of the Committee, such shares may be
uncertificated. Subject to adjustment in accordance with Sections 4.2 and 4.3,
the aggregate number of shares of Common Stock available for awards under this
Incentive Compensation Plan shall be 13,771,964 shares.
2
<PAGE>
4.2 Reusage of Shares.
-----------------
(a) In the event of the exercise or termination (by reason of
forfeiture, expiration, cancellation, surrender or otherwise) of any award
under this Incentive Compensation Plan, that number of shares of Common
Stock that was subject to the award but not delivered to the Participant
shall again be available for awards under this Incentive Compensation Plan.
(b) In the event that shares of Common Stock are delivered under this
Incentive Compensation Plan as Restricted Stock, as described in Section 6
hereof, or pursuant to a stock award and are thereafter forfeited or
reacquired by the Company pursuant to rights reserved upon the award
thereof, such forfeited or reacquired shares shall again be available for
awards under this Incentive Compensation Plan.
(c) Notwithstanding the provisions of paragraphs (a) or (b) of this
Section 4.2, the following shares shall not be available for reissuance
under this Incentive Compensation Plan: (i) shares with respect to which
the Participant has received the benefits of ownership (other than voting
rights), either in the form of dividends or otherwise; (ii) shares which
are withheld from any award or payment under this Incentive Compensation
Plan to satisfy tax withholding obligations (as described in Section
7.5(e)); (iii) shares which are surrendered to fulfill tax obligations (as
described in Section 7.5(e)); and (iv) shares which are surrendered in
payment of the Option Price (as defined in Section 5.2) upon the exercise
of a Stock Option, as described in Section 5 hereof.
4.3 Adjustments to Shares Reserved.
------------------------------
In the event of any merger, consolidation, reorganization,
recapitalization, spin-off, stock dividend, stock split, reverse stock split,
exchange or other distribution with respect to shares of Common Stock or other
change in the corporate structure or capitalization affecting the Common Stock,
the type and number of shares of stock which are or may be subject to awards
under this Incentive Compensation Plan and the terms of any outstanding awards
(including the price at which shares of stock may be issued pursuant to an
outstanding award) shall be equitably adjusted by the Committee, in its sole
discretion, to preserve the value of benefits awarded or to be awarded to
Participants under this Incentive Compensation Plan.
5. STOCK OPTIONS
-------------
5.1 Awards.
------
Subject to the terms and conditions of this Incentive Compensation
Plan, the Committee shall designate the employees to whom options to purchase
shares of Common Stock ("Stock Options") are to be awarded under this Incentive
Compensation Plan and shall determine the number, type and terms of the Stock
Options to be awarded to each of them; provided, however, that each Stock Option
-------- -------
designated as an "Incentive
3
<PAGE>
Stock Option" (as defined below) shall expire on the
earlier of the date provided by the option terms or the date which is ten years
after the date of grant. In addition, each Stock Option awarded to any person
who owns, directly or indirectly (or is treated as owning by reason of
attribution rules, currently set forth in Section 424 of the Internal Revenue
Code of 1986, as amended (the "Code")), stock of the Company constituting more
than 10% of the total combined voting power of the Company's outstanding stock,
or the stock of any of its corporate subsidiaries, shall expire on the earlier
of the date provided by the option terms or the date which is five years after
the date of the grant. Each Stock Option awarded under this Incentive
Compensation Plan shall be a "nonqualified stock option" for tax purposes,
unless the Stock Option satisfies all of the requirements of Section 422 of the
Code and the Committee designates such Stock Option as an "Incentive Stock
Option".
5.2 Manner of Exercise.
------------------
A Stock Option may be exercised, in whole or in part, by giving proper
notification to the Corporate Secretary of MedPartners prior to the date on
which the Stock Option expires; provided, however, that a Stock Option may only
-------- -------
be exercised with respect to whole shares of Common Stock. Such notice shall
specify the number of shares of Common Stock to be purchased and shall be
accompanied by payment of the Option Price for such shares (the "Option Price").
The Option Price of a Stock Option shall be determined in accordance with the
applicable provisions of the Code and shall in no event be less than the Fair
Market Value (as defined in Section 7.12) of the stock covered by the Stock
Option at the date of the grant; provided, however, that the Option Price of a
Stock Option granted to any person who owns, directly or indirectly (or is
treated as owning by reason of attribution rules, currently set forth in Section
424 of the Code), stock of the Company constituting more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or of
any affiliate of the Company, shall in no event be less than 110% of such Fair
Market Value.
5.3 Payment of Option Price.
-----------------------
No shares of Common Stock shall be issued on the exercise of an Option
unless paid for in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Company. In
addition, subject to compliance with applicable laws and regulations and such
conditions as the Committee may impose, the Committee may elect to accept
payment in shares of Common Stock of the Company which are already owned by the
optionee, valued at the Fair Market Value thereof on the date of exercise. The
Committee may also allow an optionee to exercise an Option by use of proceeds to
be received from the sale of Common Stock issuable pursuant to the Option being
exercised.
5.4 Vesting of Stock Options.
------------------------
Except as provided by the Committee in the applicable Award Agreement,
Stock Options shall vest and become exercisable as follows:
4
<PAGE>
(a) 34% of the Stock Options granted shall vest on the Stock Option
grant date;
(b) 33% of the Stock Options granted shall vest on each of the first
anniversary and second anniversary of the Stock Option grant date;
provided, however, that if during the first year after the Stock Option
-------- -------
grant date, the stock price of the Common Stock closes at or above $12.00
(or such other price as determined by the Committee and set forth in the
applicable Award Agreement) for any twenty (20) out of thirty (30)
consecutive trading days, the 33% of the Stock Options due to vest on the
first anniversary of the Stock Option grant date shall vest immediately at
the end of such 20th day, and provided, however, that if during the second
-------- -------
year after the Stock Option grant date, the stock price of the Common Stock
closes at or above $18.00 (or such other price as determined by the
Committee and set forth in the applicable Award Agreement) for any twenty
(20) out of thirty (30) consecutive trading days, the 33% of the Stock
Options due to vest on the second anniversary of the Stock Option grant
date shall vest immediately at the end of such 20th day.
6. RESTRICTED STOCK
----------------
6.1 Awards.
------
Subject to the terms and conditions of this Incentive Compensation
Plan, the Committee shall designate the Participants to whom shares of
"Restricted Stock" shall be awarded under this Incentive Compensation Plan and
determine the number of shares and the terms and conditions of each such award;
provided, however, that newly issued shares shall be issued as Restricted Stock
- -------- -------
only to the extent that the Committee determines that past services of the
Participant constitute adequate consideration for at least the par value
thereof. Each Restricted Stock award shall entitle the Participant to receive
shares of Common Stock upon the terms and conditions specified by the Committee
and subject to the following provisions of this Section 6.
6.2 Restrictions.
------------
All shares of Restricted Stock transferred or sold hereunder shall be
subject to such restrictions as the Committee may determine, including, without
limitation, any or all of the following:
(a) a required period of employment with the Company, as determined by
the Committee, prior to the vesting of the shares of Restricted Stock;
(b) a prohibition against the sale, assignment, transfer, pledge,
hypothecation or other encumbrance of the shares of Restricted Stock for a
specified period as determined by the Committee;
(c) a requirement that the holder of shares of Restricted Stock
forfeit (or in the case of shares sold to a Participant, resell back to the
Company at his cost) all
5
<PAGE>
or a part of such shares in the event of termination of his employment
during any period in which such shares are subject to restrictions; and
(d) a prohibition against employment of the holder of such Restricted
Stock by any competitor of the Company or against such holder's
dissemination of any secret or confidential information belonging to the
Company.
All restrictions on shares of Restricted Stock awarded pursuant to
this Incentive Compensation Plan shall expire at such time or times as the
Committee shall specify.
6.3 Registration of Shares.
----------------------
Shares of Restricted Stock awarded pursuant to this Incentive
Compensation Plan shall be registered in the name of the Participant and, if
such shares are certificated, at the discretion of the Committee, may be
deposited in a bank designated by the Committee or with MedPartners. The
Committee may require a stock power endorsed in blank with respect to shares of
Restricted Stock whether or not certificated.
6.4 Stockholder Rights.
------------------
Subject to the terms and conditions of this Incentive Compensation
Plan, during any period in which shares of Restricted Stock are subject to
forfeiture or restrictions on transfer, each Participant who has been awarded
shares of Restricted Stock shall have such rights of a stockholder with respect
to such shares as the Committee may designate at the time of the award,
including the right to vote such shares and the right to receive all dividends
paid on such shares. Unless otherwise provided by the Committee, stock
dividends or dividends in kind and, except as otherwise provided by Section
7.10, any other securities distributed with respect to Restricted Stock shall be
restricted to the same extent and subject to the same terms and conditions as
the Restricted Stock to which they are attributable.
6.5 Lapse of Restrictions.
---------------------
Subject to the terms and conditions of this Incentive Compensation
Plan, at the end of any time period during which the shares of Restricted Stock
are subject to forfeiture or restrictions on transfer, such shares will be
delivered free of all restrictions to the Participant (or to the Participant's
legal representative, beneficiary or heir).
6.6 Substitution of Cash.
--------------------
The Committee may, in its sole discretion, substitute cash equal to
the Fair Market Value (as described in Section 7.11) (determined as of the date
of the distribution) of shares of Common Stock otherwise required to be
distributed to a Participant in accordance with this Section 6.
6
<PAGE>
7. GENERAL
-------
7.1 Effective Date.
--------------
This Incentive Compensation Plan became effective the date that the
Caremark Plan was adopted by the Board of Directors of the former parent
corporation of Caremark International Inc.
7.2 Duration.
--------
This Incentive Compensation Plan shall remain in force and effect
until all awards made under this Incentive Compensation Plan have either been
satisfied by the issuance of shares of Common Stock or the payment of cash or
been terminated in accordance with the terms of this Incentive Compensation Plan
or the award and until all restrictions imposed on shares of Common Stock issued
under this Incentive Compensation Plan have lapsed. No Incentive Stock Option
award may be made under this Incentive Compensation Plan after the tenth
anniversary of the date that the Caremark Plan was adopted by the Board of
Directors of the former parent corporation of Caremark International Inc.
7.3 Non-Transferability of Incentives.
---------------------------------
(a) No share of Restricted Stock under this Incentive Compensation
Plan may be transferred, pledged or assigned by the holder thereof (except,
in the event of the holder's death, by will or the laws of descent and
distribution), and the Company shall not be required to recognize any
attempted assignment of such rights by any Participant. During a
Participant's lifetime, awards may be exercised only by him or by his
guardian or legal representative.
(b) (1) Incentive Stock Options. No incentive stock option granted
-----------------------
under the Incentive Compensation Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution. Further, all incentive stock options
granted to a Participant under the Incentive Compensation Plan shall be
exercisable during his or her lifetime only by such Participant.
(2) Nonqualified Stock Options. No nonqualified stock option granted
--------------------------
under the Incentive Compensation Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Notwithstanding the foregoing, to the extent
not prohibited by any statute, rule or regulation applicable to the Incentive
Compensation Plan, the nonqualified stock options or the registration with the
Securities and Exchange Commission of the Common Stock to be issued upon
exercise of the nonqualified stock options, the Committee may, in its
discretion, authorize all or a portion of nonqualified stock options granted to
a Participant to be on terms which permit transfer by such Participant to (i)
the spouse, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that (x) there
7
<PAGE>
may be no consideration for any such transfer, (y) the Award Agreement pursuant
to which such nonqualified stock options are granted must be approved by the
Committee, and must expressly provide for transferability in a manner consistent
with this Section, and (z) subsequent transfers of transferred nonqualified
stock options shall be prohibited except those by will or the laws of descent
and distribution. Following transfer, any such nonqualified stock options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of this Incentive
Compensation Plan, the term "Participant" shall be deemed to refer to the
transferee. The events of termination of employment shall continue to be applied
with respect to the original Participant, following which the nonqualified stock
options shall be exercisable by the transferee only to the extent, and for the
periods specified in Section 7.4. Notwithstanding the foregoing, should the
Committee provide that nonqualified stock options granted be transferable, the
Company by such action incurs no obligation to notify or otherwise provide
notice to a transferee of early termination of the nonqualified stock option. In
the event of a transfer, as set forth above, the original Participant is and
will remain subject to and responsible for any applicable withholding taxes upon
the exercise of such nonqualified stock options.
7.4 Effect of Termination of Employment or Death.
--------------------------------------------
(a) Except as provided in paragraphs (b) and (c) below, each Stock
Option, to the extent it has not been previously exercised, shall terminate
upon the earliest to occur of: (a) the expiration of the period set forth
in the Award Agreement; (b) the expiration of 12 months following the
Participant's death or permanent disability; (c) immediately upon the date
the Participant ceases to be an employee, officer, consultant or director
or otherwise affiliated with the Company for cause; or (d) the expiration
of 90 days following the date the Participant ceases to be an employee,
officer, consultant or director or otherwise affiliated with the Company
for any reason other than cause, death or permanent disability.
(b) Notwithstanding anything in this Incentive Compensation Plan to
the contrary, any Option granted on or after September 21, 1998 (a
"Secondary Option"), to the extent it has not been previously exercised,
shall terminate upon the earliest to occur of: (a) the expiration of the
Secondary Option period set forth in the Award Agreement; (b) the
expiration of 12 months following the Participant's death or permanent
disability; (c) immediately upon termination for Cause (as defined below);
or (d) the expiration of 90 days following the Participant's termination of
employment for any reason other than Cause (as defined below), Change in
Control (as defined in Section 7.10), death or permanent disability.
For purposes of the preceding sentence only, Cause means the
Company, subsidiary or an affiliate having cause to terminate a
Participant's status as an employee, officer, consultant or director or
other affiliation with the Company under any existing employment agreement
between the Participant and the Company, a subsidiary or an affiliate or,
in the absence of such an employment agreement, upon (i) the determination
by the Committee that the Participant has ceased to perform his duties to
the Company, a subsidiary or an
8
<PAGE>
affiliate (other than as a result of his incapacity due to physical or
mental illness or injury), which failure amounts to an intentional and
extended neglect of his duties to such party, (ii) the Committee's
determination that the Participant has engaged or is about to engage in
conduct materially injurious to the Company, a subsidiary or an affiliate,
or (iii) the Participant having been convicted of a felony.
(c) Notwithstanding the foregoing, any Secondary Option, to the extent
it has not been previously exercised prior to a Change in Control (as
defined in Section 7.10) shall remain exercisable for its full original
term upon and following such Change in Control.
7.5 Compliance with Applicable Law and Withholding.
----------------------------------------------
(a) Notwithstanding any other provision of this Incentive Compensation
Plan, MedPartners shall have no obligation to issue any shares of Common
Stock under this Incentive Compensation Plan if such issuance would violate
any applicable law or any applicable regulation or requirement of any
securities exchange or similar entity.
(b) Prior to the issuance of any shares of Common Stock under this
Incentive Compensation Plan, MedPartners or the Company may require a
written statement that the recipient is acquiring the shares for investment
and not for the purpose or with the intention of distributing the shares
and will not dispose of them in violation of the registration requirements
of the Securities Act of 1933.
(c) With respect to any person who is subject to Section 16(a) of the
Exchange Act, the Committee may, at any time, add such conditions and
limitations to any award under this Incentive Compensation Plan that it
deems necessary or desirable to comply with the requirements of Rule 16b-3.
(d) If, at any time, MedPartners, in its sole discretion, determines
that the listing, registration or qualification (or any updating of any
such document) of any type of award, or the shares of Common Stock issuable
pursuant thereto, is necessary on any securities exchange or under any
federal or state securities or blue sky law, or that the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, any award, the issuance of shares of
Common Stock pursuant to any award, or the removal of any restrictions
imposed on shares subject to an award, such award shall not be made and the
shares of Common Stock shall not be issued or such restrictions shall not
be removed, as the case may be, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any conditions not acceptable to MedPartners.
(e) All awards and payments under this Incentive Compensation Plan are
subject to withholding of all applicable taxes and the Company shall have
the right to withhold from any award under this Incentive Compensation Plan
or to collect as a condition of any payment under this Incentive
Compensation Plan, as
9
<PAGE>
applicable, any taxes required by law to be withheld. To the extent
provided by the Committee, a Participant may elect to have any distribution
otherwise required to be made under this Incentive Compensation Plan to be
withheld or to surrender to the Company shares of Common Stock already
owned by the Participant to fulfill any tax withholding obligation.
7.6 No Continued Employment.
-----------------------
The Incentive Compensation Plan does not constitute a contract of
employment or continued service, and participation in this Incentive
Compensation Plan will not give any employee or Participant the right to be
retained in the employ of the Company or the right to continue as a director of
the Company or any right or claim to any benefit under this Incentive
Compensation Plan unless such right or claim has specifically accrued under the
terms of this Incentive Compensation Plan or the terms of any award under this
Incentive Compensation Plan.
7.7 Treatment as a Stockholder.
--------------------------
Any award to a Participant under this Incentive Compensation Plan
shall not create any rights in such Participant as a stockholder of MedPartners
until shares of Common Stock are registered in the name of the Participant.
7.8 Deferral Permitted.
------------------
Payment of cash to a Participant or distribution of any shares of
Common Stock to which a Participant is entitled under any award shall be made as
provided in the terms of the award. Payment may be deferred at the option of
the Participant to the extent provided in the award.
7.9 Amendment of the Incentive Compensation Plan.
--------------------------------------------
The Committee may, at any time and in any manner, amend, suspend, or
terminate this Incentive Compensation Plan or any award outstanding under this
Incentive Compensation Plan; provided, however, that no such amendment or
-------- -------
discontinuance shall:
(a) be made without stockholder approval: (1) to the extent such
approval is required by law, agreement or the rules of any exchange or
automated quotation system upon which the Common Stock is listed or quoted
or (2) to the extent that any outstanding Stock Option is canceled and
regranted or repriced;
(b) adversely alter or impair the rights of Participants with respect
to awards previously made under this Incentive Compensation Plan without
the consent of the holder thereof; or
(c) make any change that would disqualify any provision of this
Incentive Compensation Plan, intended to be so qualified, from the
exemption provided by Rule 16b-3.
10
<PAGE>
7.10 Immediate Acceleration of Incentives.
------------------------------------
(a) Notwithstanding any provision in this Incentive Compensation Plan
to the contrary or the normal terms of vesting under any award, (i) the
restrictions on all shares of Restricted Stock awarded shall lapse
immediately and (ii) all outstanding Stock Options will become exercisable
immediately, if a Change in Control (as defined below) occurs. For purposes
of this Incentive Compensation Plan, a "Change in Control" shall have
occurred as of the first day that any one or more of the following
conditions shall have been satisfied:
(1) The acquisition by any Person of Beneficial Ownership of 20%
or more of either (i) the then outstanding shares of Common Stock of
the Company, or (ii) the combined voting power of the outstanding
voting securities of the Company entitled to vote generally in the
selection of Directors; provided, however, that for purposes of this
subsection, the following transactions shall not constitute a Change
of Control: (A) any acquisition directly from the Company through a
public offering of shares of Common Stock of the Company, (B) any
acquisition by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (D) any acquisition
by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (3) below;
(2) The cessation, for any reason, of the individuals who
constitute the Company's Board of Directors as of the date hereof
("Incumbent Board") to constitute at least a majority of the Company's
Board of Directors; provided, however, that any individual becoming a
Director following the date hereof whose election, or nomination for
election by the Company's 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 was a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs because 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 Company's Board of
Directors;
(3) The consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company ("Business Combination") unless, following such
Business Combination, (i) all or substantially all of the individuals
and entities who were the Beneficial Owners, respectively, of the
outstanding shares of Common Stock of the Company and the outstanding
voting securities of the Company immediately before such Business
Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of Common Stock and the
combined voting
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<PAGE>
power of the then outstanding voting securities entitled to vote
generally in the election of Directors, as the case may be, of the
Company resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership immediately before such Business
Combination of the outstanding shares of Common Stock and the
outstanding voting securities of the Company, as the case may be; (ii)
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 before
the Business Combination; and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Company's Board of Directors
at the time of the execution of the initial agreement, or of the
action of the Company's Board of Directors, providing for such
Business Combination; or
(4) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(5) Any other condition or event (i) that the Committee
determines to be a "Change in Control" within the meaning of this
Section 7.10 and (ii) that is set forth as a supplement to this
Section 7.10 in the Option Agreement.
The term "Beneficial Owner" or "Beneficial Ownership", as used in this
Section 7.10, has the meaning ascribed to such term in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act. The term "Person", as used in
this Section 7.10, shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
(b) Notwithstanding any other provision of this Incentive Compensation
Plan or any Award Agreement provision, the provisions of this Section 7.10 may
not be terminated, amended, or modified on or after the date of a Change in
Control to affect adversely any award theretofore granted under the Incentive
Compensation Plan without the prior written consent of the Participant with
respect to said Participant's outstanding awards.
7.11 Sale of Business Unit of Company.
--------------------------------
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The Committee, in connection with the sale of any subsidiary,
affiliate, division or other business unit of the Company, may within the
Committee's sole and absolute discretion (1) cause any or all Stock Options
granted hereunder to Participants whose Stock Options or rights under Stock
Options will be adversely affected by such transaction (a) to become immediately
exercisable, or (b) to remain exercisable after such transaction for such period
as the Committee deems appropriate under the circumstances, or both (a) and (b),
or (2) cause the restrictions on any or all shares of Restricted Stock awarded
hereunder to Participants whose Restricted Stock will be adversely affected by
such transaction to lapse immediately. The provision of this Section 7.11 and
the actions of the Committee taken pursuant to this Section 7.11 shall be
effective upon action of the Committee alone without amendment to any Award
Agreement or the consent of any Participant.
7.12 Definition of Fair Market Value.
-------------------------------
Except as otherwise determined by the Committee, the "Fair Market
Value" of a share of Common Stock as of any date shall be equal to the closing
sale price of a share of Common Stock as reported on The National Association of
Securities Dealers' New York Stock Exchange Composite Reporting Tape (or if the
Common Stock is not traded on The New York Stock Exchange, the closing sale
price on the exchange on which it is traded or as reported by an applicable
automated quotation system) (the "Composite Tape"), on the applicable date or,
if no sales of Common Stock are reported on such date, the closing sale price of
a share of Common Stock on the date the Common Stock was last reported on the
Composite Tape (or such other exchange or automated quotation system, if
applicable).
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<PAGE>
EXHIBIT 10.20
AMENDED AND RESTATED
MEDPARTNERS, INC.
1993 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purposes of this Amended and Restated MedPartners, Inc.
("MedPartners" or the "Company") 1993 Stock Option Plan (the "Plan") are to:
1.1. furnish incentives to individuals or entities chosen to receive
options because they are considered capable of responding by improving
operations and increasing profits;
1.2. encourage selected employees to accept or continue employment
with the Company or its Affiliates; and
1.3. increase the interest of selected employees, officers, directors
and consultants in the Company's welfare through their participation in the
growth in value of the common stock, $.001 par value, of the Company ("Common
Stock").
To accomplish the foregoing objectives, this Plan provides a means
whereby individuals and entities may receive options to purchase Common Stock.
Options granted under this Plan ("Options") will be either nonqualified options
("NQOs") or incentive stock options ("ISOs").
2. ELIGIBLE PERSONS
2.1. General. Every person who at the date on which an Option granted
-------
to such person becomes effective (the "Grant Date") is a full-time employee,
officer, director or consultant of the Company or of any Affiliate or any
individual or entity subject to an acquisition or management agreement with the
Company is eligible to receive Options under this Plan.
2.2. Definition of Affiliate. The term "Affiliate," as used in this
-----------------------
Plan, means a "parent corporation" or "subsidiary corporation," as defined in
Section 424 of the Internal Revenue Code of 1986 (as amended, the "Code"). The
term "employee" shall have the meaning ascribed for purposes of Section 3401(c)
of the Code and the Treasury Regulations promulgated thereunder and shall
include an officer or a director who is also an employee.
<PAGE>
3. STOCK SUBJECT TO THIS PLAN
The total number of shares of stock reserved for issuance upon the
exercise of Options is 1,555,000 shares of Common Stock, divided into 500,000
shares of Common Stock reserved for issuance upon the exercise of options that
may be granted in connection with the acquisition of the assets of or management
of physician practices (hereinafter referred to as "Acquisition Options") and
1,055,000 shares of Common Stock reserved for issuance upon the exercise of
options granted to employees, officers, consultants and members of the Board of
Directors of the Company (hereinafter referred to as "Management Options"). The
shares covered by the portion of any grant that expires unexercised under this
Plan shall become available again for grants under this Plan; provided, however,
-------- -------
that no Management Options may be granted as Acquisition Options and vice versa.
The number of shares reserved for issuance under this Plan is subject to
adjustment in accordance with the provisions for adjustment in this Plan.
4. ADMINISTRATION
4.1. General. This Plan shall be administered by the Compensation
-------
Committee of the Board of Directors or by any other committee appointed by the
Board of Directors (the "Committee"), which Committee shall consist solely of
two or more Non-Employee Directors ("Non-Employee Directors") as such are
defined in Rule 16b-3 promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor provision. The
Committee shall have the authority to select the persons to receive Options
under this Plan, 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 this Plan. Any act approved in writing by a majority of the members
of the Committee shall be a valid act of the Committee. All questions of
interpretation, construction, implementation and application of this Plan and
any Option Agreement awarded under it shall be determined by the Committee.
Such determinations shall be final and binding on all persons. No member of the
Board of Directors or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option granted
under the Plan.
5. GRANTING OF RIGHTS
5.1. Ten Year Limitation on Grants of ISOs. No ISOs shall be granted
under this Plan after ten years from the date the Board of Directors first
adopts the Plan.
5.2. Written Agreement; Effect. Each Option shall be evidenced by a
-------------------------
written agreement (the "Option Agreement"), in form satisfactory to the
Committee, executed by the Company and by the person to whom such Option is
granted. Each such Option Agreement shall incorporate by reference all of the
terms and conditions of the Plan as in effect at the time of its execution and
may contain such other terms and provisions not contrary to the Plan as shall be
approved and adopted by the Committee. The Option Agreement shall specify
whether each Option it evidences is a NQO or an ISO. Failure of the grantee to
execute an Option Agreement shall not void or invalidate
2
<PAGE>
the grant of an Option; the Option may not be exercised, however, until the
Option Agreement is executed.
5.3. Annual $100,000 Limitation on ISOs. To the extent required by
----------------------------------
Section 422(d) of the Code, the aggregate fair market value of shares of the
Common Stock with respect to which incentive stock options are exercisable for
the first time by any individual during any calendar year shall not exceed
$100,000. For this purpose, fair market value shall be the fair market value of
the shares covered by the ISOs when the ISOs were granted. If by their terms,
such ISOs taken together would first become exercisable at a faster rate, this
$100,000 limitation shall be applied by deferring the exercisability of those
ISOs or portions of ISOs which have the highest per share exercise prices. The
ISOs or portions of ISOs, the exercisability of which are so deferred, shall
become exercisable on the first day of the first subsequent calendar year during
which they may be exercised, as determined by applying these same principles of
this Section and all other provisions of this Section and all other provisions
of this Plan, including those relating to the expiration and termination of
ISOs.
5.4. Advance Approvals. The Committee may approve the grant of Options
-----------------
to persons who are expected to become employees, consultants or members of the
Board of Directors, of the Company, but are not employees, consultants or
members of the Board of Directors at the date of approval. In such cases, the
Option shall be deemed granted, without further approval, on the date the
grantee becomes an employee, and must satisfy all requirements of this Plan for
Options granted on that date.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option shall be designated as an ISO or a NQO and shall be
subject to the terms and conditions set forth in Section 6.1. NQOs shall also
be subject to the terms and conditions set forth in Section 6.2, but not those
set forth in Section 6.3. ISOs shall also be subject to the terms and
conditions set forth in Section 6.3, but not those set forth in Section 6.2.
6.1. Terms and Conditions to Which All Options Are Subject. All
-----------------------------------------------------
Options shall be subject to the following terms and conditions:
(a) Changes in Capital Structure. Subject to Section 6.1(b), if the
----------------------------
stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, or recapitalization, or converted into or exchanged
for other securities as a result of a merger, consolidation, or
reorganization, appropriate adjustments shall be made in (1) the number and
class of shares of stock subject to this Plan and each outstanding Option,
and (2) the exercise price of each outstanding Option; provided, however,
-------- -------
that the Company shall not be required to issue fractional shares as a
result of any such adjustment. Each such adjustment shall be determined by
the Committee in its sole discretion, which determination shall be final
and binding on all persons.
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<PAGE>
(b) Corporate Transactions. New option rights may be substituted for
----------------------
Options granted, or the Company's obligations as to outstanding Options may
be assumed, by an employer corporation other than the Company, or an
Affiliate thereof, in connection with any merger, consolidation,
acquisition, separation, reorganization, dissolution, liquidation, sale, or
like occurrence in which the Company is involved and which the Committee
determines, in its absolute discretion, would materially alter the
structure. Substitution shall be done in such manner that the then
outstanding Options which are ISOs will continue to be "incentive stock
options" within the meaning of Section 422 of the Code to the full extent
permitted thereby. Notwithstanding the foregoing or the provisions of
Section 6.1(a), if such an event occurs and if such employer corporation,
or an Affiliate thereof, does not substitute new option rights for, and
substantially equivalent to, the outstanding Options granted hereunder, or
assume the outstanding Options granted hereunder, or if there is no
employer corporation, or if the Committee determines, in its sole
discretion, that outstanding Options should not then continue to be
outstanding, the Committee may upon ten days' prior written notice to
optionees in its absolute discretion (1) shorten the period during which
Options are exercisable (provided they remain exercisable, to the extent
otherwise exercisable, for at least ten days after the date the notice is
given), or (2) cancel Options upon payment to the optionee in cash, with
respect to each Option to the extent then exercisable, of an amount which,
in the absolute discretion of the Committee, is determined to be equivalent
to any excess of the fair market value (at the effective time of the
dissolution, liquidation, merger, consolidation, acquisition, separation,
reorganization, sale or other event) of the consideration that the optionee
would have received if the Option had been exercised before the effective
time, over the exercise price of the Option; provided, however, if there is
-------- -------
a successor corporation and replacement options are not granted by the
successor corporation, all outstanding Options shall become exercisable
prior to the consummation of the transaction such that the optionees shall
have not less than ten days to exercise their Options and become
stockholders of record entitled to receive the consideration paid to the
other stockholders of the Company. If an optionee fails to exercise his
Option within any exercise period described in this paragraph and the
dissolution, liquidation, merger, consolidation, sale or other event is
consummated, his Option shall no longer be exercisable. Any unexercised
Option shall be canceled and terminated. Notwithstanding anything herein
to the contrary, nothing shall extend an optionee's right to exercise an
ISO after the expiration of ten years from the date it is granted. The
actions described in this Section may be taken without regard to any
resulting tax consequences to the optionee.
(c) Option Grant Date. Each Option Agreement shall specify the date as
-----------------
of which it shall be effective, which date shall be the Grant Date
(determined pursuant to Section 5.4 in the case of advance approvals).
(d) Fair Market Value. Except as otherwise determined by the
-----------------
Committee, the "Fair Market Value" of a share of Common Stock as of any
date shall be equal to the closing sale price of a share of Common Stock as
reported on
4
<PAGE>
The National Association of Securities Dealers' New York Stock Exchange
Composite Reporting Tape (or if the Common Stock is not traded on The New
York Stock Exchange, the closing sale price on the exchange on which it is
traded or as reported by an applicable automated quotation system) (the
"Composite Tape"), on the applicable date or, if no sales of Common Stock
are reported on such date, the closing sale price of a share of Common
Stock on the date the Common Stock was last reported on the Composite Tape
(or such other exchange or automated quotation system, if applicable).
(e) Transfer of Option Rights.
-------------------------
(1) Incentive Stock Options. No ISO granted under the Plan may be
-----------------------
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to an optionee under the Plan
shall be exercisable during his or her lifetime only by such optionee.
(2) Nonqualified Stock Options. No NQO granted under the Plan may
--------------------------
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, to the extent not
prohibited by any statute, rule or regulation applicable to the Plan,
the Options or the registration with the Securities and Exchange
Commission of the Common Stock to be issued upon exercise of the
Options, the Committee may, in its discretion, authorize all or a
portion of NQOs granted to an optionee to be on terms which permit
transfer by such optionee to (i) the spouse, children or grandchildren
of the optionee ("Immediate Family Members"), (ii) a trust or trusts
for the exclusive benefit of such Immediate Family Members, or (iii) a
partnership in which such Immediate Family Members are the only
partners, provided that (x) there may be no consideration for any such
transfer, (y) the Option Agreement pursuant to which such NQOs are
granted must be approved by the Committee, and must expressly provide
for transferability in a manner consistent with this Section, and (z)
subsequent transfers of transferred NQOs shall be prohibited except
those by will or the laws of descent and distribution. Following
transfer, any such NQOs shall continue to be subject to the same terms
and conditions as were applicable immediately prior to transfer,
provided that for purposes of this Plan, the term "optionee" shall be
deemed to refer to the transferee. The events of termination of
employment shall continue to be applied with respect to the original
optionee, following which the NQOs shall be exercisable by the
transferee only to the extent, and for the periods specified in
Section 6.1(g). Notwithstanding the foregoing, should the Committee
provide that NQOs granted be transferable, the Company by such action
incurs no obligation to notify or otherwise provide notice to a
transferee of early termination of the NQO. In the event of a
transfer, as set forth above, the original optionee is and will remain
subject to and
5
<PAGE>
responsible for any applicable withholding taxes upon the exercise of
such NQOs.
(f) Payment. No shares of Common Stock shall be issued on the
-------
exercise of an Option unless paid for in full at the time of exercise.
Payment shall be made in cash, which may be paid by check or other
instrument acceptable to the Company. In addition, subject to
compliance with applicable laws and regulations and such conditions as
the Committee may impose, the Committee may elect to accept payment in
shares of Common Stock of the Company which are already owned by the
optionee, valued at the Fair Market Value thereof on the date of
exercise. The Committee may also allow an optionee to exercise an
option by use of proceeds to be received from the sale of Common Stock
issuable pursuant to the Option being exercised.
(g) Termination. Except as provided in paragraphs (h) and (i)
-----------
below, each Option to the extent it has not been previously exercised,
shall terminate upon the earliest to occur of: (a) the expiration of
the term of the Option set forth in the Option Agreement; (b)
immediately upon the date the optionee ceases to be an employee,
officer, consultant or member of the Board of Directors or otherwise
affiliated with the Company (a "Termination") on account of cause; (c)
the expiration of 90 days following the date of a Termination of the
optionee for any reason other than cause, death or permanent
disability or (d) the expiration of 12 months following a Termination
of the optionee on account of death or permanent disability. A leave
of absence duly authorized by the Company shall not be deemed a
Termination or a break in continuous employment, service or
affiliation with the Company.
(h) Notwithstanding anything in the Plan to the contrary, any
Option granted on or after September 21, 1998 (a "Secondary Option"),
to the extent it has not been previously exercised, shall terminate
upon the earliest to occur of: (a) the expiration of the Secondary
Option period set forth in the Option Agreement; (b) the expiration of
12 months following the optionee's death or permanent disability; (c)
immediately upon Termination for Cause (as defined below); or (d) the
expiration of 90 days following the optionee's Termination for any
reason other than Cause (as defined below), Change in Control (as
defined in Section 7 heretofore), death or permanent disability.
For purposes of the preceding sentence only, Cause means the
Company or an Affiliate having cause to terminate an optionee's status
as an employee, officer, consultant or director or other affiliation
with the Company under any existing employment agreement between the
optionee and the Company or an Affiliate or, in the absence of such an
employment agreement, upon (i) the determination by the Committee that
the optionee has ceased to perform his duties to the Company or an
Affiliate (other than as a result of his incapacity due to physical or
mental illness or injury), which failure amounts to an intentional and
extended neglect of his duties to such party, (ii) the Committee's
determination that the optionee has engaged or is about to engage in
conduct
6
<PAGE>
materially injurious to the Company or an Affiliate, or (iii) the
optionee having been convicted of a felony.
(i) Notwithstanding the foregoing, any Secondary Option, to the
extent it has not been previously exercised prior to a Change in
Control (as defined in Article 7 heretofore) shall remain exercisable
for its full original term upon and following such Change in Control.
(j) Other Provisions. Each Option Agreement may contain such
----------------
other terms, provisions, and conditions not inconsistent with this
Plan, including rights of repurchase, as may be determined by the
Committee, and each ISO granted under this Plan shall include such
provisions and conditions as are necessary to qualify such option as
an "incentive stock option" within the meaning of Section 422 of the
Code.
(k) Withholding and Employment Taxes. At the time of exercise of
--------------------------------
an Option, the optionee shall remit to the Company in cash all
applicable federal and state withholding and employment taxes. If and
to the extent authorized and approved by the Committee in its sole
discretion, an optionee may elect, by means of a form of election to
be prescribed by the Committee, to have shares which are acquired upon
exercise of an Option withheld by the Company or tender other shares
of Common Stock or other securities of the Company owned by the
optionee to the Company at the time the amount of such taxes is
determined in order to pay the amount of such tax obligations, subject
to the following limitations:
(1) such election shall be irrevocable; and
(2) such election shall be subject to the disapproval of the
Committee at any time.
Any Common Stock or other securities so withheld or tendered will
be valued by the Company as of the date they are withheld or tendered. Unless
the Committee otherwise determines, the optionee shall pay to the Company in
cash, promptly when the amount of such obligations become determinable, all
applicable federal and state withholding taxes resulting from the lapse of
restrictions imposed on exercise of an Option, from a transfer or other
disposition of shares acquired upon exercise of an Option or otherwise related
to the Option or the shares acquired upon exercise of the Option.
6.2. Terms and Conditions to Which Only NQOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
(a) Option Term. Unless a different expiration date is specified
-----------
by the Committee at the Grant Date in the Option Agreement, each NQO shall
expire ten years from its Grant Date.
7
<PAGE>
6.3. Terms and Conditions to Which Only ISOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
(a) Exercise Price. The exercise price of an ISO shall be determined
--------------
in accordance with the applicable provisions of the Code and shall in no
event be less than the fair market value of the stock covered by the ISO at
the Grant Date; provided, however, that the exercise price of an ISO
-------- -------
granted to any person who owns, directly or indirectly (or is treated as
owning by reason of attribution rules, currently set forth in Section 424
of the Code), stock of the Company constituting more than 10% of the total
combined voting power of all classes of outstanding stock of the Company or
of any Affiliate of the Company, shall in no event be less than 110% of
such fair market value.
(b) Option Term. Unless an earlier expiration date is specified by the
-----------
Committee at the Grant Date in the Option Agreement, each ISO shall expire
ten years from its Grant Date; except that an ISO granted to any person who
owns, directly or indirectly (or is treated as owning by reason of
applicable attribution rules currently set forth in Section 424 of the
Code) stock of the Company constituting more than 10% of the total combined
voting power of the Company's outstanding stock, or the stock of any
Affiliate of the Company, shall expire five years from its Grant Date.
(c) Disqualifying Dispositions. If stock acquired by exercise of an
--------------------------
ISO is disposed of within two years from the Grant Date or within one year
after the transfer of the stock to the optionee, the holder of the stock
immediately prior to the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such
other information regarding the disposition as the Company may reasonably
require. Such holder shall pay to the Company any withholding and
employment taxes which the Company in its sole discretion deems applicable.
The Company may instruct its stock transfer agent by appropriate means,
including placement of legends on stock certificates, not to transfer stock
acquired by exercise of an ISO unless it has been advised by the Company
that the requirements of this Section have been satisfied.
6.4 Vesting of Options. Except as set forth by the Committee in the
------------------
applicable Option Agreement, Options shall vest and become exercisable as
follows:
(a) 34% of the Options shall vest on the Grant Date;
(b) 33% of the Options granted shall vest on each of the first
anniversary and second anniversary of the Grant Date; provided, however,
-------- -------
that if during the first year after the Grant Date, the stock price of the
Common Stock closes at or above $12.00 (or such other price determined by
the Committee and set forth in the applicable Option Agreement) for any
twenty (20) out of thirty (30) consecutive trading days, the 33% of the
Options due to vest on the first anniversary of the Grant Date shall vest
immediately at the end of such 20th day,
8
<PAGE>
and provided, however, that if during the second year after the Grant Date,
-------- -------
the stock price of the Common Stock closes at or above $18.00 (or such
other price determined by the Committee and set forth in the applicable
Option Agreement) for any twenty (20) out of thirty (30) consecutive
trading days, the 33% of the Options due to vest on the second anniversary
of the Grant Date shall vest immediately at the end of such 20th day.
7. CHANGE IN CONTROL
(a) Treatment of Outstanding Options. Unless otherwise specifically
--------------------------------
prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchanges, upon the
occurrence of a Change in Control, any and all Secondary Options granted
hereunder shall become immediately exercisable.
(b) Termination, Modification or Amendment of Change in Control Provisions.
---------- -----------------------------------------------------------
Notwithstanding any other provision of this Plan or any Option Agreement
provision, the provisions of this Article 7 may not be terminated, amended, or
modified on or after the date of a Change in Control to affect adversely any
Option theretofore granted under the Plan without the prior written consent of
the optionee with respect to said optionee's outstanding Options.
(c) Definition of Change in Control. A Change in Control of the Company
-------------------------------
shall be deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(1) The acquisition by any Person of Beneficial Ownership of 20%
or more of either (i) the then outstanding shares of Common Stock of
the Company, or (ii) the combined voting power of the outstanding
voting securities of the Company entitled to vote generally in the
selection of Directors; provided, however, that for purposes of this
subsection, the following transactions shall not constitute a Change
of Control: (A) any acquisition directly from the Company through a
public offering of shares of Common Stock of the Company, (B) any
acquisition by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (D) any acquisition
by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (3) below;
(2) The cessation, for any reason, of the individuals who
constitute the Company's Board of Directors as of the date hereof
("Incumbent Board") to constitute at least a majority of the Company's
Board of Directors; provided, however, that any individual becoming a
Director following the date hereof whose election, or nomination for
election by the Company's 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 was a member of the
Incumbent
9
<PAGE>
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs because 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 Company's Board of Directors;
(3) The consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company ("Business Combination") unless, following such
Business Combination, (i) all or substantially all of the individuals
and entities who were the Beneficial Owners, respectively, of the
outstanding shares of Common Stock of the Company and the outstanding
voting securities of the Company immediately before 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 Company resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership immediately
before such Business Combination of the outstanding shares of Common
Stock and the outstanding voting securities of the Company, as the
case may be; (ii) 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 before
the Business Combination; and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were members of the Company's Board of Directors
at the time of the execution of the initial agreement, or of the
action of the Company's Board of Directors, providing for such
Business Combination; or
(4) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(5) Any other condition or event (i) that the Committee
determines to be a "Change in Control" within the meaning of this
Article 7 and (ii) that is set forth as a supplement to this Article 7
in the Option Agreement.
10
<PAGE>
The term "Beneficial Owner" or "Beneficial Ownership", as used in this
Article 7, has the meaning ascribed to such term in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act. The term "Person", as used in
this Article 7, shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) thereof.
8. SALE OF BUSINESS UNIT OF COMPANY
The Committee, in connection with the sale of any subsidiary, Affiliate,
division or other business unit of the Company, may within the Committee's sole
and absolute discretion cause any or all Options granted hereunder to optionees
whose Options or rights under Options will be adversely affected by such
transaction (a) to become immediately exercisable, or (b) to remain exercisable
after such transaction for such period as the Committee deems appropriate under
the circumstances, or both (a) and (b). The provision of this Article 8 and the
actions of the Committee taken pursuant to this Article 8 shall be effective
upon action of the Committee alone without amendment to any option agreement or
the consent of any optionee.
9. MANNER OF EXERCISE
An optionee wishing to exercise an Option shall give proper
notification to the Company at its principal executive office, to the attention
of the Corporate Secretary, accompanied by a notice of exercise in form and
substance satisfactory to the Company, by payment of the exercise price for such
shares in a form and manner as the Committee may from time to time approve and
by such other documents as the Committee may request. The date the Company
receives proper notification of an exercise hereunder accompanied by payment of
the exercise price and all such other documents will be considered the date the
Option was exercised. Promptly after receipt of proper notification of exercise
of an Option, the Company shall, without stock issue or transfer taxes to the
optionee or any other person entitled to exercise the Option, deliver to the
optionee or such other person a certificate or certificates for the requisite
number of shares of stock. An optionee or transferee of an Option shall not
have any privileges as stockholder with respect to any stock covered by the
Option until the date of issuance of a stock certificate.
10. RELATIONSHIP WITH THE COMPANY
Nothing in this Plan or any Option granted hereunder shall interfere
with or limit in any way the right of the Company to terminate any optionee's
employment, affiliation or other relationship with the Company at any time, nor
confer upon any optionee any right to continue in the employ of, as a consultant
to, as a director of, or otherwise affiliated in any way with, the Company.
11. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
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The Committee may, at any time and in any manner, amend, suspend, or
termination this Plan or any award outstanding under this Plan; provided,
--------
however, that no such amendment or discontinuance shall:
- -------
(a) be made without stockholder approval: (1) to the extent such
approval is required by law, agreement or the rules of any exchange or
automated quotation system upon which the Common Stock is listed or quoted
or (2) to the extent that any outstanding Option is canceled and regranted
or repriced;
(b) adversely alter or impair the rights of optionees with respect to
awards previously made under this Plan without the consent of the holder
thereof; or
(c) make any change that would disqualify any provision of this Plan
intended to be so qualified, from the exemption provided by Rule 16b-3.
12. LIABILITY AND INDEMNIFICATION OF COMMITTEE
No member of the Committee shall be liable for any act or omission on
such member's own part, including, but not limited to, the exercise of any power
or discretion given to such member under this Plan, except for those acts or
omissions resulting from such member's own gross negligence or willful
misconduct. The Company shall indemnify each present and future member of the
Committee against, and each member of the Committee shall be entitled without
further act on his or her part to indemnity from the Company for, all expenses
(including attorneys' fees and the amount of judgments and the amount of
approved settlements made with a view to the curtailment of costs of litigation,
other than amounts paid to the Company itself) reasonably incurred by such
person in connection with or arising out of any action, suit, or proceeding to
which the Committee or any member of the Committee may be a party by reason of
any action taken or failure to act under or in connection with the Plan or any
option granted or not granted under the Plan to the full extent permitted by law
and by the Certificate of Incorporation and Bylaws of the Company, as amended.
The right of indemnity described in this Article 12 shall be in addition to such
other rights of indemnification as the members of the Committee shall otherwise
be entitled because of their serving on the Board of Directors of the Company or
as an employee of the Company.
13. EFFECTIVE DATE OF THIS PLAN
This Plan first became effective upon adoption by the Board of
Directors on December 16, 1993 and was amended and restated on May 12, 1997.
This Amended and Restated MedPartners, Inc. 1993 Stock Option Plan is an
amendment and restatement of that Plan and was adopted by the Committee on
September 21, 1998.
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EXHIBIT 10.21
MEDPARTNERS, INC.
1994 STOCK INCENTIVE PLAN
The MedPartners, Inc. 1994 Stock Incentive Plan is the result of the
assumption and adoption by MedPartners, Inc., a Delaware corporation, of the
1994 Stock Incentive Plan of InPhyNet Medical Management Inc., pursuant to the
provisions of that certain Plan and Agreement of Merger, dated as of June 26,
1997, by and among MedPartners Inc. and InPhyNet Medical Management Inc.
1. PURPOSE.
The purpose of the MedPartners, Inc. 1994 Stock Incentive Plan (the
"Plan") is to provide a means through which the Company and its Subsidiaries and
Affiliates may attract able persons to enter and remain in the employ of the
Company and its Subsidiaries and Affiliates, and to provide a means whereby
those key persons upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and
potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their commitment to
the welfare of the Company and promoting an identity of interest between
stockholders and these key persons.
A further purpose of the Plan is to provide such key persons with
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company. So that the appropriate incentive can be provided, the
Plan provides for granting Incentive Stock Options, Nonqualified Stock Options,
Restricted Stock Awards, or any combination of the foregoing.
2. DEFINITIONS.
The following definitions shall be applicable throughout the Plan.
"Affiliate" means any affiliate of the Company within the meaning of
17 CFR ss. 230.405.
"Award" means, individually or collectively, any Incentive Stock
Option, Nonqualified Stock Option or Restricted Stock Award.
"Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
"Board" means the Board of Directors of the Company.
"Cause" means the Company, a Subsidiary or an Affiliate having cause
to terminate a Participant's employment under any existing employment agreement
between the Participant and the Company, a Subsidiary or an Affiliate or, in the
absence of such
<PAGE>
an employment agreement, upon (i) the determination by the
Committee that the Participant has ceased to perform his duties to the Company,
or a Subsidiary or an Affiliate (other than as a result of his incapacity due to
physical or mental illness or injury), which failure amounts to an intentional
and extended neglect of his duties to such party, (ii) the Committee's
determination that the Participant has engaged or is about to engage in conduct
materially injurious to the Company, or a Subsidiary or an Affiliate, or (iii)
the Participant having been convicted of a felony.
"Change in Control" a Change in Control of the Company shall be
deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(a) The acquisition by any Person of Beneficial Ownership of 20%
or more of either (i) the then outstanding shares of Common Stock of the
Company, or (ii) the combined voting power of the outstanding voting
securities of the Company entitled to vote generally in the selection of
Directors; provided, however, that for purposes of this subsection, the
following transactions shall not constitute a Change of Control: (A) any
acquisition directly from the Company through a public offering of shares
of Common Stock of the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(D) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) below;
(b) The cessation, for any reason, of the individuals who
constitute the Company's Board of Directors as of the date hereof
("Incumbent Board") to constitute at least a majority of the Company's
Board of Directors; provided, however, that any individual becoming a
Director following the date hereof whose election, or nomination for
election by the Company's 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 was a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs because 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 Company's Board of Directors;
(c) The consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of
the Company ("Business Combination") unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the Beneficial Owners, respectively, of the outstanding shares of
Common Stock of the Company and the outstanding voting securities of the
Company immediately before 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
2
<PAGE>
the election of Directors, as the case may be, of the Company resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership immediately before such Business Combination of the outstanding
shares of Common Stock and the outstanding voting securities of the
Company, as the case may be; (ii) 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 before the Business Combination;
and (iii) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of
the Company's Board of Directors at the time of the execution of the
initial agreement, or of the action of the Company's Board of Directors,
providing for such Business Combination;
(d) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company; or
(e) Any other condition or event (i) that the Committee
determines to be a "Change in Control" within the meaning of this Section 2
and (ii) that is set forth as a supplement to this Section 2 in the Stock
Option Agreement.
"Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to such section and any regulations under such section.
"Committee" means the Compensation Committee of the Board or such
other committee as the Board may appoint to administer the Plan.
"Common Stock" means the common stock, par value $.001 per share, of
the Company.
"Company" means MedPartners, Inc.
"Date of Grant" means the date on which the granting of an Award is
authorized or such other date as may be specified in such authorization.
"Disability" means the complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which a
Participant was employed when such disability commenced or, if the Participant
was retired when such disability commenced, the inability to engage in any
substantial gainful activity, as determined by the Committee based upon medical
evidence acceptable to it.
3
<PAGE>
"Eligible Employee" means any person regularly employed by the Company
or a Subsidiary or Affiliate on a full-time salaried basis, and any independent
contractor of the Company or a Subsidiary or Affiliate, who satisfies all of the
requirements of Section 6.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, except as otherwise determined by the
Committee, an amount equal to the closing sale price of a share of Common Stock
as reported on The National Association of Securities Dealers' New York Stock
Exchange Composite Reporting Tape (or if the Common Stock is not traded on The
New York Stock Exchange, the closing sale price on the exchange on which it is
traded or as reported by an applicable automated quotation system) (the
"Composite Tape"), on the applicable date or, if no sales of Common Stock are
reported on such date, the closing sale price of a share of Common Stock on the
date the Common Stock was last reported on the Composite Tape (or such other
exchange or automated quotation system, if applicable).
"Holder" means a Participant who has been granted an Option or a
Restricted Stock Award.
"Incentive Stock Option" means an Option granted by the Committee to a
Participant under the Plan which is designated by the Committee as an Incentive
Stock Option pursuant to Section 422 of the Code.
"Non-Employee Director" means a Director of the Company who (i) is not
currently an officer or employee of the Company or any Subsidiary of the
Company; (ii) does not directly or indirectly receive any compensation from the
Company or any Subsidiary for services rendered as a consultant or in any other
non-director capacity that would exceed the $60,000 threshold for which
disclosure would be required under Item 404(a) of Regulation S-K; (iii) does not
possess an interest in any other transaction for which disclosure would be
required under Item 404(a) of Regulation S-K; and (iv) is not engaged in a
business relationship with the Company which would be disclosable under Item
404(b) of Regulation S-K.
"Nonqualified Stock Option" means an Option granted by the Committee
to a Participant under the Plan which is not designated by the Committee as an
Incentive Stock Option.
"Normal Termination" means termination:
(i) with respect to the Company or a Subsidiary, at retirement
(excluding early retirement) pursuant to the Company retirement plan then
in effect;
(ii) with respect to an Affiliate, at retirement (excluding early
retirement) pursuant to the retirement plan of such Affiliate then in
effect or, if the Affiliate has no such plan, at retirement upon or after
the attainment of age 65;
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<PAGE>
(iii) on account of Disability;
(iv) with the written approval of the Committee; or
(v) by the Company, a Subsidiary or Affiliate without Cause
(vi) voluntarily by the Holder for any reason other than Cause or
death.
"Option" means an Award granted under Section 7 of the Plan.
"Option Period" means the period described in Section 7(c).
"Participant" means an Eligible Employee who has been selected to
participate in the Plan and to receive an Award pursuant to Section 6.
"Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
"Plan" means the MedPartners, Inc. 1994 Stock Incentive Plan.
"Reporting Company" means the Company.
"Restricted Period" means, with respect to any share of Restricted
Stock, the period of time determined by the Committee during which such share of
Restricted Stock is subject to the restrictions set forth in Section 8.
"Restricted Stock" means shares of Common Stock issued or transferred
to a Participant subject to the restrictions set forth in Section 8 and any new,
additional or different securities a Participant may become entitled to receive
as a result of adjustments made pursuant to Section 10.
"Restricted Stock Award" means an Award granted under Section 8 of the
Plan.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock" means the Common Stock or such other authorized shares of
stock of the Company as the Committee may from time to time authorize for use
under the Plan.
"Subsidiary" means any subsidiary of the Company as defined in Section
424(f) of the Code.
3. EFFECTIVE DATE, DURATION AND STOCKHOLDER APPROVAL.
The Plan became effective on May 7, 1994, and no further Awards may be
made after May 7, 2004.
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<PAGE>
The Plan shall continue in effect until all matters relating to the
payment of Awards and administration of the Plan have been settled.
4. ADMINISTRATION.
The Committee shall administer the Plan. Each member of the Committee
shall, at the time he takes any action with respect to an Award under the Plan,
be a Non-Employee Director. The acts of a majority of the members present at any
meeting at which a quorum is present or acts approved in writing by a majority
of the Committee shall be deemed the acts of the Committee.
Subject to the provisions of the Plan, the Committee shall have
exclusive power to:
(a) Select the Eligible Employees to participate in the Plan;
(b) Determine the nature and extent of the Awards to be made to each
Participant;
(c) Determine the time or times when Awards will be made;
(d) Determine the conditions to which the payment of Awards may be
subject;
(e) Prescribe the form or forms evidencing Awards;
(f) Interpret and construe the terms and provisions of the Plan and
any form or forms evidencing Awards granted under the Plan; and
(g) Cause records to be established in which there shall be entered,
from time to time, as Awards are made to Participants, the date of each
Award, the number of Incentive Stock Options, Nonqualified Stock Options,
and shares of Restricted Stock awarded by the Committee to each
Participant, the expiration date, and the duration of any applicable
Restricted Period.
The Committee shall have the authority, subject to the provisions of
the Plan, to establish, adopt, or revise such rules and regulations and to make
all such determinations relating to the Plan as it may deem necessary or
advisable for the administration of the Plan. The Committee's interpretation of
the Plan or any form or forms evidencing Awards granted pursuant thereto and all
decisions and determinations by the Committee with respect to the Plan shall be
final, binding, and conclusive on all parties unless otherwise determined by the
Board.
5. GRANT OF OPTIONS AND RESTRICTED STOCK AWARDS; SHARES SUBJECT TO
THE PLAN.
The Committee may, from time to time, grant Awards of Options and/or
Restricted Stock to one or more Participants; provided, however, that:
6
<PAGE>
(a) Subject to Section 10, the aggregate number of shares of Stock
made subject to Awards may not exceed 2,950,000;
(b) Such shares shall be deemed to have been used in payment of Awards
whether they are actually delivered or the Fair Market Value equivalent of such
shares is paid in cash. In the event any Option or Restricted Stock shall be
surrendered, terminate, expire, or be forfeited, the number of shares of Stock
no longer subject thereto shall thereupon be released and shall thereafter be
available for new Awards under the Plan to the fullest extent permitted by Rule
16b-3 under the Exchange Act (if applicable at the time); and
(c) Stock delivered by the Company in settlement of Awards under the
Plan may be authorized and unissued Stock or Stock held in the treasury of the
Company or may be purchased on the open market or by private purchase at prices
no higher than the Fair Market Value at the time of purchase.
6. ELIGIBILITY.
Participants shall be limited to officers, key employees and
independent contractors of the Company and its Subsidiaries and Affiliates who
have received written notification from the Committee or from a person
designated by the Committee, that they have been selected to participate in the
Plan.
7. STOCK OPTIONS.
One or more Incentive Stock Options or Nonqualified Stock Options may
be granted to any Participant; provided, however, that Incentive Stock Options
may be granted only to employees of the Company or a Subsidiary. Each Option so
granted shall be subject to the following conditions:
(a) Option Price. The Option Price ("Option Price") per share of
------------
Common Stock shall be set by the Committee at the time of grant but shall not be
less than (i) in the case of an Incentive Stock Option, the Fair Market Value of
a share of Stock at the Date of Grant, and (ii) in the case of a Nonqualified
Stock Option, the par value per share of Stock.
(b) Manner of Exercise and Form of Payment. Options which have become
--------------------------------------
exercisable may be exercised by delivery of proper notification of exercise to
the Committee. No shares of Common Stock shall be issued on the exercise of an
Option unless the Option Price is paid in full at the time of the exercise.
Payment shall be made in cash, which may be paid by check or other instrument
acceptable to the Company. In addition, subject to compliance with applicable
laws and regulations and such conditions as the Committee may impose, the
Committee may elect to accept payment of the Option Price in shares of Common
Stock of the Company which are already owned by the Holder, valued at the Fair
Market Value thereof on the date of exercise. The Committee may also allow a
Holder to exercise an Option by the use of proceeds to be received from the sale
of Common Stock issuable pursuant to the Option being exercised.
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<PAGE>
(c) Other Terms and Conditions. If the Holder has not died or
--------------------------
terminated, the Option shall become exercisable in such manner and within such
period or periods ("Option Period"), not to exceed 10 years from its Date of
Grant, as set forth in the vesting schedule set forth in Section 7(i) hereof, or
as otherwise set forth in the Stock Option Agreement to be entered into in
connection therewith.
(d) Termination.
-----------
(i) Except as provided in paragraphs (ii) and (iii) below, each
Option to the extent it has not been previously exercised, shall terminate
upon the earliest to occur of: (a) the expiration of the term of the Option
set forth in the Stock Option Agreement; (b) the expiration of 12 months
following the Holder's death (if the Holder dies within the Option Period
or within 3 months after a Normal Termination (or such other period as may
have been established by the Committee)); (c) immediately upon the Holder
ceasing to be an employee, officer or consultant or otherwise affiliated
with the Company for Cause; or (d) 90 days following a Normal Termination.
(ii) Notwithstanding anything in the Plan to the contrary, any Option
granted on or after September 21, 1998 (a "Secondary Option"), to the
extent it has not been previously exercised, shall terminate upon the
earliest to occur of: (a) the expiration of the Secondary Option period set
forth in the Stock Option Agreement (as defined in paragraph (e)
heretofore); (b) the expiration of 12 months following the Holder's death
or Disability; (c) immediately upon termination for Cause; or (d) the
expiration of 90 days following the Holder's termination of employment for
any reason other than Cause, Change in Control, death or Disability.
(iii) Notwithstanding the foregoing, any Secondary Option, to the
extent it has not been previously exercised prior to a Change in Control
shall remain exercisable for its full original term upon and following such
Change in Control.
(e) Stock Option Agreement. Each Option granted under the Plan shall
----------------------
be evidenced by a "Stock Option Agreement" between the Company and the Holder of
the Option. Each Stock Option Agreement shall incorporate by reference the terms
and provisions of the Plan as in effect at the time of its execution and may
contain such other provisions not contrary to the Plan as may be determined by
the Committee, subject to the following terms and conditions:
(i) Each Option or portion thereof that is exercisable shall be
exercisable for the full amount or for any part thereof, except as
otherwise determined by the terms of the Stock Option Agreement.
(ii) Each share of Stock purchased through the exercise of an Option
shall be paid for in full at the time of the exercise. Each Option shall
cease to be exercisable, as to any share of Stock, when the Holder
purchases the share or when the Option lapses.
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<PAGE>
(iii) Options shall not be transferable by the Holder except by will
or the laws of descent and distribution and shall be exercisable during the
Holder's lifetime only by him.
(iv) Each Option shall become exercisable by the Holder in accordance
with the vesting schedule set forth in Section 7(i) hereof, or as otherwise
established by the Committee for the Award.
(v) Each Stock Option Agreement may contain an agreement that, upon
demand by the Committee for such a representation, the Holder shall deliver
to the Committee at the time of any exercise of an Option a written
representation that the shares to be acquired upon such exercise are to be
acquired for investment and not for resale or with a view to the
distribution thereof.
Upon such demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an Option shall be a condition
precedent to the right of the Holder or such other person to purchase any
shares. In the event certificates for Stock are delivered under the Plan with
respect to which such investment representation has been obtained, the Committee
may cause a legend or legends to be placed on such certificates to make
appropriate reference to such representation and to restrict transfers in the
absence of compliance with applicable federal or state securities laws.
(f) Grants to 10% Holders of Company Voting Stock. Notwithstanding
---------------------------------------------
Section 7(a), if an Incentive Stock Option is granted to a Holder who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company or of the Company and its Subsidiaries, the period specified in the
Stock Option Agreement for which the Option thereunder is granted and at the end
of which such Option shall expire shall not exceed five years from the Date of
Grant of such Option and the Option Price shall be at least 110% of the Fair
Market Value (on the Date of Grant) of the Stock subject to the Option.
(g) Limitation. To the extent the aggregate Fair Market Value (as
----------
determined as of the Date of Grant) of Stock for which Incentive Stock Options
are exercisable for the first time by any Participant during any calendar year
(under all plans of the Company and its Subsidiaries) exceeds $100,000, such
excess Incentive Stock Options shall be treated as Nonqualified Stock Options.
(h) Order of Exercise. Options granted under the Plan may be
-----------------
exercised in any order, regardless of the Date of Grant or the existence of any
other outstanding Option.
(i) Vesting of Options. Except as otherwise provided by the Committee
------------------
in the applicable Stock Option Agreement, Options granted under the Plan shall
vest and become exercisable as follows:
(i) 34% of the Options granted shall vest on the Date of Grant;
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<PAGE>
(ii) 33% of the Options granted shall vest on each of the first
anniversary and second anniversary of the Date of Grant; provided, however,
-------- -------
that if during the first year after the Date of Grant, the stock price of
the Common Stock closes at or above $12.00 (or such other price as
determined by the Committee and set forth in the applicable Stock Option
agreement) for any twenty (20) out of thirty (30) consecutive trading days,
the 33% of the Options due to vest on the first anniversary of the Date of
Grant shall vest immediately at the end of such 20th day, and provided,
--------
however, that if during the second year after the Date of Grant, the stock
-------
price of the Common Stock closes at or above $18.00 (or such other price as
determined by the Committee and set forth in the applicable Stock Option
agreement) for any twenty (20) out of thirty (30) consecutive trading days,
the 33% of the Options due to vest on the second anniversary of the Date of
Grant shall vest immediately at the end of such 20th day.
8. RESTRICTED STOCK AWARDS.
(a) Award of Restricted Stock.
-------------------------
(i) The Committee shall have the authority (1) to grant Restricted
Stock, (2) to issue or transfer Restricted Stock to Participants, and (3)
to establish terms, conditions and restrictions applicable to such
Restricted Stock, including the Restricted Period, which may differ with
respect to each grantee, the time or times at which Restricted Stock shall
be granted or become vested and the number of shares or units to be covered
by each grant.
(ii) The Holder of a Restricted Stock Award shall execute and deliver
to the Corporate Secretary of the Company an agreement with respect to
Restricted Stock and escrow agreement satisfactory to the Committee and the
appropriate blank stock powers with respect to the Restricted Stock covered
by such agreements. If a Participant shall fail to execute the agreement,
escrow agreement and stock powers within such period, the Award shall be
null and void. Subject to the restrictions set forth in Section 8(b), the
Holder shall generally have the rights and privileges of a stockholder as
to such Restricted Stock, including the right to vote such Restricted
Stock. At the discretion of the Committee, cash and stock dividends with
respect to the Restricted Stock may be either currently paid or withheld by
the Company for the Holder's account, and interest may be paid on the
amount of cash dividends withheld at a rate and subject to such terms as
determined by the Committee. Cash or stock dividends so withheld by the
Committee shall not be subject to forfeiture.
(iii) In the case of a Restricted Stock Award, the Committee shall
then cause stock certificates registered in the name of the Holder to be
issued and deposited together with the stock powers with an escrow agent to
be designated by the Committee. The Committee shall cause the escrow agent
to issue to the Holder a receipt evidencing any stock certificate held by
it registered in the name of the Holder.
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(b) Restrictions.
------------
(i) Restricted Stock awarded to a Participant shall be subject to the
following restrictions until the expiration of the Restricted Period: (1)
the Holder shall not be entitled to delivery of the stock certificate; (2)
the shares shall be subject to the restrictions on transferability set
forth in the grant; (3) the shares shall be subject to forfeiture to the
extent provided in subpara graph (d) and, to the extent such shares are
forfeited, the stock certificates shall be returned to the Company, and all
rights of the Holder to such shares and as a stockholder shall terminate
without further obligation on the part of the Company.
(ii) The Committee shall have the authority to remove any or all of
the restrictions on the Restricted Stock whenever it may determine that, by
reasons of changes in applicable law or other changes in circumstances
arising after the date of the Restricted Stock Award such action is
appropriate.
(c) Restricted Period. The Restricted Period of Restricted Stock
-----------------
shall commence on the Date of Grant and shall expire from time to time as to
that part of the Restricted Stock indicated in a schedule established by the
Committee in the Award agreement.
(d) Forfeiture Provisions. In the event a Holder terminates
---------------------
employment during a Restricted Period, that portion of the Award with respect to
which restrictions have not expired ("Non-Vested Portion") shall be treated as
follows:
(i) Resignation or discharge: The Non-Vested Portion of the Award
------------------------
shall be completely forfeited.
(ii) Normal Termination: The Non-Vested Portion of the Award shall be
------------------
prorated for service during the Restricted Period and shall be received as
soon as practicable following termination.
(iii) Death: The Non-Vested Portion of the Award shall be prorated
-----
for service during the Restricted Period and paid to the Participant's
beneficiary as soon as practicable following death.
(e) Delivery of Restricted Stock. Upon the expiration of the
----------------------------
Restricted Period with respect to any shares of Stock covered by a Restricted
Stock Award, a stock certificate evidencing the shares of Restricted Stock which
have not then been forfeited and with respect to which the Restricted Period has
expired (to the nearest full share) shall be delivered without charge to the
Holder, or his beneficiary, free of all restrictions under the Plan.
(f) SEC Restrictions. Each certificate representing Restricted Stock
----------------
awarded under the Plan shall bear the following legend:
"Transfer of this certificate and the shares represented hereby is
restricted pursuant to the terms of a Restricted Stock Agreement,
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<PAGE>
dated as of __________, between MedPartners, Inc. and __________. A
copy of such Agreement is on file at the offices of the Company in
Birmingham, Alabama."
Stop transfer orders shall be entered with the Company's transfer
agent and registrar against the transfer of legend securities except in
compliance with the Securities Act.
9. GENERAL.
(a) Additional Provisions of an Award. The award of any benefit under
---------------------------------
the Plan may also be subject to such other provisions (whether or not applicable
to the benefit awarded to any other Participant) as the Committee determines
appropriate.
(b) Privileges of Stock Ownership. Except as otherwise specifically
-----------------------------
provided in the Plan, no person shall be entitled to the privileges of stock
ownership in respect of shares of Stock which are subject to Options or
Restricted Stock Awards, hereunder until such shares have been issued to that
person upon exercise of an Option according to its terms or upon sale or grant
of those shares in accordance with a Restricted Stock Award.
(c) Government and Other Regulations. The obligation of the Company to
--------------------------------
make payment of Awards or otherwise shall be subject to all applicable laws,
rules, and regulations, and to such approvals by governmental agencies as may be
required. The Company shall be under no obligation to register under the
Securities Act any of the shares of Stock paid under the Plan. If the shares
paid under the Plan may in certain circumstances be exempt from registration
under the Securities Act, the Company may restrict the transfer of such shares
in such manner as it deems advisable to ensure the availability of any such
exemption.
(d) Withholding and Employment Taxes. At the time of exercise of an
--------------------------------
Option, the optionee shall remit to the Company in cash all applicable federal
and state withholding and employment taxes. If and to the extent authorized and
approved by the Committee in its sole discretion, an optionee may elect, by
means of a form of election to be prescribed by the Committee, to have shares
which are acquired upon exercise of an Option withheld by the Company or tender
other shares of Common Stock or other securities of the Company owned by the
optionee to the Company at the time the amount of such taxes is determined in
order to pay the amount of such tax obligations, subject to the following
limitations:
(1) each election shall be irrevocable; and
(2) such election shall be subject to the disapproval of the Committee at any
time;
Any Common Stock or other securities so withheld or tendered will be
valued by the Company as of the date they are withheld or tendered. Unless the
Committee otherwise determines, the optionee shall pay to the Company in cash,
promptly when the amount of such obligations become determinable, all applicable
12
<PAGE>
federal and state withholding taxes resulting from the lapse of restrictions
imposed on exercise of an Option, from a transfer or other disposition of shares
acquired upon exercise of an Option or otherwise related to the Option or the
shares acquired upon exercise of the Option.
(e) Claim to Awards and Employment Rights. No employee or other person
-------------------------------------
shall have any claim or right to be granted an Award under the Plan nor, having
been selected for the grant of an Award, to be selected for a grant of any other
Award. Neither this Plan nor any action taken hereunder shall be construed as
giving any Participant any right to be retained in the employ of the Company or
a Subsidiary or Affiliate.
(f) Designation and Change of Beneficiary. Each Participant shall file
-------------------------------------
with the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the amounts payable with respect to
an Award of Restricted Stock, if any, due under the Plan upon his death. A
Participant may, from time to time, revoke or change his beneficiary designation
without the consent of any prior beneficiary by filing a new designation with
the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt.
(g) Payments to Persons Other Than Participants. If the Committee
-------------------------------------------
shall find that any person to whom any amount is payable under the Plan is
unable to care for his affairs because of illness or accident, or is a minor, or
has died, then any payment due to such person or his estate (unless a prior
claim therefor has been made by a duly appointed legal representative), may, if
the Committee so directs the Company, be paid to his spouse, child, relative, an
institution maintaining or having custody of such person, or any other person
deemed by the Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge of
the liability of the Committee and the Company therefor.
(h) No Liability of Committee Members. No member of the Committee
---------------------------------
shall be personally liable by reason of any contract or other instrument
executed by such member or on his behalf in his capacity as a member of the
Committee nor for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless each member of the Committee and each other
employee, officer or director of the Company to whom any duty or power relating
to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or bad faith; provided, however, that approval of the Board shall be
required for the payment of any amount in settlement of a claim against any such
person. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Certificate of Incorporation or ByLaws, as amended, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
13
<PAGE>
(i) Governing Law. The Plan shall be governed by and construed in
-------------
accordance with the internal laws of the State of Delaware without reference to
the principles of conflicts of law thereof.
(j) Funding. Except as provided under Section 8, no provision of the
-------
Plan shall require the Company, for the purpose of satisfying any obligations
under the Plan, to purchase assets or place any assets in a trust or other
entity to which contributions are made or otherwise to segregate any assets, nor
shall the Company maintain separate bank accounts, books, records or other
evidence of the existence of a segregated or separately maintained or
administered fund for such purposes. Holders shall have no rights under the Plan
other than as unsecured general creditors of the Company, except that insofar as
they may become entitled to payment of additional compensation by performance of
services, they shall have the same rights as other employees under general law.
(k) Transferability.
---------------
(1) Incentive Stock Options. No Incentive Stock Option granted under the
-----------------------
Plan may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, all Incentive Stock Options granted to an Eligible Employee under the
Plan shall be exercisable during his or her lifetime only by such Eligible
Employee.
(2) Nonqualified Stock Options. No Nonqualified Stock Option granted under
--------------------------
the Plan may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent not prohibited by any statute, rule
or regulation applicable to the Plan, the Nonqualified Stock Options or the
registration with the Securities and Exchange Commission of the Common Stock to
be issued upon exercise of the Nonqualified Stock Options, the Committee may, in
its discretion, authorize all or a portion of Nonqualified Stock Options granted
to an Eligible Employee to be on terms which permit transfer by such Eligible
Employee to (i) the spouse, children or grandchildren of the Eligible Employee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, provided that (x) there may be no
consideration for any such transfer, (y) the Stock Option Agreement pursuant to
which such Nonqualified Stock Options are granted must be approved by the
Committee, and must expressly provide for transferability in a manner consistent
with this Section, and (z) subsequent transfers of transferred Nonqualified
Stock Options shall be prohibited except those by will or the laws of descent
and distribution. Following transfer, any such Nonqualified Stock Options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of this Plan, the term
"Eligible Employee" shall be deemed to refer to the transferee. The events of
termination of employment shall continue to be applied with respect to the
original Eligible Employee following which the Nonqualified Stock Options shall
be exercisable by the transferee only to the extent, and for the periods
specified in Section 7(c). Notwithstanding the foregoing, should the Committee
provide that Options granted be
14
<PAGE>
transferable, the Company by such action incurs no obligation to notify or
otherwise provide notice to a transferee of early termination of the Option. In
the event of a transfer, as set forth above, the original Eligible Employee is
and will remain subject to and responsible for any applicable withholding taxes
upon the exercise of such Options.
(l) Reliance on Reports. Each member of the Committee and each member
-------------------
of the Board shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith,
upon any report made by the independent public accountant of the Company and its
Subsidiaries or Affiliates and upon any other information furnished in
connection with the Plan by any person or persons other than himself.
(m) Relationship to Other Benefits. No payment under the Plan shall be
------------------------------
taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company or any
Subsidiary or Affiliate except as otherwise specifically provided.
(n) Expenses. The expenses of administering the Plan shall be borne by
--------
the Company and its Subsidiaries and Affiliates.
(o) Pronouns. Masculine pronouns and other words of masculine gender
--------
shall refer to both men and women.
(p) Titles and Headings. The titles and headings of the sections in
-------------------
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings shall
control.
10. CHANGES IN CAPITAL STRUCTURE.
Options and Restricted Stock Awards and any agreements evidencing such
Awards shall be subject to adjustment or substitution, as determined by the
Committee in its sole discretion, as to the number, price or kind of a share of
Stock or other consideration subject to such Awards or as otherwise determined
by the Committee to be equitable (i) in the event of changes in the outstanding
Stock or in the capital structure of the Company by reason of stock dividends,
stock splits, recapitalizations, reorganizations, mergers, consolidations,
combinations, exchanges, or other relevant changes in capitalization occurring
after the Date of Grant of any such Award or (ii) in the event of any change in
applicable laws or any change in circumstances which results in or would result
in any substantial dilution or enlargement of the rights granted to, or
available for, Participants in the Plan, or which otherwise warrants equitable
adjustment because it interferes with the intended operation of the Plan. In
addition, in the event of any such adjustments or substitution, the aggregate
number of shares of Stock available under the Plan shall be appropriately
adjusted by the Committee, whose determination shall be conclusive. Any
adjustment in Incentive Stock Options under this Section 10 shall be made only
to the extent not constituting a "modification" within the meaning of Section
424(h)(3) of the Code, and any adjustments under this Section 10 shall be made
in a manner which does not adversely affect the exemption provided pursuant to
Rule 16b-3
15
<PAGE>
under the Exchange Act. The Company shall give each Participant
notice of an adjustment hereunder and, upon notice, such adjustment shall be
conclusive and binding for all purposes.
11. EFFECT OF CHANGE IN CONTROL.
(a) In the event of a Change in Control, notwithstanding any vesting
schedule provided for hereunder or by the Committee with respect to an Award of
Options or Restricted Stock, such Option shall become immediately exercisable
with respect to 100% of the shares subject to such Option and the Restricted
Period shall expire immediately with respect to 100% of the Restricted Stock
subject to Restrictions; provided, however, to the extent that so accelerating
the time an Incentive Stock Option may first be exercised would cause the
limitation provided in Section 7(g) to be exceeded, such Options shall instead
first become exercisable in so many of the next following years as is necessary
to comply with such limitation.
(b) The obligations of the Company under the Plan shall be binding
upon any successor corporation or organization resulting from the merger,
consolidation or other reorganization of the Company, or upon any successor
corporation or organization succeeding to substantially all of the assets and
business of the Company. The Company agrees that it will make appropriate
provisions for the preservation of Participant's rights under the Plan in any
agreement or plan which it may enter into or adopt to effect any such merger,
consolidation, reorganization or transfer of assets.
12. SALE OF BUSINESS UNIT OF COMPANY
The Committee, in connection with the sale of any Subsidiary,
Affiliate, division or other business unit of the Company, may within the
Committee's sole and absolute discretion (1) cause any or all Options granted
hereunder to Participants whose Options or rights under Options will be
adversely affected by such transaction (a) to become immediately exercisable, or
(b) to remain exercisable after such transaction for such period as the
Committee deems appropriate under the circumstances, or both (a) and (b), or (2)
cause the restrictions on any or all shares of Restricted Stock awarded
hereunder to Participants whose Restricted Stock will be adversely affected by
such transaction to lapse immediately. The provisions of this Section 12 and the
actions of the Committee taken pursuant to this Section 12 shall be effective
upon action of the Committee alone without amendment to any Award agreement or
the consent of any Participant.
13. NONEXCLUSIVITY OF THE PLAN.
Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.
16
<PAGE>
14. AMENDMENTS AND TERMINATION.
The Committee may at any time terminate the Plan. With the express
written consent of an individual Participant, the Board may cancel or reduce or
otherwise alter the outstanding Awards thereunder if, in its judgment, the tax,
accounting, or other effects of the Plan or potential payouts thereunder would
not be in the best interest of the Company. The Committee may, at any time, or
from time to time, amend or suspend and, if suspended, reinstate, the Plan in
whole or in part; provided, however, that without further stockholder approval,
the Committee shall not:
(a) Increase the maximum number of shares of Stock which may be issued
on exercise of Options or pursuant to Restricted Stock Awards, except as
provided in Section 10;
(b) Change the maximum Option Price;
(c) Extend the maximum Option term;
(d) Extend the termination date of the Plan;
(e) Cancel and regrant or reprice any outstanding Option, except as
provided in Section 10; or
(f) Change the class of persons eligible to receive Awards under the
Plan.
* * *
As originally adopted, as amended, by the Committee as of June 27,
1997 and as amended and restated as of September 21, 1998.
17
<PAGE>
EXHIBIT 10.23
AMENDED AND RESTATED
MEDPARTNERS, INC.
1995 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purposes of this Amended and Restated MedPartners, Inc.
("MedPartners" or the "Company") 1995 Stock Option Plan (the "Plan") are to:
1.1 furnish incentives to individuals or entities chosen to receive
options because they are considered capable of responding by improving
operations and increasing profits;
1.2 encourage selected employees to accept or continue employment
with the Company or its Affiliates; and
1.3 increase the interest of selected employees, officers, directors
and consultants in the Company's welfare through their participation in the
growth in value of the common stock, $.001 par value, of the Company ("Common
Stock").
To accomplish the foregoing objectives, this Plan provides a means
whereby individuals and entities may receive options to purchase Common Stock.
Options granted under this Plan ("Options") will be either nonqualified options
("NQOs") or incentive stock options ("ISOs").
2. ELIGIBLE PERSONS
2.1 General. Every person who at the date on which an Option granted
-------
to such person becomes effective (the "Grant Date") is a full-time employee,
officer, director or consultant of the Company or of any Affiliate or any
individual or entity subject to an acquisition or management agreement with the
Company is eligible to receive Options under this Plan.
2.2 Definition of Affiliate. The term "Affiliate," as used in this
-----------------------
Plan, means a "parent corporation" or "subsidiary corporation," as defined in
Section 424 of the Internal Revenue Code of 1986 (as amended, the "Code"). The
term "employee" shall have the meaning ascribed for purposes of Section 3401(c)
of the Code and the Treasury Regulations promulgated thereunder and shall
include an officer or a director who is also an employee.
<PAGE>
3. STOCK SUBJECT TO THIS PLAN
The total number of shares of stock reserved for issuance upon the
exercise of Options as of December 31, 1997 is 8,687,941 shares of Common Stock.
The shares covered by the portion of any grant that expires unexercised under
this Plan shall become available again for grants under this Plan. The number
of shares reserved for issuance under this Plan is subject to adjustment in
accordance with the provisions for adjustment in this Plan.
4. ADMINISTRATION
4.1 General. This Plan shall be administered by the Compensation
-------
Committee of the Board of Directors or by any other committee appointed by the
Board of Directors (the "Committee"), which Committee shall consist solely of
two or more Non-Employee Directors ("Non-Employee Directors") as such are
defined in Rule 16b-3 promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor provision. The Committee
shall have the authority to select the persons to receive Options under this
Plan, 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 this Plan; provided, however, that any Options granted to management of the
-------- -------
Company, the Board of Directors or other insiders shall comply with Rule 16b-3
of the Exchange Act. Any act approved in writing by a majority of the members of
the Committee shall be a valid act of the Committee. All questions of
interpretation, construction, implementation and application of this Plan shall
be determined by the Committee, including, without limitation, the
interpretation and construction of any provision of the Plan or any Option
Agreement. Such determinations shall be final and binding on all persons. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any option
granted under the Plan.
5. GRANTING OF RIGHTS
5.1 Ten Year Limitation on Grants of ISOs. No ISOs shall be granted
-------------------------------------
under this Plan after ten years from the date the Board of Directors first
adopts the Plan.
5.2 Written Agreement; Effect. Each Option shall be evidenced by a
----------------- ------
written agreement (the "Option Agreement"), in form satisfactory to the
Committee, executed by the Company and by the person to whom such Option is
granted. Each such Option Agreement shall incorporate by reference all of the
terms and provisions of the Plan as in effect at the time of grant and may
include such other terms and provisions not contrary to the Plan as shall be
approved and adopted by the Committee. The Option Agreement shall specify
whether each Option it evidences is a NQO or an ISO. Failure of the grantee to
execute an Option Agreement shall not void or invalidate the grant of an Option;
the Option may not be exercised, however, until the Option Agreement is
executed.
2
<PAGE>
5.3 Annual $100,000 Limitation on ISOs. To the extent required by
----------------------------------
Section 422(d) of the Code, the aggregate fair market value of shares of the
Common Stock with respect to which incentive stock options are exercisable for
the first time by any individual during any calendar year shall not exceed
$100,000. For this purpose, fair market value shall be the fair market value of
the shares covered by the ISOs when the ISOs were granted. If by their terms,
such ISOs taken together would first become exercisable at a faster rate, this
$100,000 limitation shall be applied by deferring the exercisability of those
ISOs or portions of ISOs which have the highest per share exercise prices. The
ISOs or portions of ISOs, the exercisability of which are so deferred, shall
become exercisable on the first day of the first subsequent calendar year during
which they may be exercised, as determined by applying these same principles of
this Section and all other provisions of this Section and all other provisions
of this Plan, including those relating to the expiration and termination of
ISOs.
5.4 Advance Approvals. The Committee may approve the grant of
-----------------
Options to persons who are expected to become employees, consultants or members
of the Board of Directors, of the Company, but are not employees, consultants or
members of the Board of Directors at the date of approval. In such cases, the
Option shall be deemed granted, without further approval, on the date the
grantee becomes an employee, and must satisfy all requirements of this Plan for
Options granted on that date.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option shall be designated as an ISO or a NQO and shall be
subject to the terms and conditions set forth in Section 6.1. NQOs shall also
be subject to the terms and conditions set forth in Section 6.2, but not those
set forth in Section 6.3. ISOs shall also be subject to the terms and
conditions set forth in Section 6.3, but not those set forth in Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All
-----------------------------------------------------
Options shall be subject to the following terms and conditions:
(a) Changes in Capital Structure. Subject to Section 6.1(b), if the
----------------------------
stock of the Company is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, or converted into or exchanged for other
securities as a result of a merger, consolidation, or reorganization,
appropriate adjustments shall be made in (1) the number and class of shares of
stock subject to this Plan and each outstanding Option, and (2) the exercise
price of each outstanding Option; provided, however, that the Company shall not
-------- -------
be required to issue fractional shares as a result of any such adjustment. Each
such adjustment shall be determined by the Committee in its sole discretion,
which determination shall be final and binding on all persons.
(b) Corporate Transactions. New option rights may be substituted for
----------------------
Options granted, or the Company's obligations as to outstanding Options may be
assumed, by an employer corporation other than the Company, or an Affiliate
thereof, in connection with any merger, consolidation, acquisition, separation,
reorganization, dissolution, liquidation, sale, or like occurrence in which the
Company is involved and
3
<PAGE>
which the Committee determines, in its absolute discretion, would materially
alter the structure. Substitution shall be done in such manner that the then
outstanding Options which are ISOs will continue to be "incentive stock options"
within the meaning of Section 422 of the Code to the full extent permitted
thereby. Notwithstanding the foregoing or the provisions of Section 6.1(a), if
such an event occurs and if such employer corporation, or an Affiliate thereof,
does not substitute new option rights for, and substantially equivalent to, the
outstanding Options granted hereunder, or assume the outstanding Options granted
hereunder, or if there is no employer corporation, or if the Committee
determines, in its sole discretion, that outstanding Options should not then
continue to be outstanding, the Committee may upon ten days' prior written
notice to optionees in its absolute discretion (1) shorten the period during
which Options are exercisable (provided they remain exercisable, to the extent
otherwise exercisable, for at least ten days after the date the notice is
given), or (2) cancel Options upon payment to the optionee in cash, with respect
to each Option to the extent then exercisable, of an amount which, in the
absolute discretion of the Committee, is determined to be equivalent to any
excess of the fair market value (at the effective time of the dissolution,
liquidation, merger, consolidation, acquisition, separation, reorganization,
sale or other event) of the consideration that the optionee would have received
if the Option had been exercised before the effective time, over the exercise
price of the Option; provided, however, if there is a successor corporation and
-------- -------
replacement options are not granted by the successor corporation, all
outstanding Options shall become exercisable prior to the consummation of the
transaction such that the optionees shall have not less than ten days to
exercise their Options and become stockholders of record entitled to receive the
consideration paid to the other stockholders of the Company. If an optionee
fails to exercise his Option within any exercise period described in this
paragraph and the dissolution, liquidation, merger, consolidation, sale or other
event is consummated, his Option shall no longer be exercisable. Any unexercised
Option shall be canceled and terminated. Notwithstanding anything herein to the
contrary, nothing shall extend an optionee's right to exercise an ISO after the
expiration of ten years from the date it is granted. The actions described in
this Section may be taken without regard to any resulting tax consequences to
the optionee.
(c) Option Grant Date. Each Option Agreement shall specify the date
-----------------
as of which it shall be effective, which date shall be the Grant Date
(determined pursuant to Section 5.4 in the case of advance approvals).
(d) Fair Market Value. Except as otherwise determined by the
-----------------
Committee, the "Fair Market Value" of a share of Common Stock as of any date
shall be equal to the closing sale price of a share of Common Stock as reported
on The National Association of Securities Dealers' New York Stock Exchange
Composite Reporting Tape (or if the Common Stock is not traded on The New York
Stock Exchange, the closing sale price on the exchange on which it is traded or
as reported by an applicable automated quotation system) (the "Composite Tape"),
on the applicable date or, if no sales of Common Stock are reported on such
date, the closing sale price of a share of Common Stock on the date the Common
Stock was last reported on the Composite Tape (or such other exchange or
automated quotation system, if applicable).
4
<PAGE>
(e) Transfer of Option Rights.
-------------------------
(1) Incentive Stock Options. No ISO granted under the Plan may
-----------------------
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all ISOs
granted to an optionee under the Plan shall be exercisable during his or her
lifetime only by such optionee.
(2) Nonqualified Stock Options. No NQO granted under the Plan
--------------------------
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Notwithstanding the foregoing, to the extent not prohibited by any statute, rule
or regulation applicable to the Plan, the Options or the registration with the
Securities and Exchange Commission of the Common stock to be issued upon
exercise of the Option, the Committee may, in its discretion, authorize all or a
portion of NQOs granted to an optionee to be on terms which permit transfer by
such optionee to (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, provided that (x) there may be no
consideration for any such transfer, (y) the Option Agreement pursuant to which
such NQOs are granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this Section, and (z)
subsequent transfers of transferred NQOs shall be prohibited except those by
will or the laws of descent and distribution. Following transfer, any such NQOs
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of this Plan, the term
"optionee" shall be deemed to refer to the transferee. The events of termination
of employment shall continue to be applied with respect to the original
optionee, following which the NQOs shall be exercisable by the transferee only
to the extent, and for the periods specified in Section 6.1(g). Notwithstanding
the foregoing, should the Committee provide that NQOs granted be transferable,
the Company by such action incurs no obligation to notify or otherwise provide
notice to a transferee of early termination of the NQO. In the event of a
transfer, as set forth above, the original optionee is and will remain subject
to and responsible for any applicable withholding taxes upon the exercise of
such NQOs.
(f) Payment. No shares of Common Stock shall be issued on the
-------
exercise of an Option unless paid for in full at the time of exercise. Payment
shall be made in cash, which may be paid by check or other instrument acceptable
to the Company. In addition, subject to compliance with applicable laws and
regulations and such conditions as the Committee may impose, the Committee may
elect to accept payment in shares of Common Stock of the Company which are
already owned by the optionee, valued at the Fair Market Value thereof on the
date of exercise. The Committee may also allow an optionee to exercise an Option
by use of proceeds to be received from the sale of Common Stock issuable
pursuant to the Option being exercised.
(g) Termination.
-----------
5
<PAGE>
(1) Except as provided in paragraphs (2) and (3) below, each Option
to the extent it has not been previously exercised, shall terminate upon the
earliest to occur of: (a) the expiration of the term of the Option set forth in
the Option Agreement; (b) immediately upon the date the optionee ceases to be an
employee, officer, consultant or member of the Board of Directors or otherwise
affiliated with the Company (a "Termination") on account of cause; (c) the
expiration of 90 days following the date of a Termination of the optionee for
any reason other than cause, death or permanent disability; or (d) the
expiration of 12 months following a Termination of the optionee on account of
death or permanent disability. A leave of absence duly authorized by the Company
shall not be deemed a Termination or a break in continuous employment, service
or affiliation with the Company.
(2) Notwithstanding anything in the Plan to the contrary, any Option
granted on or after September 21, 1998 (a "Secondary Option"), to the extent it
has not been previously exercised, shall terminate upon the earliest to occur
of: (a) the expiration of the Secondary Option period set forth in the Option
Agreement; (b) the expiration of 12 months following the optionee's death or
permanent disability; (c) immediately upon Termination for Cause (as defined
below); or (d) the expiration of 90 days following the optionee's Termination
for any reason other than Cause (as defined below), Change in Control (as
defined in Section 7 heretofore), death or permanent disability.
For purposes of the preceding sentence only, Cause means the
Company or an Affiliate having cause to terminate an optionee's status as an
employee, officer, consultant or director or other affiliation with the Company
under any existing employment agreement between the optionee and the Company or
an Affiliate or, in the absence of such an employment agreement, upon (i) the
determination by the Committee that the optionee has ceased to perform his
duties to the Company or an Affiliate (other than as a result of his incapacity
due to physical or mental illness or injury), which failure amounts to an
intentional and extended neglect of his duties to such party, (ii) the
Committee's determination that the optionee has engaged or is about to engage in
conduct materially injurious to the Company or an Affiliate, or (iii) the
optionee having been convicted of a felony.
(3) Notwithstanding the foregoing, any Secondary Option, to the
extent it has not been previously exercised prior to a Change in Control (as
defined in Article 7 heretofore) shall remain exercisable for its full original
term upon and following such Change in Control.
(h) Other Provisions. Each Option Agreement may contain such other terms,
----------------
provisions, and conditions not inconsistent with this Plan, including rights of
repurchase, as may be determined by the Committee, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify such option as an "incentive stock option" within the meaning of Section
422 of the Code.
(i) Withholding and Employment Taxes. At the time of exercise of an
--------------------------------
Option, the optionee shall remit to the Company in cash all applicable federal
and state withholding and employment taxes. If and to the extent authorized and
approved by the
6
<PAGE>
Committee in its sole discretion, an optionee may elect, by means of a form of
election to be prescribed by the Committee, to have shares which are acquired
upon exercise of an Option withheld by the Company or tender other shares of
Common Stock or other securities of the Company owned by the optionee to the
Company at the time the amount of such taxes is determined in order to pay the
amount of such tax obligations, subject to the following limitations:
(1) such election shall be irrevocable; and
(2) such election shall be subject to the disapproval of the
Committee at any time.
Any Common Stock or other securities so withheld or tendered will be
valued by the Company as of the date they are withheld or tendered. Unless the
Committee otherwise determines, the optionee shall pay to the Company in cash,
promptly when the amount of such obligations become determinable, all applicable
federal and state withholding taxes resulting from the lapse of restrictions
imposed on exercise of an Option, from a transfer or other disposition of shares
acquired upon exercise of an Option or otherwise related to the Option or the
shares acquired upon exercise of the Option.
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as NQOs shall be subject to the
following terms and conditions:
(a) Option Term. Unless a different expiration date is specified by
-----------
the Committee at the Grant Date in the Option Agreement, each NQO shall expire
ten years from its Grant Date.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
---------------------------------------------------
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
(a) Exercise Price. The exercise price of an ISO shall be determined
--------------
in accordance with the applicable provisions of the Code and shall in no event
be less than the fair market value of the stock covered by the ISO at the Grant
Date; provided, however, that the exercise price of an ISO granted to any person
-------- -------
who owns, directly or indirectly (or is treated as owning by reason of
attribution rules, currently set forth in Section 424 of the Code), stock of the
Company constituting more than 10% of the total combined voting power of all
classes of outstanding stock of the Company or of any Affiliate of the Company,
shall in no event be less than 110% of such fair market value.
(b) Option Term. Unless an earlier expiration date is specified by
-----------
the Committee at the Grant Date in the Option Agreement, each ISO shall expire
ten years from its Grant Date; except that an ISO granted to any person who
owns, directly or indirectly (or is treated as owning by reason of applicable
attribution rules currently set forth in Section 424 of the Code) stock of the
Company constituting more than 10% of
7
<PAGE>
the total combined voting power of the Company's outstanding stock, or the stock
of any Affiliate of the Company, shall expire five years from its Grant Date.
(c) Disqualifying Dispositions. If stock acquired by exercise of an
--------------------------
ISO is disposed of within two years from the Grant Date or within one year after
the transfer of the stock to the optionee, the holder of the stock immediately
prior to the disposition shall promptly notify the Company in writing of the
date and terms of the disposition and shall provide such other information
regarding the disposition as the Company may reasonably require. Such holder
shall pay to the Company any withholding and employment taxes which the Company
in its sole discretion deems applicable. The Company may instruct its stock
transfer agent by appropriate means, including placement of legends on stock
certificates, not to transfer stock acquired by exercise of an ISO unless it has
been advised by the Company that the requirements of this Section have been
satisfied.
6.4 Vesting of Options. Unless otherwise provided by the Committee
------------------
in the applicable Option Agreement, Options granted pursuant to the Plan shall
vest as follows:
(a) 34% of the Options shall vest on the Grant Date;
(b) 33% of the Options granted shall vest on each of the first
anniversary and second anniversary of the Grant Date; provided, however,
-------- -------
that if during the first year after the Grant Date, the stock price of the
Common Stock closes at or above $12.00 (or other price determined by the
Committee and set forth in the applicable Option Agreement) for any twenty
(20) out of thirty (30) consecutive trading days, the 33% of the Options
due to vest on the first anniversary of the Grant Date shall vest
immediately at the end of such 20th day, and provided, however, that if
-------- -------
during the second year after the Grant Date, the stock price of the Common
Stock closes at or above $18.00 (or other price determined by the Committee
and set forth in the applicable Option Agreement) for any twenty (20) out
of thirty (30) consecutive trading days, the 33% of the Options due to
vest on the second anniversary of the Grant Date shall vest immediately at
the end of such 20th day.
7. CHANGE IN CONTROL
(a) Treatment of Outstanding Options. Unless otherwise specifically
--------------------------------
prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchanges, upon the
occurrence of a Change in Control, any and all Secondary Options granted
hereunder shall become immediately exercisable.
(b) Termination, Modification or Amendment of Change in Control
-----------------------------------------------------------
Provisions. Notwithstanding any other provision of this Plan or any Option
- ----------
Agreement provision, the provisions of this Article 7 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Secondary Option theretofore granted
8
<PAGE>
under the Plan without the prior written consent of the optionee with respect to
said optionee's outstanding Secondary Options.
(c) Definition of Change in Control. A Change in Control of the Company
-------------------------------
shall be deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisfied:
(1) The acquisition by any Person of Beneficial Ownership of 20% or
more of either (i) the then outstanding shares of Common Stock of the
Company, or (ii) the combined voting power of the outstanding voting
securities of the Company entitled to vote generally in the selection of
Directors; provided, however, that for purposes of this subsection, the
following transactions shall not constitute a Change of Control: (A) any
acquisition directly from the Company through a public offering of shares
of Common Stock of the Company, (B) any acquisition by the Company, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(D) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) below;
(2) The cessation, for any reason, of the individuals who constitute
the Company's Board of Directors as of the date hereof ("Incumbent Board")
to constitute at least a majority of the Company's Board of Directors;
provided, however, that any individual becoming a Director following the
date hereof whose election, or nomination for election by the Company's
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 was a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
because 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 Company's
Board of Directors;
(3) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ("Business Combination") unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the Beneficial Owners, respectively, of the outstanding shares of
Common Stock of the Company and the outstanding voting securities of the
Company immediately before 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 Company resulting from
such Business Combination (including, without limitation, a
9
<PAGE>
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership immediately before such Business Combination of the outstanding
shares of Common Stock and the outstanding voting securities of the
Company, as the case may be; (ii) 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 before the Business Combination;
and (iii) at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of
the Company's Board of Directors at the time of the execution of the
initial agreement, or of the action of the Company's Board of Directors,
providing for such Business Combination; or
(4) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(5) Any other condition or event (i) that the Committee determines to
be a "Change in Control" within the meaning of this Article 7 and (ii) that
is set forth as a supplement to this Article 7 in the Option Agreement.
The term "Beneficial Owner" or "Beneficial Ownership", as used in this
Article 7, has the meaning ascribed to such term in Rule 13d-3 of the General
Rules and Regulations under the Exchange Act. The term "Person", as used in
this Article 7, shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) thereof.
8. SALE OF BUSINESS UNIT OF COMPANY
The Committee, in connection with the sale of any subsidiary,
Affiliate, division or other business unit of the Company, may within the
Committee's sole and absolute discretion cause any or all Options granted
hereunder to optionees whose Options or rights under Options will be adversely
affected by such transaction (a) to become immediately exercisable, or (b) to
remain exercisable after such transaction for such period as the Committee deems
appropriate under the circumstances, or both (a) and (b). The provision of this
Article 8 and the actions of the Committee taken pursuant to this Article 8
shall be effective upon action of the Committee alone without amendment to any
option agreement or the consent of any optionee.
10
<PAGE>
9. MANNER OF EXERCISE
An optionee wishing to exercise an Option shall give proper
notification to the Company at its principal executive office, to the attention
of the Corporate Secretary, accompanied by a notice of exercise in form and
substance satisfactory to the Company, by payment of the exercise price for such
shares in a form and manner as the Committee may from time to time approve and
by such other documents as the Committee may request. The date the Company
receives proper notification of an exercise hereunder accompanied by payment of
the exercise price and all such other documents will be considered the date the
Option was exercised. Promptly after receipt of proper notification of exercise
of an Option, the Company shall, without stock issue or transfer taxes to the
optionee or any other person entitled to exercise the Option, deliver to the
optionee or such other person a certificate or certificates for the requisite
number of shares of stock. An optionee or transferee of an Option shall not
have any privileges as stockholder with respect to any stock covered by the
Option until the date of issuance of a stock certificate.
10. RELATIONSHIP WITH THE COMPANY
Nothing in this Plan or any Option granted hereunder shall interfere
with or limit in any way the right of the Company to terminate any optionee's
employment, affiliation or other relationship with the Company at any time, nor
confer upon any optionee any right to continue in the employ of, as a consultant
to, as a director of, or otherwise affiliated in any way with, the Company.
11. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
The Committee may, at any time and in any manner, amend, suspend, or
terminate this Plan or any award outstanding under this Plan; provided, however,
-------- -------
that no such amendment or discontinuance shall:
(a) be made without stockholder approval; (1) to the extent such
approval is required by law, agreement or the rules of any exchange or
automated quotation system upon which the Common Stock is listed or quoted
or (2) to the extent that any outstanding Option is canceled and regranted
or repriced;
(b) adversely alter or impair the rights of optionees with respect to
awards previously made under this Plan without the consent of the holder
thereof; or
(c) make any change that would disqualify any provision of this Plan
intended to be so qualified, from the exemption provided by Rule 16b-3.
12. LIABILITY AND INDEMNIFICATION OF COMMITTEE
No member of the Committee shall be liable for any act or omission on
such member's own part, including, but not limited to, the exercise of any power
or discretion given to such member under this Plan, except for those acts or
omissions resulting from such member's own gross negligence or willful
misconduct. The
11
<PAGE>
Company shall indemnify each present and future member of the Committee against,
and each member of the Committee shall be entitled without further act on his or
her part to indemnity from the Company for, all expenses (including attorneys'
fees and the amount of judgments and the amount of approved settlements made
with a view to the curtailment of costs of litigation, other than amounts paid
to the Company itself) reasonably incurred by such person in connection with or
arising out of any action, suit, or proceeding to which the Committee or any
member of the Committee may be a party by reason of any action taken or failure
to act under or in connection with the Plan or any option granted or not granted
under the Plan to the full extent permitted by law and by the Certificate of
Incorporation and Bylaws of the Company, as amended. The right of indemnity
described in this Article 12 shall be in addition to such other rights of
indemnification as the members of the Committee shall otherwise be entitled
because of their serving on the Board of Directors of the Company or as an
employee of the Company.
13. EFFECTIVE DATE OF THIS PLAN
This Plan first became effective upon adoption by the Board of
Directors on February 1, 1995 and was amended on May 12, 1995. This Amended and
Restated MedPartners, Inc. 1995 Stock Option Plan is an amendment and
restatement of that Plan and was adopted by the Committee on September 21, 1998.
12
<PAGE>
EXHIBIT (10)-24
MEDPARTNERS, INC.
1997 LONG TERM INCENTIVE COMPENSATION PLAN
<PAGE>
<TABLE>
<CAPTION>
CONTENTS Page
<S> <C>
ARTICLE 1 ESTABLISHMENT, OBJECTIVES AND DURATION................................................................................ 1
1.1 ESTABLISHMENT OF THE PLAN................................................................................................ 1
1.2 OBJECTIVES OF THE PLAN................................................................................................... 1
1.3 DURATION OF THE PLAN..................................................................................................... 1
ARTICLE 2 DEFINITIONS........................................................................................................... 1
2.1 "AFFILIATE".............................................................................................................. 1
2.2 "AWARD".................................................................................................................. 1
2.3 "AWARD AGREEMENT"........................................................................................................ 2
2.4 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP"............................................................................. 2
2.5 "BOARD" or "BOARD OF DIRECTORS".......................................................................................... 2
2.6 "CAUSE".................................................................................................................. 2
2.7 "CHANGE IN CONTROL"...................................................................................................... 2
2.8 "CODE"................................................................................................................... 3
2.9 "COMMITTEE".............................................................................................................. 4
2.10 "COMPANY"............................................................................................................... 4
2.11 "DIRECTOR".............................................................................................................. 4
2.12 "DISABILITY"............................................................................................................ 4
2.13 "EFFECTIVE DATE"........................................................................................................ 4
2.14 "ELIGIBLE PERSON"....................................................................................................... 4
2.15 "EMPLOYEE".............................................................................................................. 4
2.16 "EXCHANGE ACT".......................................................................................................... 4
2.17 "FAIR MARKET VALUE"..................................................................................................... 4
2.18 "IMMEDIATE FAMILY MEMBERS".............................................................................................. 4
2.19 "INCENTIVE STOCK OPTION" or "ISO"....................................................................................... 5
2.20 "INSIDER"............................................................................................................... 5
2.21 "NONEMPLOYEE DIRECTOR".................................................................................................. 5
2.22 "NONQUALIFIED STOCK OPTION" or "NQSO"................................................................................... 5
2.23 "OPTION"................................................................................................................ 5
2.24 "OPTION PRICE".......................................................................................................... 5
2.25 "PARTICIPANT"........................................................................................................... 5
2.26 "PERIOD OF RESTRICTION"................................................................................................. 5
2.27 "PERSON"................................................................................................................ 5
2.28 "PLAN".................................................................................................................. 5
2.29 "RESTRICTED STOCK"...................................................................................................... 5
2.30 "RETIREMENT" as applied to a Participant, means the Participant's termination of employment in a manner which
qualifies the Participant to receive immediately payable retirement benefit under the applicable retirement plan
maintained by the Company (the "Retirement Plan"), under the successor or replacement of such Retirement Plan if it
is then no longer in effect, or under any other retirement plan......................................................... 5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.30 maintained or adopted by the Company which is determined by the Committee to be the functional equivalent of such
Retirement Plan; or. with respect to a Participant who may not or has not participated in a retirement plan
maintained by the Company or an Affiliate, "Retirement" shall have the meaning determined by the Committee
from time to time....................................................................................................... 6
2.31 "SHARES"................................................................................................................ 6
2.32 "SUBSIDIARY"............................................................................................................ 6
ARTICLE 3 ADMINISTRATION........................................................................................................ 6
3.1 THE COMMITTEE............................................................................................................ 6
3.2 AUTHORITY OF THE COMMITTEE............................................................................................... 6
3.3 DECISIONS BINDING........................................................................................................ 6
3.4 COSTS OF PLAN............................................................................................................ 6
ARTICLE 4 SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS......................................................................... 7
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS.................................................................................... 7
4.2 ADJUSTMENTS IN AUTHORIZED SHARES......................................................................................... 7
ARTICLE 5 ELIGIBILITY AND PARTICIPATION......................................................................................... 8
5.1 ELIGIBILITY.............................................................................................................. 8
5.2 ACTUAL PARTICIPATION..................................................................................................... 8
ARTICLE 6 STOCK OPTIONS......................................................................................................... 8
6.1 GRANT OF OPTIONS......................................................................................................... 8
6.2 AWARD AGREEMENT.......................................................................................................... 8
6.3 OPTION PRICE............................................................................................................. 8
6.4 DURATION OF OPTIONS...................................................................................................... 9
6.5 EXERCISE OF OPTIONS...................................................................................................... 9
6.6 PAYMENT.................................................................................................................. 9
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY....................................................................................10
6.8 TERMINATION OF EMPLOYMENT................................................................................................10
6.9 NONTRANSFERABILITY OF OPTIONS............................................................................................10
(a) INCENTIVE STOCK OPTIONS.............................................................................................11
(b) NONQUALIFIED STOCK OPTIONS..........................................................................................11
ARTICLE 7 RESTRICTED STOCK......................................................................................................11
7.1 GRANT OF RESTRICTED STOCK................................................................................................11
7.2 RESTRICTED STOCK AGREEMENT...............................................................................................11
7.3 TRANSFERABILITY..........................................................................................................11
7.4 OTHER RESTRICTIONS.......................................................................................................12
7.5 VOTING RIGHTS............................................................................................................12
7.6 DIVIDENDS AND OTHER DISTRIBUTIONS........................................................................................12
7.7 TERMINATION OF EMPLOYMENT................................................................................................12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 8 BENEFICIARY DESIGNATION...............................................................................................13
ARTICLE 9 DEFERRALS.............................................................................................................13
ARTICLE 10 RIGHTS OF EMPLOYEES..................................................................................................13
10.1 EMPLOYMENT..............................................................................................................13
10.2 PARTICIPATION...........................................................................................................13
ARTICLE 11 CHANGE IN CONTROL....................................................................................................14
11.1 TREATMENT OF OUTSTANDING AWARDS.........................................................................................14
11.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL PROVISIONS...............................................14
ARTICLE 12......................................................................................................................14
ARTICLE 13 AMENDMENT, MODIFICATION, AND TERMINATION.............................................................................14
13.1 AMENDMENT, MODIFICATION, AND TERMINATION................................................................................14
13.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR NONRECURRING EVENTS......................................15
13.3 AWARDS PREVIOUSLY GRANTED...............................................................................................15
ARTICLE 14 WITHHOLDING..........................................................................................................15
14.1 TAX WITHHOLDING.........................................................................................................15
14.2 SHARE WITHHOLDING.......................................................................................................15
ARTICLE 15 INDEMNIFICATION......................................................................................................15
ARTICLE 16 SUCCESSORS...........................................................................................................16
ARTICLE 17 LEGAL CONSTRUCTION...................................................................................................16
17.1 GENDER AND NUMBER.......................................................................................................16
17.2 SEVERABILITY............................................................................................................16
17.3 REQUIREMENTS OF LAW.....................................................................................................16
17.4 SECURITIES LAW COMPLIANCE...............................................................................................16
17.5 GOVERNING LAW...........................................................................................................16
</TABLE>
<PAGE>
AMENDED AND RESTATED MEDPARTNERS, INC.
1997 LONG TERM INCENTIVE COMPENSATION PLAN
ARTICLE 1
ESTABLISHMENT, OBJECTIVES AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. MedPartners, Inc., a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "MedPartners, Inc. 1997 Long Term
Incentive Compensation Plan" (hereinafter referred to as the "Plan"), as set
forth in this document. The Plan permits the grant of Incentive Stock Options,
Nonqualified Stock Options and Restricted Stock.
The Plan shall become effective as of February 25, 1997 (the
"Effective Date") and shall remain in effect as provided in Section 1.3 hereof.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to
optimize the profitability and growth of the Company through the use of
incentives which are consistent with the Company's objectives and which link the
interests of Participants to those of the Company's stockholders; to provide
Participants with an incentive for excellence in individual performance; and to
promote teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in
its ability to motivate, attract, and retain the services of Participants who
make significant contributions to the Company's success and to allow
Participants to share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective
Date, as described in Section 1.1 hereof, and shall remain in effect, subject to
the right of the Board of Directors or the Committee to amend or terminate the
Plan at any time pursuant to Article 12 hereof, until all Shares subject to it
shall have been purchased or acquired according to the Plan's provisions.
However, in no event may an Incentive Stock Option be granted under the Plan on
or after February 25, 2007.
ARTICLE 2
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1 "AFFILIATE" means a "parent corporation" or "subsidiary
corporation" as defined in Section 424 of the Code.
2.2 "AWARD" means, individually or collectively, a grant under this
Plan of Incentive Stock Options, Nonqualified Stock Options or Restricted Stock.
<PAGE>
2.3 "AWARD AGREEMENT" means an agreement entered into by the Company
and each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.4 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.
2.5 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
2.6 "CAUSE" shall be determined by the Committee, exercising good
faith and reasonable judgment, and shall mean the occurrence of any one or more
of the following:
(a) The willful and continued failure by the Participant to
substantially perform his duties (other than any such failure resulting
from the Participant's Disability) after a written demand for substantial
performance is delivered by the Committee to the Participant that
specifically identifies the manner in which the Committee believes that the
Participant has not substantially performed his duties, and the Participant
has failed to remedy the situation within 30 calendar days of receiving
such notice; or
(b) The Participant's conviction for committing an act of fraud,
embezzlement, theft or another act constituting a felony; or
(c) The willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company, as determined by the
Committee. However, no act or failure to act on the Participant's part
shall be considered "willful" unless done, or omitted to be done, by the
Participant not in good faith and without reasonable belief that his action
or omission was in the best interest of the Company.
2.7 "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred as of the first day that any one or more of the following conditions
shall have been satisfied:
(a) The acquisition by any Person of Beneficial Ownership of 20% or
more of either (i) the then outstanding Shares, or (ii) the combined voting
power of the outstanding voting securities of the Company entitled to vote
generally in the selection of Directors; provided, however, that for
purposes of this subsection, the following transactions shall not
constitute a Change of Control: (A) any acquisition directly from the
Company through a public offering of Shares, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the Company, or (D) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) below;
(b) The cessation, for any reason, of the individuals who constitute
the Company's Board of Directors as of the date hereof ("Incumbent Board")
to constitute at
2
<PAGE>
least a majority of the Company's Board of Directors; provided, however,
that any individual becoming a Director following the date hereof whose
election, or nomination for election by the Company's 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 was a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs because 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 Company's Board of Directors;
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ("Business Combination") unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who were the Beneficial Owners, respectively, of the outstanding Shares and
the outstanding voting securities of the Company immediately before such
Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding Shares 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 Company resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership immediately before such Business Combination of the outstanding
Shares and the outstanding voting securities of the Company, as the case
may be; (ii) 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 before the Business Combination; and (iii) at least
a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Company's
Board of Directors at the time of the execution of the initial agreement,
or of the action of the Company's Board of Directors, providing for such
Business Combination; or
(d) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(e) Any other condition or event (i) that the Committee determines to
be a "Change in Control" within the meaning of this Section 2.7 and (ii)
that is set forth as a supplement to this Section 2.7 in the Award
Agreement.
2.8 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
3
<PAGE>
2.9 "COMMITTEE" means the Compensation Committee of the Board, as
specified in Article 3 herein, or such other Committee appointed by the Board to
administer the Plan with respect to grants of Awards.
2.10 "COMPANY" means MedPartners, Inc., and also means any
corporation of which a majority of the voting capital stock is owned directly or
indirectly by MedPartners, Inc. or by any of its Subsidiaries, and any other
corporation designated by the Committee as being a Company hereunder (but only
during the period of such ownership or designation).
2.11 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.12 "DISABILITY", as applied to a Participant, means that the
Participant (a) has established to the satisfaction of the Committee that the
Participant is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to last for a continuous period of not less than 12 months (all within the
meaning of Section 22(e)(3) of the Code), and (b) has satisfied any requirement
imposed by the Committee in regard to evidence of such disability.
2.13 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.14 "ELIGIBLE PERSON" shall mean all Employees, Directors or
consultants of the Company or any Affiliate; provided, however, that no Award
may be granted to anyone who is not an "employee" as that term is defined in
General Instruction A.(1)(a) of Form S-8, as such definition may be amended from
time to time, without first receiving advice and guidance from the Company's
outside counsel as to the effect of such grant.
2.15 "EMPLOYEE" means any officer or employee of the Company.
2.16 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.17 "FAIR MARKET VALUE" Except as otherwise determined by the
Committee, the "Fair Market Value" of a Share as of any date shall be equal to
the closing sale price of a Share as reported on The National Association of
Securities Dealers' New York Stock Exchange Composite Reporting Tape (or if the
Shares are not traded on The New York Stock Exchange, the closing sale price on
the exchange on which it is traded or as reported by an applicable automated
quotation system) (the "Composite Tape"), on the applicable date or, if no sales
of Shares are reported on such date, the closing sale price of a Share on the
date the Shares was last reported on the Composite Tape (or such other exchange
or automated quotation system, if applicable).
2.18 "IMMEDIATE FAMILY MEMBERS" means the spouse, children and
grandchildren of a Participant.
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2.19 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase
Shares granted under Article 6 herein and which is designated as an Incentive
Stock Option and which is intended to meet the requirements of Code Section 422.
2.20 "INSIDER" shall mean an individual who is, on the relevant date,
a Director, a 10% Beneficial Owner of any class of the Company's equity
securities that is registered pursuant to Section 12 of the Exchange Act or an
officer of the Company, as defined under Section 16 of the Exchange Act and as
determined by the Board of Directors from time to time.
2.21 "NONEMPLOYEE DIRECTOR" means an individual who is a member of
the Board of Directors of the Company but who is not an Employee of the Company.
2.22 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to
purchase Shares granted under Article 6 herein and which is not intended to meet
the requirements of Code Section 422.
2.23 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.24 "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.25 "PARTICIPANT" means an Eligible Person who has outstanding an
Award granted under the Plan.
2.26 "PERIOD OF RESTRICTION" means the period during which the
transfer of Shares of Restricted Stock is limited in some way (based on the
passage of time, the achievement of performance objectives, or upon the
occurrence of other events as determined by the Committee, at its discretion),
and the Shares of Restricted Stock are subject to a substantial risk of
forfeiture, as provided in Article 7 herein.
2.27 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.28 "PLAN" means the MedPartners, Inc. 1997 Long Term Incentive
Compensation Plan.
2.29 "RESTRICTED STOCK"means an Award granted to a Participant
pursuant to Article 7 herein.
2.30 "RETIREMENT" as applied to a Participant, means the
Participant's termination of employment in a manner which qualifies the
Participant to receive immediately payable retirement benefits under the
applicable retirement plan maintained by the Company (the "Retirement Plan"),
under the successor or replacement of such Retirement Plan if it is then no
longer in effect, or under any other retirement plan
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maintained or adopted by the Company which is determined by the Committee to be
the functional equivalent of such Retirement Plan; or, with respect to a
Participant who may not or has not participated in a retirement plan maintained
by the Company or an Affiliate, "Retirement" shall have the meaning determined
by the Committee from time to time.
2.31 "SHARES" means Common Stock of MedPartners, Inc., par value
$.001 per share.
2.32 "SUBSIDIARY" means any corporation, partnership, joint venture
or other entity in which the Company has a majority voting interest.
ARTICLE 3
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Committee,
or by any other committee appointed by the Board, which Committee shall consist
solely of two or more "Nonemployee Directors" within the meaning of Rule 16b-3
under the Exchange Act, or any successor provision. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees who
shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner not inconsistent with
the Plan; construe and interpret the Plan and any Award Agreement or other
instrument entered into under the Plan as they apply to Participants; establish,
amend, or waive rules and regulations for the Plan's administration as they
apply to Participants; alter, amend, suspend or terminate the Plan in whole or
in part; and (subject to the provisions of Article 13 herein) amend the terms
and conditions of any outstanding Award to the extent such terms and conditions
are within the discretion of the Committee as provided in the Plan. Further,
the Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan, as the Plan applies to
Participants. As permitted by law, the Committee may delegate its authority as
identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
3.4 COSTS OF PLAN. The costs and expenses incurred in the operation
and administration of the Plan shall be borne by the Company.
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ARTICLE 4
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be 6,725,000.
The number of Shares reserved for issuance under the Plan shall
automatically increase on the first day of each calendar year during the term of
this Plan, beginning with the 1998 calendar year, by an amount equal to 1% of
the Shares outstanding on December 31 of the immediately preceding year.
However, such additional Shares shall not be available for grants of Incentive
Stock Options, unless and until the increase in the number of Shares provided
for herein is subsequently approved by the stockholders of the Company in
accordance with Section 422 of the Code.
Shares issued upon exercise of Options or Awards of Restricted Stock
under the Plan may be either authorized but unissued Shares or Shares re-
acquired by the Company. If, on or prior to the termination of the Plan, an
Award granted thereunder expires or is terminated for any reason without having
been exercised or vested in full, the unpurchased or unvested Shares covered
thereby will again become available for the grant of Awards under the Plan.
Shares covered by Options surrendered in connection with the exercise of other
Options shall not be deemed to have been exercised and shall again become
available for the grant of awards under the Plan.
Notwithstanding the foregoing, the maximum number of Shares of
Restricted Stock granted pursuant to Article 7 herein shall be an amount equal
to one-fifth of the total number of Shares reserved for issuance under the Plan.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property (excluding cash dividends) of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368) or any partial or complete liquidation of the
Company, such adjustment shall be made in the number and class of Shares which
may be delivered under Section 4.1, in the number and class of and/or price of
Shares subject to outstanding Awards granted under the Plan, and in the Award
limits set forth in Section 4.1, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
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ARTICLE 5
ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. All Eligible Persons are eligible to participate in
this Plan.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all Eligible Persons, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
ARTICLE 6
STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to Participants in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an
Award Agreement that shall specify the Option Price, the duration of the Option,
the number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine. Each such Award Agreement shall incorporate by
reference the terms and provisions of the Plan as in effect at the time of its
execution and may contain such other terms and provisions not contrary to the
Plan as shall be approved and adopted by the Committee. The Award Agreement also
shall specify whether the Option is intended to be an ISO within the meaning of
Code Section 422, or an NQSO whose grant is intended not to fall under the
provisions of Code Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under
this Plan shall be at least equal to 100% of the Fair Market Value of a Share on
the date the Option is granted; provided, however, that the exercise price of an
ISO granted to any person who owns, directly or indirectly, (or is treated as
owning by reason of attribution rules, currently set forth in Code Section 424),
stock of the Company constituting more than 10% of the total combined voting
power of the Company's outstanding stock, or the stock of any of its corporate
subsidiaries, shall in no event be less than 110% of the Fair Market Value of
such Shares.
6.4 VESTING OF OPTIONS. Except as provided by the Committee in the
applicable Award Agreement, Options will vest and become exercisable as follows:
(a) 34% of the Options shall vest on the date such options are
granted;
(b) 33% of the Options granted shall vest on each of the first
anniversary and second anniversary of the date such Options are granted;
provided, however, that if during the first year after the date such
-------- -------
Secondary Options are granted, the stock price of the Shares closes at or
above $12.00 (or such other price determined by the Committee and set forth
in the applicable
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Award Agreement) for any twenty (20) out of thirty (30) consecutive trading
days, the 33% of the Options due to vest on the first anniversary of the
date such Secondary Options are granted shall vest immediately at the end
of such 20th day, and provided, however, that if during the second year
-------- -------
after the date such Options are granted, the stock price of the Shares
closes at or above $18.00 (or such other price determined by the Committee
and set forth in the applicable Award Agreement) for any twenty (20) out of
thirty (30) consecutive trading days, the 33% of the Options due to vest on
the second anniversary of the date such Options are granted shall vest
immediately at the end of such 20th day.
6.5 DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that no Incentive Stock Option shall be exercisable later
than the tenth anniversary date of its grant. Furthermore, each Stock Option
granted to any person who owns, directly or indirectly (or is treated as owning
by reason of attribution rules, currently set forth in Internal Revenue Code
Section 424), stock of the Company constituting more than 10% of the total
combined voting power of the Company's outstanding stock, or the stock of any of
its corporate subsidiaries, is not exercisable after the expiration of five
years from the date such Option is granted.
6.6 EXERCISE OF OPTIONS. Options granted under this Article 6 shall
be exercisable at such times as set forth in the vesting schedule in Section 6.4
hereof, unless otherwise set forth in the Award Agreement, and be subject to
such restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for each grant or for each Participant.
Notwithstanding any contrary provisions contained in this Plan, the aggregate
Fair Market Value (determined as of the time each ISO is granted) of the Shares
with respect to which ISO's issued to any one person thereunder are exercisable
for the first time during any calendar year shall not exceed $100,000.
6.7 PAYMENT. Options granted under this Article 6 shall be exercised
by the delivery of a proper notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised.
No shares of Common Stock shall be issued on the exercise of an Option
unless the Option Price is paid for in full at the time of exercise. Payment
shall be made in cash, which may be paid by check or other instrument acceptable
to the Company. In addition, subject to compliance with applicable laws and
regulations and such conditions as the Committee may impose, the Committee may
elect to accept payment in shares of Common Stock of the Company which are
already owned by the Participant, valued at the Fair Market Value thereof on the
date of exercise. The Committee may also allow a Participant to exercise an
Option by use of proceeds to be received from the sale of Common Stock issuable
pursuant to the Option being exercised.
As soon as practicable after receipt of proper notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name,
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Share certificates in an appropriate amount based upon the number of Shares
purchased under the Option(s).
6.8 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.9 TERMINATION OF EMPLOYMENT.
(a) Except as provided in paragraphs (b) and (c) below and except as otherwise
specifically provided in the Award Agreement, each Option, to the extent it has
not been previously exercised, shall terminate upon the earliest to occur of:
(a) the expiration of the Option period set forth in the Option Award Agreement;
(b) for ISOs, the expiration of three months following the Participant's
Retirement (following the Participant's Retirement, NQSOs shall terminate upon
the expiration of the Option period set forth in the Option Award Agreement);
(c) the expiration of 12 months following the Participant's death or Disability;
(d) immediately upon the Participant ceasing to be an employee, officer,
consultant, director or otherwise affiliated with the Company for Cause; or (e)
the expiration of 90 days following the Participant ceasing to be an employee,
officer, consultant, director or otherwise affiliated with the Company for any
reason other than Cause, death, Disability, or Retirement.
(b) Notwithstanding anything in the Plan to the contrary, any Option granted on
or after September 21, 1998 (a "Secondary Option"), to the extent it has not
been previously exercised, shall terminate upon the earliest to occur of: (a)
the expiration of the Secondary Option period set forth in the Award Agreement;
(b) the expiration of 12 months following the Participant's death or Disability;
(c) immediately upon termination for Cause (as defined below); or (d) the
expiration of 90 days following the Participant's termination of employment for
any reason other than Cause (as defined below), Change in Control, death or
Disability.
For purposes of the preceding sentence only, Cause means the Company,
Subsidiary or an Affiliate having cause to terminate a Participant's status as
an employee, officer, consultant, or director or other affiliation with the
Company under any existing employment agreement between the Participant and the
Company, a Subsidiary or an Affiliate or, in the absence of such an employment
agreement, upon (i) the determination by the Committee that the Participant has
ceased to perform his duties to the Company, a Subsidiary or an Affiliate (other
than as a result of his incapacity due to physical or mental illness or injury),
which failure amounts to an intentional and extended neglect of his duties to
such party, (ii) the Committee's determination that the Participant has engaged
or is about to engage in conduct materially injurious to the Company, a
Subsidiary or an Affiliate, or (iii) the Participant having been convicted of a
felony.
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(c) Notwithstanding the foregoing, any Secondary Option, to the extent it has
not been previously exercised prior to a Change in Control shall remain
exercisable for its full original term upon and following such Change in
Control.
6.10 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be
sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all ISOs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. No NSO granted under the Plan may be
sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Notwithstanding
the foregoing, to the extent not prohibited by any statute, rule or regulation
applicable to the Plan, the Options, or the registration with the Securities and
Exchange Commission of the Shares to be issued upon exercise of the Options, the
Committee may, in its discretion, authorize all or a portion of NQSOs granted to
a Participant to be on terms which permit transfer by such Participant to (i)
Immediate Family Members, (ii) a trust or trusts for the exclusive benefit of
such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, provided that (A) there may be no
consideration for any such transfer, (B) the Award Agreement pursuant to which
such Options are granted must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this Section, and (C)
subsequent transfers of transferred Options shall be prohibited except those by
will or the laws of descent and distribution. Following transfer, any such
Options shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes of this
Plan, the term "Participant" shall be deemed to refer to the transferee. The
events of termination of employment shall continue to be applied with respect to
the original Participant, following which the Options shall be exercisable by
the transferee only to the extent, and for the periods specified in this Section
6.9. Notwithstanding the foregoing, should the Committee provide that Options
granted be transferable, the Company by such action incurs no obligation to
notify or otherwise provide notice to a transferee of early termination of the
Option. In the event of a transfer, as set forth above, the original Participant
is and will remain subject to and responsible for any applicable withholding
taxes upon the exercise of such Options.
ARTICLE 7
RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions
of the Plan, the Committee, at any time and from time to time, may grant Shares
of Restricted Stock to Participants in such amounts as the Committee shall
determine. Without limiting the generality of the foregoing, Restricted Shares
may be granted in connection with payouts under other compensation programs of
the Company.
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7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine.
7.3 TRANSFERABILITY. Except as provided in this Article 7, the
Shares of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of the applicable
Period of Restriction established by the Committee and specified in the
Restricted Stock Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
7.4 OTHER RESTRICTIONS. Subject to Article 8 herein, the Committee
shall impose such other conditions and/or restrictions on any Shares of
Restricted Stock granted pursuant to the Plan as it may deem advisable
including, without limitation, a requirement that Participants pay a stipulated
purchase price for each Share of Restricted Stock, restrictions based upon the
achievement of specific performance objectives (Company-wide, business unit,
and/or individual), time-based restrictions on vesting following the attainment
of the performance objectives, and/or restrictions under applicable federal or
state securities laws.
At the discretion of the Committee, the Company may retain the
certificates representing Shares of Restricted Stock in the Company's possession
until such time as all conditions and/or restrictions applicable to such Shares
have been satisfied.
Except as otherwise provided in this Article 7, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan shall become
freely transferable by the Participant after the last day of the applicable
Period of Restriction.
7.5 VOTING RIGHTS. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares.
7.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Participants holding Shares of Restricted Stock granted hereunder
may be credited with regular cash dividends paid with respect to the underlying
Shares while they are so held. Such dividends may be paid currently, accrued as
contingent cash obligations, or converted into additional shares of Restricted
Stock, upon such terms as the Committee establishes.
The Committee may apply any restrictions to the dividends that the
Committee deems appropriate.
In the event that any dividend constitutes a "derivative security" or
an "equity security" pursuant to Rule 16(a) under the Exchange Act, such
dividend shall be
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subject to a vesting period equal to the remaining vesting period of the Shares
of Restricted Stock with respect to which the dividend is paid.
7.7 TERMINATION OF EMPLOYMENT. Upon a Participant's death,
Disability, or Retirement, all Restricted Shares shall vest immediately. Each
Restricted Stock Award Agreement shall set forth the extent to which the
Participant shall have the right to retain unvested Restricted Shares following
the date the Participant ceases to be an employee, officer, consultant, director
or otherwise affiliated with the Company in all other circumstances. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with each Participant, need not be
uniform among all Shares of Restricted Stock issued pursuant to the Plan, and
may reflect distinctions based on the reasons for termination of employment.
ARTICLE 8
BENEFICIARY DESIGNATION
A Participant under the Plan may make written designation of a
beneficiary on forms prescribed by and filed with the Corporate Secretary of the
Company. Such beneficiary, or if no such designation of any beneficiary has
been made, the legal representative of such Participant or such other person
entitled thereto as determined by a court of competent jurisdiction, may
exercise, in accordance with and subject to the provisions of Article 6, any
unterminated and unexpired Option granted to such Participant to the same extent
that the Participant himself could have exercised such Option were he alive or
able; provided, however, that no Option granted under the Plan shall be
exercisable for more Shares than the Participant could have purchased thereunder
on the date his employment by, or other relationship with, the Company and its
Subsidiaries was terminated.
ARTICLE 9
DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option, the lapse or waiver of restrictions with respect to Restricted Stock, or
the satisfaction of any requirements or objectives with respect to performance
measures, if any. If any such deferral election is required or permitted, the
Committee shall, in its sole discretion, establish rules and procedures for such
payment deferrals.
ARTICLE 10
RIGHTS OF EMPLOYEES
10.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit
in any way the right of the Company to terminate any Participant's employment at
any
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time, nor confer upon any Participant any right to continue in the employ of the
Company.
10.2 PARTICIPATION. No Employee shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 11
CHANGE IN CONTROL
11.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a
Change in Control, unless otherwise specifically prohibited under applicable
laws, or by the rules and regulations of any governing governmental agencies or
national securities exchanges,:
(a) Any and all Options granted hereunder shall become immediately
vested and exercisable and shall remain exercisable throughout their entire
term; and
(b) Any restriction periods and restrictions imposed on Shares of
Restricted Stock shall lapse; provided, however, that the degree of vesting
associated with Restricted Stock which has been conditioned upon the
achievement of performance conditions pursuant to Section 7.4 herein shall
be determined in the manner set forth in Section 7.4 herein.
11.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 11 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's outstanding
Awards.
ARTICLE 12
SALE OF BUSINESS UNIT OF COMPANY
The Committee, in connection with the sale of any Subsidiary,
Affiliate, division or other business unit of the Company, may within the
Committee's sole and absolute discretion (1) cause any or all Options granted
hereunder to Participants whose Options or rights under Options will be
adversely affected by such transaction (a) to become immediately exercisable, or
(b) to remain exercisable after such transaction for such period as the
Committee deems appropriate under the circumstances, or both (a) and (b), or (2)
cause the restrictions on any or all Shares of Restricted Stock awarded
hereunder to Participants whose Restricted Stock will be adversely affected by
such transaction to lapse immediately. The provision of this Article 12 and the
actions of the Committee taken pursuant to this Article 12 shall be effective
upon action of the Committee alone without amendment to any Award Agreement or
the consent of any Participant.
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ARTICLE 13
AMENDMENT, MODIFICATION, AND TERMINATION
13.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section
11.2 herein, the Board or the Committee may at any time and from time to time,
alter, amend, suspend or terminate the Plan in whole or in part, except that,
without approval of the stockholders of the Company, no such revision or
amendment shall increase the number of shares available for grants of ISOs under
the Plan or alter the class of participants in the Plan.
Notwithstanding the foregoing, and subject to Section 11.2 herein,
neither the Company nor the Board or Committee on its behalf may cancel
outstanding Awards and issue substitute Awards in replacement thereof or reduce
the exercise price of any outstanding Options without stockholder approval.
13.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
13.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
ARTICLE 14
WITHHOLDING
14.1 TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan.
14.2 SHARE WITHHOLDING. To the extent provided by the Committee, a
Participant may elect to have any distribution to be made under this Plan to be
withheld or to surrender to the Company Shares already owned by the Participant
to fulfill any tax withholding obligation.
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ARTICLE 15
INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified and held harmless by the Company against and
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against him
or her, provided he or she shall give the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Certificate of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company may have
to indemnify them or hold them harmless.
ARTICLE 16
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation or otherwise.
ARTICLE 17
LEGAL CONSTRUCTION
17.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular; and, the singular shall include the plural.
17.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
17.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
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17.4 SECURITIES LAW COMPLIANCE. With respect to Insiders,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
17.5 GOVERNING LAW. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the state of Delaware.
17
<PAGE>
EXHIBIT 10.27
================================================================================
RECEIVABLES TRANSFER AGREEMENT
by and among
------------
PARK AVENUE RECEIVABLES CORPORATION
MP RECEIVABLES COMPANY
as Transferor,
CAREMARK INC.,
as Originator and as Collection Agent
and
---
THE CHASE MANHATTAN BANK,
as Funding Agent
Dated as of December 4, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I DEFINITIONS
<S> <C>
SECTION 1.1. Certain Defined Terms.................................... 1
SECTION 1.2. Other Terms.............................................. 1
SECTION 1.3. Computation of Time Periods.............................. 1
ARTICLE II PURCHASES AND SETTLEMENTS
SECTION 2.1. Facility................................................. 2
SECTION 2.2. Transfers; Certificates; Eligible Receivables............ 2
SECTION 2.3. Selection of Tranche Periods and Tranche Rates........... 5
SECTION 2.4. Discount, Fees and Other Costs and Expenses.............. 7
SECTION 2.5. Non-Liquidation Settlement and Reinvestment Procedures... 7
SECTION 2.6. Liquidation Settlement Procedures........................ 10
SECTION 2.7. Fees..................................................... 10
SECTION 2.8. Protection of Ownership Interest of PARCO and
the APA Banks........................................... 10
SECTION 2.9. Deemed Collections; Application of Payments.............. 11
SECTION 2.10. Payments and Computations, Etc.......................... 12
SECTION 2.11. Reports................................................. 12
SECTION 2.12. Collection Account...................................... 13
SECTION 2.13. Right of Setoff......................................... 13
SECTION 2.14. Sharing of Payments, Etc................................ 14
SECTION 2.15. Broken Funding.......................................... 14
SECTION 2.16. Conversion and Continuation of Outstanding Tranches
Funded by the APA Banks............................... 15
SECTION 2.17. Illegality.............................................. 16
SECTION 2.18. Inability to Determine Eurodollar Rate.................. 17
ARTICLE III REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Transferor......... 18
SECTION 3.2. Reaffirmation of Representations and Warranties by the
Transferor.............................................. 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3.3. Representations and Warranties of the Originator......... 22
ARTICLE IV CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Effectiveness.............................. 23
ARTICLE V COVENANTS
SECTION 5.1. Affirmative Covenants.................................... 26
SECTION 5.2. Negative Covenants....................................... 32
SECTION 5.3. Representations, Warranties and Covenants of the
Originator.............................................. 35
ARTICLE VI ADMINISTRATION AND COLLECTIONS
SECTION 6.1. Appointment of Collection Agent.......................... 36
SECTION 6.2. Duties of Collection Agent............................... 36
SECTION 6.3. Rights After Designation of New Collection Agent......... 38
SECTION 6.4. Collection Agent Default................................. 39
SECTION 6.5. Indemnities by the Collection Agent...................... 41
SECTION 6.6. Responsibilities of the Originator....................... 41
ARTICLE VII TERMINATION EVENTS
SECTION 7.1. Termination Events....................................... 43
SECTION 7.2. Remedies Upon the Occurrence of a Termination Event...... 44
SECTION 7.3. Reconveyance Under Certain Circumstances................. 45
ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1. Indemnities by the Transferor............................ 46
SECTION 8.2. Indemnity for Reserves and Expenses...................... 48
SECTION 8.3. Indemnity for Taxes...................................... 50
SECTION 8.4. Other Costs, Expenses and Related Matters................ 52
ARTICLE IX MISCELLANEOUS
SECTION 9.1. Term of Agreement........................................ 53
SECTION 9.2. Waivers; Amendments...................................... 53
SECTION 9.3. Notices.................................................. 53
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 9.4. Governing Law; Submission to Jurisdiction; Integration... 55
SECTION 9.5. Severability; Counterparts............................... 56
SECTION 9.6. Successors and Assigns................................... 56
SECTION 9.7. Confidentiality.......................................... 56
SECTION 9.8. No Bankruptcy Petition Against PARCO..................... 57
SECTION 9.9. Limited Recourse......................................... 58
SECTION 9.10. Characterization of the Transactions Contemplated by
the Agreement......................................... 58
SECTION 9.11. Waiver of Setoff........................................ 59
SECTION 9.12. Chase Conflict Waiver................................... 59
SECTION 9.13. Liability of Funding Agent.............................. 59
</TABLE>
iii
<PAGE>
EXHIBITS
SCHEDULE A Schedule of Definitions
EXHIBIT A Form of Contract
EXHIBIT B Form of Deposit Report
EXHIBIT C List of Lock-Box Banks and Accounts
EXHIBIT D Form of Lock-Box Agreement
EXHIBIT E Form of Settlement Report
EXHIBIT F Form of Transfer Certificate
EXHIBIT G List of Actions and Suits
EXHIBIT H Location of Records
EXHIBIT I List of Subsidiaries, Divisions and Tradenames
EXHIBIT J Form of Secretary's Certificate
iv
<PAGE>
RECEIVABLES TRANSFER AGREEMENT
RECEIVABLES TRANSFER AGREEMENT (as amended, supplemented or otherwise
modified and in effect from time to time, this "Agreement"), dated as of
---------
December 4, 1998, by and among MP RECEIVABLES COMPANY, a Delaware corporation,
as transferor (in such capacity, the "Transferor"), CAREMARK INC., a California
----------
corporation, individually (the "Originator") and as collection agent (in such
----------
capacity, the "Collection Agent"), PARK AVENUE RECEIVABLES CORPORATION, a
----------------
Delaware corporation ("PARCO") and THE CHASE MANHATTAN BANK, a New York state
-----
banking corporation ("Chase"), as funding agent for the benefit of PARCO and the
-----
APA Banks (in such capacity, the "Funding Agent").
-------------
PRELIMINARY STATEMENTS
----------------------
WHEREAS, the Transferor may desire to convey, transfer and assign,
from time to time, undivided percentage interests in certain accounts
receivable, and PARCO may desire to, and the APA Banks, if requested by PARCO,
shall, accept such conveyance, transfer and assignment of such undivided
percentage interests, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Certain Defined Terms. Capitalized terms used herein
---------------------
shall have the meanings assigned to such terms in, or incorporated by reference
into, Schedule A attached hereto, which Schedule A is incorporated by reference
herein.
SECTION I.2. Other Terms. All accounting terms not specifically
-----------
defined herein shall be construed in accordance with GAAP.
SECTION I.3. Computation of Time Periods. Unless otherwise stated in
---------------------------
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including", the words
"to" and "until" each means "to but excluding", and the word "within" means
"from and excluding a specified date and to and including a later specified
date".
<PAGE>
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION II.1. Facility. Upon the terms and subject to the conditions
--------
set forth herein and in the other Transaction Documents prior to the Termination
Date, (x) the Transferor may, at its option, convey, transfer and assign to
PARCO (prior to the occurrence of a PARCO Wind-Down Event) and to the APA Banks
(following the occurrence of a PARCO Wind-Down Event) and (y) PARCO may, at its
option (prior to the occurrence of a PARCO Wind-Down Event), and the APA Banks
shall (following the occurrence of a PARCO Wind-Down Event), accept such
conveyance, transfer and assignment from the Transferor of, without recourse
except as provided herein, undivided percentage ownership interests in the
Receivables, together with Related Security, Collections and Proceeds with
respect thereto, from time to time. By accepting any conveyance, transfer and
assignment hereunder, neither PARCO, the Funding Agent nor any APA Bank assumes
or shall have any obligations or liability under any of the Contracts, all of
which shall remain the obligations and liabilities of the Originator.
SECTION II.2. Transfers; Certificates; Eligible Receivables.
---------------------------------------------
(a) Incremental Transfers. Prior to the Termination Date, upon
---------------------
the terms and subject to the conditions set forth herein and in the other
Transaction Documents, (x) the Transferor may, at its option from time to time,
convey, transfer and assign to PARCO (prior to the occurrence of a PARCO Wind-
Down Event) and to the APA Banks (following the occurrence of a PARCO Wind-Down
Event and subject to Section 2.2 of the Asset Purchase Agreement) and (y) PARCO
may, at its option from time to time (prior to the occurrence of a PARCO Wind-
Down Event), and the APA Banks shall (following the occurrence of a PARCO Wind-
Down Event and subject to Section 2.2 of the Asset Purchase Agreement), accept
such conveyance, transfer and assignment from the Transferor, without recourse
except as provided herein, undivided percentage ownership interests in the
Receivables, together with Related Security, Collections and Proceeds with
respect thereto (each, an "Incremental Transfer") from time to time prior to the
--------------------
Termination Date; provided that after giving effect to the issuance of
Commercial Paper (or, following the occurrence of a PARCO Wind-Down Event, the
obtaining of funds by the APA Banks) to fund the cash portion of the Transfer
Price of any Incremental Transfer and the payment to the Transferor of the cash
portion of such Transfer Price, the Net Investment shall not exceed the Facility
Limit; and, provided further, that the representations and warranties set forth
-------- -------
in Section 3.1 shall be true and correct both
2
<PAGE>
immediately before and immediately after giving effect to any such Incremental
Transfer and the payment to the Transferor of the cash portion of the Transfer
Price related thereto.
The Transferor shall, by notice to the Funding Agent given by
telecopy, offer to convey, transfer and assign to PARCO (prior to the occurrence
of a PARCO Wind-Down Event) or the APA Banks (following the occurrence of a
PARCO Wind-Down Event and subject to Section 2.2 of the Asset Purchase
Agreement) undivided percentage ownership interests in the Receivables and
Related Security, Collections and Proceeds with respect thereto at least three
(3) Business Days prior to the proposed date of any Incremental Transfer. Each
such notice shall specify (x) the desired Transfer Price (which shall be at
least $1,000,000 or integral multiples of $100,000 in excess thereof) or, to the
extent that the then available unused portion of the Facility Limit is less than
such amount, such lesser amount equal to such available portion of the Facility
Limit; (y) the desired date of such Incremental Transfer; and (z) the desired
Tranche Period(s) and allocations of the Net Investment of such Incremental
Transfer thereto as required by Section 2.3. Each Incremental Transfer shall be
subject to the condition precedent that the Collection Agent shall have
delivered to the Funding Agent, as and when due in accordance with this
Agreement, a completed Weekly Report prior to the desired date of such
Incremental Transfer, together with such other additional information as the
Funding Agent may reasonably request. The Funding Agent will promptly notify
PARCO and the APA Banks, as applicable, of the Funding Agent's receipt of any
request for an Incremental Transfer to be made to such Person. At its option,
PARCO shall accept or reject any such offer by notice given to the Transferor
and the Funding Agent by telephone or telecopy.
Each notice of proposed Transfer shall be irrevocable and binding on
the Transferor, and the Transferor shall indemnify PARCO and the APA Banks
against any loss or expense incurred by PARCO and the APA Banks, either directly
or indirectly, as a result of any failure by the Transferor to complete such
Incremental Transfer, including, without limitation, any loss (including loss of
anticipated profits) or expense incurred by PARCO and the APA Banks, either
directly or indirectly, by reason of the liquidation or reemployment of funds
acquired by PARCO or the APA Banks (including, without limitation, funds
obtained by issuing Commercial Paper or promissory notes, obtaining deposits as
loans from third parties and reemployment of funds) for PARCO or the APA Banks,
as applicable to fund such Incremental Transfer.
On the date of the initial Incremental Transfer, the Funding Agent, on
behalf of PARCO and the APA Banks, shall deliver written confirmation to the
3
<PAGE>
Transferor of the cash portion of the Transfer Price, the Tranche Period(s) and
the Tranche Rate(s) relating to such Transfer, and the Transferor shall deliver
to the Funding Agent the Transfer Certificate in the form of Exhibit F hereto
(the "Transfer Certificate"). The Funding Agent shall indicate the amount of
--------------------
the initial Incremental Transfer together with the date thereof on the grid
attached to the Transfer Certificate. On the date of each subsequent
Incremental Transfer, the Funding Agent shall send written confirmation to the
Transferor of the cash portion of the Transfer Price, the Tranche Period(s), the
Transfer Date and the Tranche Rate(s) applicable to such Incremental Transfer.
The Funding Agent shall indicate the amount of the Incremental Transfer together
with the date thereof as well as any decrease in the Net Investment on the grid
attached to the Transfer Certificate. The Transfer Certificate shall evidence
the Incremental Transfers. Following each Incremental Transfer, the Funding
Agent, on behalf of PARCO and the APA Banks, shall deposit to the Transferor's
account at the location indicated in Section 9.3 hereof, in immediately
available funds, an amount equal to the cash portion of the Transfer Price for
such Incremental Transfer made to PARCO or the APA Banks, as applicable.
(b) Reinvestment Transfers. On each Business Day occurring after the
----------------------
initial Incremental Transfer hereunder and prior to a PARCO Wind-Down Event (in
the case of PARCO) and the Termination Date (in the case of the APA Banks), the
Transferor hereby agrees to convey, transfer and assign to PARCO (prior to the
occurrence of a PARCO Wind-Down Event) and the APA Banks (following the
occurrence of a PARCO Wind-Down Event and subject to Section 2.2 of the Asset
Purchase Agreement), and in consideration of the Transferor's agreement to
maintain, at all times prior to the Termination Date, a Net Receivables Balance
in an amount at least sufficient to maintain the Percentage Factor at an amount
not greater than the Maximum Percentage Factor, PARCO may agree to purchase (or,
following a PARCO Wind-Down Event and subject to Section 2.2 of the Asset
Purchase Agreement, the APA Banks shall purchase) from the Transferor undivided
percentage ownership interests in each and every Receivable, together with
Related Security, Collections and Proceeds with respect thereto, to the extent
that Collections are available for such Transfer in accordance with Section 2.5
hereof, such that, after giving effect to such Transfer, (i) the amount of the
Net Investment at the close of business on such Business Day shall be equal to
the amount of the Net Investment at the close of the business on the Business
Day immediately preceding such Business Day plus the cash portion of the
Transfer Price of any Incremental Transfer made on such day, if any, and (ii)
the Transferred Interest in each Receivable, together with Related Security,
Collections and Proceeds with respect thereto, shall be equal to the Transferred
Interest in each other Receivable, together with Related Security, Collections
and Proceeds with respect thereto.
4
<PAGE>
(c) All Transfers. Each Transfer shall constitute a purchase of
-------------
undivided percentage ownership interests in each and every Receivable, together
with Related Security, Collections and Proceeds with respect thereto, then
existing, as well as in each and every Receivable, together with Related
Security, Collections and Proceeds with respect thereto, which arises at any
time after the date of such Transfer. PARCO's (and, following the occurrence of
a PARCO Wind-Down Event, the APA Banks') aggregate undivided percentage
ownership interest in the Receivables, together with the Related Security,
Collections and Proceeds with respect thereto, shall equal the Percentage Factor
in effect from time to time.
(d) Percentage Factor. The Percentage Factor shall be initially
-----------------
computed as of the opening of business of the Collection Agent on the date of
the initial Incremental Transfer hereunder. Thereafter, until the Termination
Date, the Percentage Factor shall be automatically recomputed as of the close of
business of the Collection Agent on each day (other than a day after the
Termination Date). The Percentage Factor shall remain constant from the time as
of which any such computation or recomputation is made until the time as of
which the next such recomputation, if any, shall be made. At all times on and
after the Termination Date until the date on which the Net Investment has been
reduced to zero and all accrued Discount, Servicing Fees and all other Aggregate
Unpaids have been paid in full, the Percentage Factor shall be fixed and shall
remain at 100%. Following any assignment of any portion of the Transferred
Interest to the APA Banks pursuant to the Asset Purchase Agreement, the Funding
Agent shall, at all times and from time to time, calculate PARCO's and each APA
Bank's pro rata interest in the Percentage Factor and regularly report thereon
--- ----
to PARCO and the APA Banks (with copies thereof to the Transferor).
SECTION II.3. Selection of Tranche Periods and Tranche Rates.
----------------------------------------------
(a) Transferred Interest Held by PARCO Prior to PARCO Wind-Down Event.
-----------------------------------------------------------------
At all times hereafter, but prior to the Termination Date and not with respect
to any portion of the Transferred Interest held by any of the APA Banks, the
Transferor may, subject to PARCO's approval and the limitations described below,
request Tranche Periods and allocate a portion of the Net Investment to each
selected Tranche Period, so that the aggregate amounts allocated to outstanding
Tranche Periods at all times shall equal the portion of the Net Investment held
by PARCO. The Transferor shall give the Funding Agent irrevocable notice by
telephone of the new requested Tranche Period(s) at least three (3) Business
Days prior to the expiration of any then existing Tranche Period; provided,
--------
however, that
- -------
5
<PAGE>
PARCO may select, in its sole discretion, any such new Tranche Period if (i) the
Transferor fails to provide such notice on a timely basis or (ii) the Funding
Agent, on behalf of PARCO, determines, in its sole discretion, that the Tranche
Period requested by the Transferor is unavailable or for any reason commercially
undesirable. PARCO confirms that it is its intention to allocate all or
substantially all of the portion of the Net Investment held by it to one or more
CP Tranche Periods; provided that PARCO may determine, from time to time, in its
--------
sole discretion, that funding such portion of the Net Investment by means of one
or more CP Tranche Periods is not possible or is not desirable for any reason.
(b) Transferred Interest Held by PARCO Following the Termination Date.
-----------------------------------------------------------------
At all times on and after the Termination Date, with respect to any portion of
the Transferred Interest which shall not have been transferred to the APA Banks
(or any of them), PARCO or the Funding Agent, as applicable, shall select all
Tranche Periods and Tranche Rates applicable thereto.
(c) Transferred Interest Held by the APA Banks Prior to the
-------------------------------------------------------
Termination Date. At all times with respect to any portion of the Transferred
- ----------------
Interest transferred to the APA Banks (or any of them) pursuant to the Asset
Purchase Agreement, but prior to the Termination Date, the initial Tranche
Period applicable to such portion of the Net Investment allocable thereto shall
be a period of not greater than three (3) days, and such Tranche shall be a BR
Tranche. Thereafter (but prior to the Termination Date or the occurrence and
continuation of a Potential Termination Event), with respect to such portion,
and with respect to any other portion of the Transferred Interest held by the
APA Banks (or any of them), the Tranche Period applicable thereto shall be, at
the Transferor's option, either a BR Tranche or a Eurodollar Tranche. The
Transferor shall give the Funding Agent irrevocable notice by telephone of the
new requested Tranche Period at least three (3) Business Days prior to the
expiration of any then existing Tranche Period. Any Tranche Period maintained
by the APA Banks which is outstanding on the Termination Date shall end on the
Termination Date.
(d) After the Termination Date; Transferred Interest Held by APA
------------------------------------------------------------
Banks. At all times on and after the Termination Date, with respect to any
- -----
portion of the Transferred Interest which shall have been owned by, or
transferred to, the APA Banks (or any of them), the Funding Agent shall select
all Tranche Periods and Tranche Rates applicable thereto.
SECTION II.4. Discount, Fees and Other Costs and Expenses.
-------------------------------------------
Notwithstanding the limitation on recourse under Section 2.1 hereof, the
Transferor
6
<PAGE>
shall pay, as and when due in accordance with this Agreement and the
other Transaction Documents, all fees hereunder, Discount, Servicing Fees and
other Aggregate Unpaids that are properly due and payable by it. On the last
day of each Tranche Period, the Transferor shall pay to the Funding Agent, on
behalf of PARCO and/or the APA Banks, as applicable, an amount equal to the
accrued and unpaid Discount for such Tranche Period together with, in the event
any portion of the Transferred Interest is held by PARCO, an amount equal to the
discount accrued on PARCO's Commercial Paper to the extent such Commercial Paper
was issued in order to fund the Transferred Interest in an amount in excess of
the cash portion of the Transfer Price of an Incremental Transfer; provided that
--------
(i) in the event of any repayment or prepayment of a BR Tranche or a Eurodollar
Tranche, accrued Discount on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (ii) in the event of any
conversion of a BR Tranche or a Eurodollar Tranche, accrued interest on such BR
Tranche or Eurodollar Tranche shall be payable on the effective date of such
conversion. Discount shall accrue with respect to each Tranche on each day
occurring during the Tranche Period related thereto.
Nothing in this Agreement or the other Transaction Documents shall
limit in any way the obligations of the Transferor to pay the amounts set forth
in this Section 2.4.
SECTION II.5. Non-Liquidation Settlement and Reinvestment Procedures.
------------------------------------------------------
On each day after the date of any Incremental Transfer but prior to the
Termination Date, and provided that no Potential Termination Event shall have
occurred and be continuing, the Collection Agent shall, out of the Percentage
Factor of Collections received on or prior to such day and not previously
applied or accounted for: (i) set aside and hold in trust for PARCO or the APA
Banks, as applicable (or deposit into the Collection Account if so required
pursuant to Section 2.12 hereof) an amount equal to all Discount and the
Servicing Fee accrued through such day and not so previously set aside or paid
and (ii) apply the balance of such Percentage Factor of Collections remaining
after application of Collections as provided in clause (i) of this Section 2.5
hereof to the Transferor, for the benefit of PARCO and/or the APA Banks, as
applicable, to the purchase of additional undivided percentage interests in each
Receivable pursuant to Section 2.2(b) hereof. On the last day of each Tranche
Period, from the amounts set aside as described in clause (i) of the first
sentence of this Section 2.5 hereof, the Collection Agent shall deposit to the
Funding Account, for the benefit of PARCO and/or the APA Banks, as applicable,
an amount equal to the accrued and unpaid Discount for such Tranche Period and
shall deposit to its own account an amount equal to the accrued and unpaid
Servicing Fee for such Tranche Period. The Funding Agent, upon its receipt of
such amounts in the
7
<PAGE>
Funding Account, shall distribute such amounts to PARCO and/or the APA Banks
entitled thereto as set forth above; provided that if the Funding Agent shall
--------
have insufficient funds to pay all of the above amounts in full on any such
date, the Funding Agent shall notify the Transferor and the Transferor shall
immediately pay to the Funding Agent, from funds previously paid to the
Transferor, an amount equal to such insufficiency. In addition, the Collection
Agent shall remit to the Transferor, at the end of each Tranche Period, such
portion of Collections not allocated to PARCO and the APA Banks.
SECTION II.6. Liquidation Settlement Procedures. If at any time on
---------------------------------
or prior to the Termination Date, the Percentage Factor is greater than the
Maximum Percentage Factor, then the Transferor shall immediately pay to the
Funding Agent, for the benefit of PARCO and/or the APA Banks, as applicable,
from previously received Collections, an amount equal to the amount such that,
when applied in reduction of the Net Investment, will result in a Percentage
Factor less than or equal to the Maximum Percentage Factor. Such amount shall
be applied to the reduction of the Net Investment of Tranche Periods selected by
the Funding Agent. On the Termination Date and on each day thereafter, and on
each day on which a Potential Termination Event has occurred and is continuing,
the Collection Agent shall set aside and hold in trust for PARCO and/or the APA
Banks, as applicable (or deposit into the Collection Account if so required
pursuant to Section 2.12 hereof), the Percentage Factor of all Collections
received on such day and shall set aside and hold in trust for the Transferor
such portion of Collections not allocated to PARCO and/or the APA Banks, as
applicable. On the Termination Date or the day on which a Potential Termination
Event occurs, the Collection Agent shall deposit to the Funding Account, for the
benefit of PARCO or the APA Banks, as applicable, any amounts set aside pursuant
to Section 2.5 above.
On the last day of each Tranche Period to occur on or after the
Termination Date or during the continuation of a Potential Termination Event,
the Collection Agent shall deposit to the Funding Account, for the benefit of
PARCO and the APA Banks, as applicable, the amounts so set aside for PARCO and
the APA Banks pursuant to the second preceding sentence, but not to exceed the
sum of (i) the accrued Discount for such Tranche Period, (ii) the portion of the
Net Investment allocated to such Tranche Period, and (iii) all other Aggregate
Unpaids. On such day, the Collection Agent shall deposit to its account, from
the amounts set aside for PARCO and the APA Banks pursuant to the preceding
sentence which remain after payment in full of the aforementioned amounts, the
accrued Servicing Fee for such Tranche Period. If there shall be insufficient
funds on deposit for the Collection Agent to distribute funds in payment in full
of the aforementioned amounts, the
8
<PAGE>
Collection Agent shall distribute funds first, in payment of the accrued
-----
Discount, second, if the Transferor, the Originator or any Affiliate of the
------
Transferor or the Originator is not then the Collection Agent, to the Collection
Agent's account, in payment of the Servicing Fee payable to the Collection
Agent, third, in reduction of the Net Investment allocated to any Tranche Period
-----
ending on such date, fourth, in payment of all fees payable by the Transferor
------
hereunder, fifth, in payment of all other Aggregate Unpaids and sixth, if the
----- -----
Transferor, the Originator or any Affiliate of the Transferor or the Originator
is the Collection Agent, to its account as Collection Agent, in payment of the
Servicing Fee payable to such Person as Collection Agent. The Funding Agent,
upon its receipt of such amounts in the Funding Agent's account, shall
distribute such amounts to PARCO and/or the APA Banks entitled thereto as set
forth above; provided that if the Funding Agent shall have insufficient funds to
--------
pay all of the above amounts in full on any such date, the Funding Agent shall
pay such amounts in the order of priority set forth above and, with respect to
any such category above for which the Funding Agent shall have insufficient
funds to pay all amounts owing on such date, ratably (based on the amounts in
such categories owing to such Persons) among all such Persons entitled to
payment thereof.
Following the date on which the Net Investment has been reduced to
zero and all accrued Discount, Servicing Fees and all other Aggregate Unpaids
have been paid in full, (i) the Collection Agent shall recompute the Percentage
Factor, (ii) the Funding Agent, on behalf of PARCO and the APA Banks, shall be
deemed to have reconveyed to the Transferor all of PARCO's and the APA Banks'
right, title and interest in, to and under the Receivables and Related Security,
Collections and Proceeds with respect thereto, (iii) the Collection Agent shall
pay to the Transferor any remaining Collections set aside and held by the
Collection Agent pursuant to the third sentence of this Section 2.6 and (iv) the
Funding Agent, on behalf of PARCO and the APA Banks, shall execute and deliver
to the Transferor, at the Transferor's expense, such documents or instruments as
are necessary to terminate PARCO's and the APA Banks' respective interests in
the Receivables and Related Security, Collections and Proceeds with respect
thereto. Any such documents shall be prepared by or on behalf of the
Transferor. On the last day of each Tranche Period, the Collection Agent shall
remit to the Transferor such portion of Collections set aside for the Transferor
pursuant to this Section 2.6.
SECTION II.7. Fees. Notwithstanding any limitation on recourse
----
contained in this Agreement, the Transferor shall pay, as and when due in
accordance with the Fee Letter, the fees specified in the Fee Letter.
9
<PAGE>
SECTION II.8. Protection of Ownership Interest of PARCO and the APA
-----------------------------------------------------
Banks.
- -----
(a) Each of the Transferor and the Originator agrees that it will,
from time to time, at its expense, promptly execute and deliver all instruments
and documents and take all actions as may be necessary or as the Funding Agent
may reasonably request in order to perfect or protect the Transferred Interest
or to enable the Funding Agent, PARCO or the APA Banks to exercise or enforce
any of their respective rights hereunder. Without limiting the foregoing, each
of the Transferor and the Originator will, upon the request of the Funding
Agent, PARCO or any of the APA Banks, in order to accurately reflect this
purchase and sale transaction, (x) execute and file such financing or
continuation statements or amendments thereto or assignments thereof (as
permitted pursuant to Section 10.6 hereof) as may be requested by the Funding
Agent for the benefit of PARCO and the APA Banks and (y) mark its respective
master data processing records and other documents with a legend describing the
conveyance of Receivables to the Transferor (in the case of the Originator) and
the conveyance of the Transferred Interest to the Funding Agent for the benefit
of PARCO and the APA Banks. Each of the Transferor and the Originator shall,
upon request of the Funding Agent, obtain such additional search reports as the
Funding Agent, for the benefit of PARCO and the APA Banks, shall request. To
the fullest extent permitted by applicable law, the Funding Agent shall be
permitted to sign and file continuation statements and amendments thereto and
assignments thereof without the Transferor's or the Originator's signature.
Carbon, photographic or other reproduction of this Agreement or any financing
statement shall be sufficient as a financing statement. Neither the Transferor
nor the Originator shall change its name, identity or corporate structure
(within the meaning of Section 9-402(7) of the Relevant UCC), nor relocate its
respective chief executive office or any office where Records are kept unless it
shall have: (i) given the Funding Agent at least ten (10) days' prior notice
thereof and (ii) prepared at Transferor's expense and delivered to the Funding
Agent all financing statements, instruments and other documents necessary to
preserve and protect the Transferred Interest or requested by the Funding Agent
in connection with such change or relocation. Any filings under the Relevant
UCC or otherwise that are occasioned by such change in name or location shall be
made at the expense of Transferor.
(b) The Collection Agent shall instruct all Obligors to cause all
Collections to be deposited directly into a Lock-Box Account. Any Lock-Box
Account maintained by a Lock-Box Bank pursuant to the related Lock-Box Agreement
shall be under the exclusive ownership and control of the Funding Agent which is
hereby granted to the Funding Agent by the Transferor (as assignee of the
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<PAGE>
Originator). The Collection Agent shall be permitted to give instructions to
the Lock-Box Banks for so long as neither a Collection Agent Default nor any
other Termination Event or Potential Termination Event has occurred and is
continuing hereunder. The Collection Agent shall not add any bank as a Lock-Box
Bank to those listed on Exhibit C attached hereto unless such bank has entered
into a Lock-Box Agreement. The Collection Agent shall not terminate any bank as
a Lock-Box Bank unless the Administrative Agent shall have received fifteen (15)
days' prior notice of such termination. If the Transferor, the Originator or
the Collection Agent receives any Collections, then the Transferor, the
Originator or the Collection Agent, as applicable, shall immediately, but in no
event later than one (1) Business Day after receipt thereof, remit such
Collections to a Lock-Box Account.
SECTION II.9. Deemed Collections; Application of Payments. (a) If
-------------------------------------------
on any day a Receivable becomes a Diluted Receivable, the Transferor shall be
deemed to have received on such day a Collection of such Receivable in the
amount of such reduction or cancellation, and the Transferor shall pay to the
Collection Agent an amount equal to such reduction or cancellation. Any such
amount shall be applied by the Collection Agent as a Collection in accordance
with Section 2.5 or 2.6 hereof, as applicable. The Net Investment shall be
reduced by the amount of such payment actually received by the Funding Agent.
(b) If, on any day, any representation or warranty made herein with
respect to any Receivable is determined to be incorrect or untrue in any
material respect as of the date such representation or warranty was made, the
Transferor shall be deemed to have received on such day a Collection of such
Receivable in full and the Transferor shall, on such day, pay to the Collection
Agent an amount equal to the Outstanding Balance of such Receivable and such
amount shall be allocated and applied by the Collection Agent as a Collection
allocable to the Transferred Interest in accordance with Section 2.5 or 2.6
hereof, as applicable. The Net Investment shall be reduced by the amount of
such payment actually received by the Funding Agent. Simultaneously with any
such payment by the Transferor, each of PARCO and the APA Banks, as the case may
be, shall convey all of its right, title and interest in such Receivable and
Related Security to the Transferor, and the Funding Agent, on behalf of PARCO
and the APA Banks, shall take all action reasonably requested by the Transferor
to effectuate such conveyance.
(c) Any payment by an Obligor in respect of a Receivable shall, except
as otherwise specified by such Obligor or otherwise required by contract or law
and unless otherwise instructed by PARCO, be applied as a Collection of any
Receivable of such Obligor included in the Transferred Interest (starting with
the
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<PAGE>
oldest such Receivable) to the extent of any amounts then due and payable
thereunder before being applied to any other receivable or other indebtedness of
such Obligor.
SECTION II.10. Payments and Computations, Etc. All amounts to be
-------------------------------
paid or deposited by the Transferor or the Collection Agent hereunder shall be
paid or deposited in accordance with the terms hereof no later than 11:00 A.M.
(New York time) on the day when due in immediately available funds; if such
amounts are payable to PARCO (or any APA Bank), they shall be paid or deposited
in the Funding Account, until otherwise notified by the Funding Agent. No later
than 4:30 P.M. (New York time) on the date of any Incremental Transfer
hereunder, PARCO or the APA Banks, as applicable, will make available to the
Transferor, in immediately available funds, the amount of such Incremental
Transfer on such day by remitting such amount to an account of the Transferor
specified in the related notice of Transfer. The Transferor shall, to the
extent permitted by law, pay to the Funding Agent, for the benefit of PARCO
and/or the APA Banks upon demand, interest on all amounts not paid or deposited
when due hereunder at a rate equal to 2% per annum plus the Base Rate. All
computations of Discount, interest and all per annum fees hereunder shall be
made on the basis of a year of 360 days (or, in the case of Discount calculated
at the Base Rate, a year of 365 or 366 days, as applicable) for the actual
number of days (including the first but excluding the last day) elapsed. Any
computations by the Funding Agent of amounts payable by the Transferor hereunder
shall be binding upon the Transferor absent manifest error.
SECTION II.11. Reports. (a) The Collection Agent shall prepare and
-------
forward to the Funding Agent and the Transferor (i) on each Settlement Date, a
Settlement Statement as of the end of the last day of the immediately preceding
Settlement Period and (ii) on any other Business Day, such other information as
the Transferor or Funding Agent may reasonably request.
(b) The Collection Agent shall submit to the Funding Agent, no later
than 1:00 P.M. (New York time) on each Weekly Settlement Date (or, after the
occurrence and continuation of a Termination Event or Potential Termination
Event, on each Business Day), a written report substantially in the form
attached hereto as Exhibit B (the "Deposit Report") setting forth total
--------------
Collections deposited in the Collection Account, Receivables and Eligible
Receivables created during the immediately preceding calendar week, and such
other information as the Funding Agent may reasonably request. The Deposit
Report may be delivered in an electronic format mutually agreed upon by the
Collection Agent and the Funding Agent or, pending such agreement, by facsimile.
By delivery of a Deposit Report, the
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<PAGE>
Originator shall be deemed to have made a representation and warranty that the
information set forth therein is true and correct in all material respects.
SECTION II.12. Collection Account. There shall be established on the
------------------
day of the initial Incremental Transfer hereunder and maintained, for the
benefit of the Funding Agent on behalf of PARCO and the APA Banks, a segregated
account (the "Collection Account"), bearing a designation clearly indicating
------------------
that the funds deposited therein are held for the benefit of PARCO and the APA
Banks. On and after the occurrence of a Collection Agent Default or a
Termination Event or a Potential Termination Event, the Collection Agent shall
remit daily to the Collection Account all Collections received with respect to
any Receivables. Funds on deposit in the Collection Account (other than
investment earnings) shall be invested by the Funding Agent in Permitted
Investments that will mature so that such funds will be available prior to the
last day of each successive Tranche Period following such investment. On the
last day of each Tranche Period, all interest and earnings (net of losses and
investment expenses) on funds on deposit in the Collection Account shall be
retained in the Collection Account and be available to make any payments
required to be made hereunder (including Discount) by the Transferor. On the
date on which the Net Investment is zero, all accrued Discount, Servicing Fees
and all other Aggregate Unpaids have been paid in full, any funds remaining on
deposit in the Collection Account shall be paid to the Transferor.
SECTION II.13. Right of Setoff. Each of PARCO and the APA Banks is
---------------
hereby authorized (in addition to any other rights it may have) at any time
after the occurrence of the Termination Date, or during the continuation of a
Potential Termination Event, to set-off, appropriate and apply (without
presentment, demand, protest or other notice which are hereby expressly waived)
any deposits and any other indebtedness held or owing by PARCO or such APA Bank
to, or for the account of, the Transferor against the amount of the Aggregate
Unpaids owing by the Transferor to such Person (even if contingent or
unmatured).
SECTION II.14. Sharing of Payments, Etc. If PARCO or any APA Bank
------------------------
(for purposes of this Section 2.14 only, being a "Recipient") shall obtain any
---------
payment (whether voluntary, involuntary, through the exercise of any right of
setoff, or otherwise) on account of any interest in the Transferred Interest
owned by it in excess of its ratable share of payments on account of any
interest in the Transferred Interest obtained by PARCO and/or the APA Banks
entitled thereto, such Recipient shall forthwith purchase from PARCO and/or the
APA Banks entitled to a share of such amount participations in the percentage
interests owned by such Persons as shall be necessary to cause such Recipient to
share the excess payment ratably with each
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such other Person entitled thereto; provided, however, that if all or any
-------- -------
portion of such excess payment is thereafter recovered from such Recipient, such
purchase from each such other Person shall be rescinded and each such other
Person shall repay to the Recipient the purchase price paid by such Recipient
for such participation to the extent of such recovery, together with an amount
equal to such other Person's ratable share (according to the proportion of (a)
the amount of such other Person's required payment to (b) the total amount so
recovered from the Recipient) of any interest or other amount paid or payable by
the Recipient in respect of the total amount so recovered.
SECTION II.15. Broken Funding. In the event of (a) the payment of
--------------
any principal of any Eurodollar Tranche other than on the last day of the
Eurodollar Tranche Period applicable thereto (including as a result of the
occurrence of the Termination Date or an optional prepayment of a Eurodollar
Tranche), (b) the conversion of any Eurodollar Tranche other than on the last
day of the related Eurodollar Tranche Period, or (c) any failure to borrow,
convert, continue or prepay any Eurodollar Tranche on the date specified in any
notice delivered pursuant hereto, then, in any such event, the Transferor shall
compensate the APA Banks for the loss, cost and expense attributable to such
event. Such loss, cost or expense to any APA Bank shall be deemed to include an
amount determined by such APA Bank to be the excess, if any, of (i) the amount
of Discount which would have accrued on the principal amount of such Eurodollar
Tranche had such event not occurred, at the Eurodollar Rate that would have been
applicable to such Eurodollar Tranche, for the period from the date of such
event to the last day of the Eurodollar Tranche Period (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
related Eurodollar Tranche Period), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which such
APA Bank would bid were it to bid, at the commencement of such period, for
dollar deposits of a comparable amount and period from other banks in the
interbank eurodollar market. Within forty-five (45) days after any APA Bank
hereunder receives actual knowledge of any of the events specified in this
Section 2.15, a certificate of such APA Bank setting forth any amount or amounts
that such APA Bank is entitled to receive pursuant to this Section 2.15 and the
reason(s) therefor shall be delivered to the Transferor (with a copy to the
Funding Agent) and shall be conclusive absent manifest error. The Transferor
shall pay each such APA Bank the amount shown as due on any such certificate
within ten (10) days after receipt thereof.
SECTION II.16. Conversion and Continuation of Outstanding Tranches
---------------------------------------------------
Funded by the APA Banks. Prior to the occurrence of the Termination
- -----------------------
14
<PAGE>
Date or a Potential Termination Event, (a) each BR Tranche hereunder may, at the
option of the Transferor, be converted to a Eurodollar Tranche and (b) each
Eurodollar Tranche may, at the option of the Transferor, be continued as a
Eurodollar Tranche or converted to a BR Tranche. If the Termination Date has
occurred or a Potential Termination Event has occurred and is continuing, then
(i) no outstanding Tranche funded by the APA Banks may be converted to, or
continued as, a Eurodollar Tranche and (ii) unless repaid, each Eurodollar
Tranche shall be converted to an BR Tranche on the last day of the Tranche
Period related thereto. For any such conversion or continuation, the Transferor
shall give the Funding Agent irrevocable notice (each, a "Conversion/
-----------
Continuation Notice") of such request not later than 12:30 P.M. (New York time)
- -------------------
(i) in the case of a conversion of a BR Tranche into a Eurodollar Tranche, or a
continuation of a Eurodollar Tranche as a Eurodollar Tranche, three (3) Business
Days before the date of such conversion or continuation, as applicable, and (ii)
following the Termination Date or the occurrence and continuation of a Potential
Termination Event, in the case of a conversion of a Eurodollar Tranche into a BR
Tranche or a continuation of a BR Tranche as a BR Tranche, on the Business Day
of such conversion. If a Conversion/Continuation Notice has not been timely
delivered with respect to any BR Tranche or Eurodollar Tranche, such Tranche
shall be automatically continued as, or converted to, a BR Tranche. Each
Conversion/Continuation Notice shall specify (a) the requested date (which shall
be a Business Day) of such conversion or continuation, (b) the aggregate amount
and rate option applicable to the Tranche which is to be converted or continued
and (c) the amount and rate option(s) of Tranche(s) into which such Tranche is
to be converted or continued.
SECTION II.17. Illegality. (a) Notwithstanding any other provision
----------
herein, if, after the Effective Date, the adoption of any Law or bank regulatory
guideline or any amendment or change in the interpretation of any existing or
future Law or bank regulatory guideline by any Official Body charged with the
administration, interpretation or application thereof, or the compliance with
any directive of any Official Body (in the case of any bank regulatory
guideline, whether or not having the force of Law), shall make it unlawful for
any APA Bank to acquire or maintain a Eurodollar Tranche as contemplated by this
Agreement, (i) such APA Bank shall, within thirty (30) days after receiving
actual knowledge thereof, deliver a certificate to the Transferor (with a copy
to the Funding Agent) setting forth the basis for such illegality, which
certificate shall be conclusive absent manifest error, (ii) the commitment of
such APA Bank hereunder to make a portion of a Eurodollar Tranche, continue any
portion of a Eurodollar Tranche as such and convert a BR Tranche to a Eurodollar
Tranche shall forthwith be cancelled, and such cancellation shall remain in
effect so long as the circumstance described above exists, and (iii) such APA
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<PAGE>
Bank's portion of any Eurodollar Tranche then outstanding shall be converted
automatically to a BR Tranche on the last day of the related Eurodollar Tranche
Period, or within such earlier period as required by law.
If any such conversion of a portion of a Eurodollar Tranche occurs on
a day which is not the last day of the related Eurodollar Tranche Period, the
Transferor shall pay to such APA Bank such amounts, if any, as may be required
to compensate such APA Bank. If circumstances subsequently change so that it is
no longer unlawful for an affected APA Bank to acquire or to maintain a portion
of a Eurodollar Tranche as contemplated hereunder, such APA Bank will, as soon
as reasonably practicable after such APA Bank knows of such change in
circumstances, notify the Transferor and the Funding Agent, and upon receipt of
such notice, the obligations of such APA Bank to acquire or maintain its
acquisition of portions of Eurodollar Tranches or to convert its portion of a BR
Tranche into portions of Eurodollar Tranches shall be reinstated.
(b) Each APA Bank agrees that, upon the occurrence of any event giving
rise to the operation of Section 2.17(a) with respect to such APA Bank, it will,
if requested by the Transferor and to the extent permitted by law or by the
relevant Official Body, endeavor in good faith to change the office at which it
books its portions of Eurodollar Tranches hereunder if such change would make it
lawful for such APA Bank to continue to acquire or to maintain its acquisition
of portions of Eurodollar Tranches hereunder; provided, however, that such
-------- -------
change may be made in such manner that such APA Bank, in its sole determination,
suffers no unreimbursed cost or expense or any other disadvantage whatsoever.
SECTION II.18. Inability to Determine Eurodollar Rate. If, prior to
--------------------------------------
the first day of any Eurodollar Tranche Period:
(1) the Funding Agent shall have determined (which determination in
the absence of manifest error shall be conclusive and binding upon the
Transferor) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar
Rate for such Eurodollar Tranche Period; or
(2) the Funding Agent shall have received notice from the Required APA
Banks that the Eurodollar Rate determined or to be determined for such
Eurodollar Tranche Period will not adequately and fairly reflect the cost
to such APA Banks (as conclusively certified by such APA Banks) of
16
<PAGE>
purchasing or maintaining their affected portions of Eurodollar Tranches
during such Eurodollar Tranche Period;
then, in either such event, the Funding Agent shall give telecopy or telephonic
notice thereof (confirmed in writing) to the Transferor and the APA Banks as
soon as practicable (but, in any event, within thirty (30) days after such
determination or notice, as applicable) thereafter. Until such notice has been
withdrawn by the Funding Agent, no further Eurodollar Tranches shall be made.
The Funding Agent agrees to withdraw any such notice as soon as reasonably
practicable after the Funding Agent is notified of a change in circumstances
which makes such notice inapplicable.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION III.1. Representations and Warranties of the Transferor. The
------------------------------------------------
Transferor hereby represents and warrants to the Funding Agent, PARCO and the
APA Banks that:
(a) Corporate Existence and Power. The Transferor is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted.
The Transferor is duly qualified to do business in, and is in good standing in,
every other jurisdiction in which the nature of its business requires it to be
so qualified, except where the failure to be so qualified or in good standing
would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention. The
-------------------------------------------------------
execution, delivery and performance by the Transferor of this Agreement and the
other Transaction Documents to which the Transferor is a party are within the
Transferor's corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
Official Body or official thereof (except as contemplated by Section 2.8
hereof), and do not contravene, or constitute a default under, any provision of
applicable law, rule or regulation or of the Certificate of Incorporation or
Bylaws of the Transferor or of any agreement or of any judgment, injunction,
order, writ, decree or other instrument binding upon the Transferor or result in
the creation or imposition of any Adverse Claim on the assets of the Transferor
(except as contemplated by Section 2.8 hereof).
(c) Binding Effect. Each of this Agreement and the other Transaction
--------------
Documents to which the Transferor is a party constitutes, and the Transfer
Certificate, upon payment of the Transfer Price set forth therein, will
constitute the legal, valid and binding obligation of the Transferor,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the rights of
creditors generally and general equitable principles (whether considered in a
proceeding at law or in equity).
(d) Perfection. Immediately preceding each Transfer hereunder, the
----------
Transferor shall be the owner of all of the Receivables, free and clear
18
<PAGE>
of all Adverse Claims (other than Adverse Claims in favor of the Funding Agent,
PARCO and the APA Banks). On or prior to each Transfer and each recomputation of
the Transferred Interest, all financing statements and other documents required
to be recorded or filed in order to perfect and protect the Transferred Interest
against all creditors of, and purchasers from, the Transferor and the Originator
will have been duly filed in each filing office necessary for such purpose, and
all filing fees and taxes, if any, payable in connection with such filings shall
have been paid in full.
(e) Accuracy of Information. All information heretofore furnished by
-----------------------
or on behalf of the Transferor (including, without limitation, the Settlement
Reports, any reports delivered pursuant to Section 2.11 hereof and the
Transferor's financial statements) to PARCO, any APA Bank or the Funding Agent
for purposes of, or in connection with, this Agreement and the other Transaction
Documents are, and all such information hereafter furnished by or on behalf of
the Transferor to PARCO, any APA Bank or the Funding Agent will be, true and
correct in all material respects, on the date such information is stated or
certified.
(f) Tax Status. The Transferor has filed all tax returns (Federal,
----------
state and local) required to be filed and has paid or made adequate provision
for the payment of all taxes, assessments and other governmental charges.
(g) Action, Suits. Except as set forth in Exhibit G hereof (as may be
-------------
amended by the Transferor from time to time), there are no actions, suits or
proceedings pending or, to the knowledge of the Transferor threatened, against
or affecting the Transferor or any Affiliate of the Transferor or their
respective properties, in or before any court, arbitrator or other body, which
may, individually or in the aggregate, have a Material Adverse Effect.
(h) Use of Proceeds. No proceeds of any Transfer will be used by the
---------------
Transferor to acquire any security in any transaction which is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended.
(i) Place of Business. The principal place of business and chief
-----------------
executive office of each of the Transferor and the Originator are located at its
respective address indicated in Section 9.3 hereof, and the offices where the
Transferor keeps all its Records, are located at the address(es) described on
Exhibit H or such other locations notified to the Funding Agent in accordance
with Section 2.8 hereof in jurisdictions where all action required by Section
2.8 hereof has been taken and completed.
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<PAGE>
(j) Good Title. Upon each Transfer and each recomputation of the
----------
Transferred Interest, the Funding Agent, on behalf of PARCO and the APA Banks,
shall acquire (A) a valid and perfected first priority undivided percentage
ownership interest to the extent of the Transferred Interest or (B) a first
priority perfected security interest in each Receivable that exists on the date
of such Transfer and recomputation and in the Related Security, Collections and
Proceeds with respect thereto, in either case free and clear of any Adverse
Claim.
(k) Tradenames, Etc. As of the date hereof: (i) each of the
----------------
Transferor and the Originator has only the divisions listed on Exhibit I hereto;
and (ii) each of the Transferor and the Originator has, within the last five (5)
years, operated only under the tradenames identified in Exhibit I hereto, and,
within the last five (5) years, has not changed its name, merged with or into or
consolidated with any other corporation or been the subject of any proceeding
under the Bankruptcy Code, except as disclosed in Exhibit I hereto.
(l) Nature of Receivables. Each Receivable (x) represented by the
---------------------
Transferor or the Collection Agent to be an Eligible Receivable (including in
any Settlement Report or other report delivered pursuant to Section 2.11 hereof)
or (y) included in the calculation of the Net Receivables Balance in fact
satisfies at such time the definition of "Eligible Receivable".
(m) Coverage Requirement; Amount of Receivables. The Percentage
-------------------------------------------
Factor does not exceed the Maximum Percentage Factor. As of November 23, 1998,
the aggregate Outstanding Balance of the Receivables (other than Vendor
Receivables) in existence was $111,481,000; as of October 31, 1998, the
Outstanding Balance of the Vendor Receivables was $50,960,000; and, as of
November 23, 1998 the Net Receivables Balance was $101,066,000.
(n) Credit and Collection Policy. Since November 1, 1998, there have
----------------------------
been no material changes in the Credit and Collection Policy, other than as
permitted hereunder. Since such date, no material adverse change has occurred
in the overall rate of collection of the Receivables.
(o) Collections and Servicing. Since November 1, 1998, there has been
-------------------------
no material adverse change in the ability of the Collection Agent (to the extent
it is the Originator, the Transferor or any Subsidiary or Affiliate of any of
the foregoing) to service and collect the Receivables.
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(p) No Termination Event. No event has occurred and is continuing and
--------------------
no condition exists which constitutes a Termination Event or a Potential
Termination Event.
(q) Not an Investment Company. The Transferor is not, and is not
-------------------------
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(r) ERISA. Each of the Transferor and its ERISA Affiliates is in
-----
compliance in all material respects with ERISA, and no lien exists in favor of
the Pension Benefit Guaranty Corporation on any of the Receivables.
(s) Lock-Box Accounts. The names and addresses of all the Lock-Box
-----------------
Banks, together with the account numbers of the Lock-Box Accounts at such Lock-
Box Banks, are specified in Exhibit C hereto (or at such other Lock-Box Banks
and/or with such other Lock-Box Accounts as have been notified to the Funding
Agent and PARCO and for which Lock-Box Agreements have been executed in
accordance with Section 2.8(b) hereof and delivered to the Collection Agent).
All Obligors have been instructed to make payment to a Lock-Box Account, and
only Collections are deposited into a Lock-Box Account.
(t) Bulk Sales. No transaction contemplated hereby or by the
----------
Receivables Purchase Agreement requires compliance with any "bulk sales" act or
similar law.
(u) Transfers Under Receivables Purchase Agreement. Each Receivable
----------------------------------------------
which has been transferred to the Transferor by the Originator has been
purchased by the Transferor from the Originator pursuant to, and in accordance
with, the terms of the Receivables Purchase Agreement.
(v) Preference; Voidability. The Transferor shall have given
-----------------------
reasonably equivalent value to the Originator in consideration for the transfer
to the Transferor of the Receivables and Related Security, Collections and
Proceeds with respect thereto from the Originator, and each such transfer shall
not have been made for or on account of an antecedent debt owed by the
Originator to the Transferor, and no such transfer is or may be voidable under
the Bankruptcy Code.
(w) Subsidiaries. The Transferor shall not have any
------------
Subsidiaries.
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(x) Year 2000. Transferor is implementing a comprehensive, detailed
---------
program to address on a timely basis the "Year 2000 Problem" (i.e., the risk
----
that computer applications used by Transferor may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999); Transferor will on a timely basis
successfully resolve the "Year 2000 Problem" for all computer applications used
in relation to Receivables, by no later than July 31, 1999 except where the
failure to do so is not reasonably likely to result in a Material Adverse
Effect.
SECTION III.2. Reaffirmation of Representations and Warranties by the
------------------------------------------------------
Transferor. On each day that a Transfer is made hereunder, the Transferor, by
- ----------
accepting the proceeds of such Transfer, whether delivered to the Transferor
pursuant to Section 2.2(a) or Section 2.5 hereof, shall be deemed to have
certified that all representations and warranties described in Section 3.1
hereof are true and correct on and as of such day as though made on and as of
such day.
SECTION III.3. Representations and Warranties of the Originator. The
------------------------------------------------
Originator hereby reaffirms to the Funding Agent, PARCO and the APA Banks its
representations and warranties made to the Transferor in Article IV of the
Receivables Purchase Agreement as of the date made or deemed made thereunder.
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<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
SECTION IV.1. Conditions to Effectiveness. This Agreement shall
---------------------------
become effective on the first day on which the Funding Agent shall have received
the following documents, instruments and fees, all of which shall be in a form
and substance reasonably acceptable to the Funding Agent, PARCO and the APA
Banks (such day, the "Effective Date"):
--------------
(a) A Certificate of the Secretary of the Transferor in substantially
the form of Exhibit J hereto certifying (i) the names and signatures of the
officers and employees authorized on its behalf to execute this Agreement and
any other documents to be delivered by it hereunder (on which Certificate the
Funding Agent, PARCO and the APA Banks may conclusively rely until such time as
the Funding Agent shall receive from the Transferor a revised Certificate
meeting the requirements of this clause (a)(i)), (ii) a copy of the Transferor's
Certificate of Incorporation, certified by the Secretary of State of the State
of Delaware, (iii) a copy of the Transferor's By-Laws, (iv) a copy of
resolutions of the Board of Directors of the Transferor approving this
transaction and (v) certificate of the Secretary of State of the State of
Illinois certifying the Transferor's good standing under the laws of the State
of Illinois.
(b) A Certificate of the Secretary of the Originator in substantially
the form of Exhibit J hereto certifying (i) the names and signatures of the
officers and employees authorized on its behalf to execute this Agreement and
any other documents to be delivered by it hereunder (on which Certificate the
Funding Agent, PARCO and the APA Banks may conclusively rely until such time as
the Funding Agent shall receive from the Originator a revised Certificate
meeting the requirements of this clause (b)(i)), (ii) a copy of the Originator's
Certificate of Incorporation, certified by the Secretary of State of the State
of California, (iii) a copy of the Originator's By-Laws, (iv) a copy of
resolutions of the Board of Directors of the Originator approving this
transaction and (v) certificate of the Secretary of State of the State of
Illinois certifying the Originator's good standing under the laws of the State
of Illinois.
(c) Copies of proper financing statements (Form UCC-1), dated a date
reasonably near to the Effective Date, naming the Transferor as the debtor, the
Funding Agent, as secured party, and other similar instruments or documents as
may be necessary or, in the reasonable opinion of the Funding Agent,
23
<PAGE>
desirable under the Relevant UCC of all appropriate jurisdictions or any
comparable law to perfect the Funding Agent's security interest in all
Receivables, Related Security and Collections.
(d) Copies of proper financing statements (Form UCC-1), dated a date
reasonably near to the Effective Date, naming the Originator as debtor/seller,
the Transferor as secured party/purchaser, and the Funding Agent, as assignee of
the secured party/purchaser, and other similar instruments or documents as may
be necessary or, in the reasonable opinion of the Funding Agent, desirable under
the relevant UCC of all appropriate jurisdictions or any comparable law to
perfect the Transferor's interest in all Receivables, Related Security and
Collections.
(e) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of any person in
Receivables previously granted by the Transferor.
(f) Copies of proper financing statements (Form UCC-3), if any,
necessary to terminate all security interests and other rights of any person in
Receivables previously granted by the Originator.
(g) Certified copies of requests for information or copies (Form UCC-
11) (or a similar search report certified by parties acceptable to the Funding
Agent), dated a date reasonably near the Effective Date, listing all effective
financing statements which name the Transferor and the Originator (under their
respective present names and any previous names) as debtor and which are filed
in jurisdictions in which the filings were made pursuant to items (i) or (j)
above together with copies of such financing statements (none of which shall
cover any Receivables or Contracts).
(h) Executed copies of the Lock-Box Agreements relating to each
of the Lock-Box Banks and the Lock-Box Accounts.
(i) An opinion of Donald Garner, in-house counsel to the Parent,
re: corporate matters.
(j) An opinion of King & Spalding, special counsel to the Transferor
and the Originator, re: substantive nonconsolidation.
24
<PAGE>
(k) An opinion of King & Spalding, special counsel to the Transferor
and the Originator, re: true sale between the Originator and the Transferor.
(l) An opinion of King & Spalding, special counsel to the Transferor
and the Originator, re: enforceability of the Transaction Documents to which
each is a party, validity of the security interests granted under the
Transaction Documents and other corporate matters.
(m) An opinion of Winston & Strawn LLP, special Illinois counsel to
the Originator, re: perfection and priority of the interest conveyed by the
Originator to the Transferor.
(n) An opinion of Winston & Strawn LLP, special Illinois counsel to
the Transferor, re: validity, perfection and priority of the security interest
granted by the Transferor to the Funding Agent.
(o) An executed copy of this Agreement and each other Transaction
Document, together with a copy of the Credit Agreement and the amendment thereto
dated December 4, 1998 thereto (which amendment shall be in full force and
effect).
(p) Evidence that the fees specified in the Fee Letter for payment on
or prior to the Effective Date have been paid to the Funding Agent.
(q) A Settlement Report for October 1998.
(r) Rating confirmation letters of Standard & Poor's and Moody's
relating to the Commercial Paper.
(s) Such other documents, instruments, certificates and opinions
as the Funding Agent shall reasonably request.
25
<PAGE>
ARTICLE V
COVENANTS
SECTION V.1. Affirmative Covenants. At all times from the date
---------------------
hereof to the later to occur of (i) the Termination Date or (ii) the date on
which the Net Investment has been reduced to zero, all accrued Discount,
Servicing Fees and all other Aggregate Unpaids shall have been paid in full, in
cash, unless the Funding Agent shall otherwise consent in writing:
(a) Financial Reporting. The Originator will maintain, for itself
-------------------
and each of its Subsidiaries, a system of accounting established and
administered in accordance with GAAP, and furnish to the Funding Agent:
(i) Annual Reporting. Within ninety-five (95) days after the
----------------
close of the Transferor's and the Parent's fiscal years, unaudited annual
financial statements for the Originator's Prescription Services Division
and Therapeutic Services Division and audited financial statements,
prepared in accordance with GAAP on a consolidated basis (in the case of
Parent) for (x) the Transferor and (y) the Parent including balance sheets
as of the end of such period, related statements of operations,
shareholder's equity and cash flows, accompanied by an unqualified audit
report certified by Ernst & Young or other independent certified public
accountants, acceptable to the Funding Agent, prepared in accordance with
generally accepted auditing standards and any management letter prepared by
said accountants and by a certificate of said accountants that, in the
course of their regular audit, such accountants have not obtained any
knowledge of any Termination Event or Potential Termination Event that has
occurred, or if, in the opinion of such accountants, any Termination Event
or Potential Termination Event shall exist, stating the nature and status
thereof.
(ii) Quarterly Reporting. Within fifty (50) days after the close
-------------------
of the first three (3) quarterly periods of the Transferor's and the
Parent's fiscal years, unaudited financial statements for the Originator's
Prescription Services Division and Therapeutic Services Division and for
the Parent and the Transferor, consolidated (in the case of Parent)
unaudited balance sheets as at the close of each such period and
consolidated (in the case of Parent) related statements
26
<PAGE>
of operations, shareholder's equity and cash flows for the period from the
beginning of such fiscal year to the end of such quarter, all certified by
its senior financial officer.
(iii) Compliance Certificate. Together with the financial
----------------------
statements required hereunder, a compliance certificate signed by the
Transferor's or the Parent's, as applicable, chief financial officer
stating that (x) the attached financial statements have been prepared in
accordance with GAAP and accurately reflect the financial condition
(except, in the case of quarterly financial statements, for year-end audit
adjustments) of the Transferor or the Parent, as applicable, subject to
normal year-end adjusting entries and (y) to the best of such Person's
knowledge, no Termination Event or Potential Termination Event exists, or
if any Termination Event or Potential Termination Event exists, stating the
nature and status thereof.
(iv) Shareholders Statements and Reports. Promptly upon the
-----------------------------------
furnishing thereof to the shareholders of the Transferor or generally to
the shareholders of the Parent, copies of all financial statements, reports
and proxy statements so furnished.
(v) S.E.C. Filings. Promptly upon the filing thereof, copies of
--------------
all registration statements and annual, quarterly, monthly or other regular
reports which the Parent or any Subsidiary of the Parent files with the
Securities and Exchange Commission.
(vi) Notice of Termination Events or Potential Termination
-----------------------------------------------------
Events. Immediately, but in any event no later than one (1) Business Day
------
after a Responsible Officer of the Transferor knows of the occurrence of a
Termination Event or a Potential Termination Event, a statement of the
chief financial officer or chief accounting officer of the Transferor
setting forth details of such Termination Event or Potential Termination
Event and the action which the Transferor proposes to take with respect
thereto.
(vii) Change in Credit and Collection Policy and Debt Ratings.
-------------------------------------------------------
Within ten (10) days after the date of any material change in the Credit
and Collection Policy, a written notice by the chief financial officer or
chief accounting officer of the Transferor setting forth the details of
such change (provided that if the Credit and
--------
27
<PAGE>
Collection Policy is ever in written form, a copy thereof to the Funding
Agent and, if a material change is made in such written policy, a copy of
the Credit and Collection Policy then in effect indicating such change or
amendment). Within five (5) days after the date of any change in the
Transferor's public or private debt ratings, if any, a written
certification of the Transferor's public and private debt ratings after
giving effect to any such change.
(viii) Credit and Collection Policy. Within ninety-five (95)
----------------------------
days after the close of each of the Originator's and the Transferor's
fiscal years, if the Credit and Collection Policy is in written form, a
complete copy of the Credit and Collection Policy then in effect.
(ix) ERISA. Promptly after the filing or receiving thereof,
-----
copies of all reports and notices with respect to any Reportable Event (as
defined in Article IV of ERISA) which the Transferor, the Originator or any
ERISA Affiliate of the Transferor or the Originator files under ERISA with
the Internal Revenue Service, the Pension Benefit Guaranty Corporation or
the U.S. Department of Labor or which the Transferor, the Originator or any
ERISA Affiliates of the Transferor or the Originator receives from the
Internal Revenue Service, the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor.
(x) Other Information. Such other information (including non-
-----------------
financial information) as the Funding Agent may from time to time
reasonably request with respect to the Originator, the Transferor or any
Subsidiary of any of the foregoing.
(b) Conduct of Business. Each of the Originator and the Transferor
-------------------
will, and the Originator will cause the Originator's Affiliates to, carry on and
conduct its business in substantially the same manner and in substantially the
same fields of enterprise as it is presently conducted and do all things
necessary to remain duly incorporated, validly existing and in good standing as
a domestic corporation in its jurisdiction of incorporation and maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted, except in each case where the failure to do so is not
likely to have a Material Adverse Effect.
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<PAGE>
(c) Compliance with Laws. Each of the Originator and the Transferor
--------------------
will, and the Originator will cause the Originator's Affiliates to, comply with
all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or
awards to which it or its respective properties may be subject, except where the
failure to be in compliance is not likely to have a Material Adverse Effect.
(d) Furnishing of Information and Inspection of Records. Each of the
---------------------------------------------------
Transferor and the Originator will furnish to the Funding Agent from time to
time such information with respect to the Receivables as the Funding Agent may
reasonably request, including, without limitation, listings identifying the
Obligor and the Outstanding Balance for each Receivable, together with an aging
of Receivables. Each of the Transferor and the Originator will at any time and
from time to time during regular business hours and upon reasonable notice
permit the Funding Agent, or its agents or representatives, (i) to examine and
make copies of and abstracts from all Records and (ii) to visit the offices and
properties of the Transferor or the Originator, as applicable, for the purpose
of examining such Records, and to discuss matters relating to Receivables or the
Transferor's or the Originator's performance hereunder and under the other
Transaction Documents to which such Person is a party with any of the officers,
directors, employees or independent public accountants of the Transferor or the
Originator, as applicable, having knowledge of such matters.
(e) Keeping of Records and Books of Account. Each of the Transferor
---------------------------------------
and the Originator will maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Receivables in the event of the destruction of the originals
thereof), and keep and maintain, all documents, books, records and other
information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the daily
identification of each new Receivable and all Collections of and adjustments to
each existing Receivable). Each of the Transferor and the Originator will give
the Funding Agent notice of any material change in the administrative and
operating procedures of the Transferor or the Originator, as applicable,
referred to in the previous sentence.
(f) Performance and Compliance with Receivables and Contracts. The
---------------------------------------------------------
Originator will timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by the
Originator under the Contracts related to the Receivables.
29
<PAGE>
(g) Credit and Collection Policies. Each of the Transferor and the
------------------------------
Originator will comply in all material respects with the Credit and Collection
Policy in regard to each Receivable and the related Contract.
(h) Collections. Each of the Transferor and the Originator shall
-----------
instruct all Obligors to remit Collections directly to a Lock-Box Account.
(i) Collections Received. The Transferor and the Originator shall
--------------------
hold in trust, and remit immediately (but in any event no later than one (1)
Business Day following its receipt thereof) to a Lock-Box Account all
Collections received from time to time by the Transferor or the Originator, as
the case may be.
(j) Sale Treatment. The Transferor and the Originator will not (i)
--------------
account for (including for accounting purposes), or otherwise treat, the
transactions contemplated by the Receivables Purchase Agreement in any manner
other than as a sale of Receivables or capital contribution by the Originator to
the Transferor, or (ii) account for (other than for tax purposes) or otherwise
treat the transactions contemplated hereby in any manner other than as a sale of
Receivables by the Transferor to PARCO or the APA Banks, as applicable. In
addition, each of the Transferor and the Originator shall disclose (in a
footnote or otherwise) in all of its respective financial statements (including
any such financial statements consolidated with any other Persons' financial
statements) the existence and nature of the transactions contemplated hereby and
by the Receivables Purchase Agreement and the interest of the Transferor (in the
case of the Originator's financial statements), PARCO and the APA Banks in the
Receivables and Related Security, Collections and Proceeds with respect thereto.
(k) Separate Business. The Transferor shall not engage in any
-----------------
business not permitted by its Certificate of Incorporation as in effect on the
Effective Date.
(l) Corporate Documents. The Transferor shall only amend, alter,
-------------------
change or repeal its Certificate of Incorporation with the prior written consent
of the Funding Agent.
(m) Net Worth. The Transferor shall at all times have a net worth (as
---------
defined in accordance with GAAP) of at least $20,000,000.
(n) Enforcement of Receivables Purchase Agreement. The Transferor
---------------------------------------------
shall use its best efforts to enforce all rights held by it under the
Receiv-
30
<PAGE>
ables Purchase Agreement and shall not waive any breach of any covenant
contained in Section 5.1 thereunder without the prior written consent of the
Funding Agent.
(o) Separate Existence. The Transferor shall at all times:
------------------
(i) maintain its own deposit account or accounts, separate from
those of any Affiliate, with commercial banking institutions and ensure
that the funds of the Transferor will not be diverted to any other Person
or for other than corporate uses of the Transferor, nor will such funds be
commingled with the funds of the Originator or any subsidiary or Affiliate
of the Originator (other than funds deposited to a Lock-Box Account, which
funds may be commingled for a period not exceeding two (2) Business Days;
(ii) to the extent that it shares the same officers or other
employees as any of its Affiliates, the salaries of and the expenses
related to providing benefits to such officers and other employees shall be
fairly allocated among such entities, and each such entity shall bear its
fair share of the salary and benefit costs associated with all such common
officers and employees;
(iii) to the extent that it jointly contracts with any of its
Affiliates to do business with vendors or service providers or to share
overhead expenses, the costs incurred in so doing shall be allocated fairly
among such entities, and each such entity shall bear its fair share of such
costs. To the extent that the Transferor contracts or does business with
venders or service providers where the goods and services provided are
partially for the benefit of any other Person, the costs incurred in so
doing shall be fairly allocated to or among such entities for whose benefit
the goods or services are provided, and each such entity shall bear its
fair share of such costs;
(iv) enter into all material transactions between the Transferor
and any of its Affiliates, whether currently existing or hereafter entered
into, only on an arm's length basis, it being understood and agreed that
the transactions contemplated in the Transaction Documents meet the
requirements of this clause (iv);
(v) maintain office space that is physically segregated from the
office space of the Originator and its Affiliates and, to
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<PAGE>
the extent that the Transferor and any of its Affiliates have offices in
the same location, there shall be a fair and appropriate allocation of
overhead costs among them, and each such entity shall bear its fair share
of such expenses;
(vi) conduct its affairs strictly in accordance with its
certificate of incorporation and observe all necessary, appropriate and
customary corporate formalities, including, but not limited to, holding all
regular and special stockholders' and directors' meetings appropriate to
authorize all corporate action, keeping separate and accurate minutes of
its meetings, passing all resolutions or consents necessary to authorize
actions taken or to be taken, and maintaining accurate and separate books,
records and accounts, including, but not limited to, payroll and
intercompany transaction accounts;
(vii) not assume or guarantee any of the liabilities of the
Originator or any Affiliate thereof; and
(ix) take, or refrain from taking, as the case may be, all other
actions that are necessary to be taken or not to be taken in order to
comply with this Section 5.1(o).
SECTION V.2. Negative Covenants. During the term of this Agreement,
------------------
unless the Funding Agent shall otherwise consent in writing:
(a) No Sales, Liens, Etc. Except as otherwise provided herein and in
---------------------
the Receivables Purchase Agreement, the Transferor and the Originator will not
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
create or suffer to exist any Adverse Claim upon (or the filing of any financing
statement) or with respect to (x) any of the Receivables or Related Security,
(y) any inventory or goods, the sale of which may give rise to a Receivable
(provided that the Originator may sell inventory and goods in the ordinary
- ---------
course of its business), or (z) any account which concentrates in a Lock-Box
Bank to which any Collections of any Receivable are sent, or assign any right to
receive income in respect thereof.
(b) No Extension or Amendment of Receivables. Except as otherwise
----------------------------------------
permitted in Section 6.2 hereof, the Transferor and the Originator will not
extend, amend or otherwise modify the terms of any Receivable, or amend, modify
or waive any term or condition of any Contract related thereto if such
modification is likely to result in a Material Adverse Effect.
32
<PAGE>
(c) No Change in Business or Credit and Collection Policy. The
-----------------------------------------------------
Transferor and the Originator will not make any change in the character of their
respective businesses or in the Credit and Collection Policy, which change
would, in either case, be reasonably likely to impair the collectibility of a
material portion of the Receivables or otherwise result in a Material Adverse
Effect.
(d) No Mergers, Etc. The Transferor will not (i) consolidate or merge
----------------
with or into any other Person, or (ii) sell, lease or transfer all or
substantially all of its assets to any other Person (except pursuant to the
Transaction Documents).
(e) Change in Payment Instructions to Obligors; Deposits to Lock-Box
----------------------------------------------------------------
Accounts. The Transferor and the Originator will not add or terminate any bank
- --------
as a Lock-Box Bank or any account as a Lock-Box Account to or from those listed
in Exhibit C hereto or make any change in its instructions to Obligors regarding
payments to be made to any Lock-Box Account, unless (i) such instructions are to
deposit such payments to another existing Lock-Box Account or (ii) the Funding
Agent shall have received written notice of such addition, termination or change
at least thirty (30) days prior thereto and the Funding Agent shall have
received a Lock-Box Agreement executed by each new Lock-Box Bank or an existing
Lock-Box Bank with respect to each new Lock-Box Account, as applicable.
(f) Change of Name, Etc. Neither the Transferor nor the Originator
--------------------
will change its name, identity or structure or the location of its chief
executive office, unless at least ten (10) days prior to the effective date of
any such change the Transferor or the Originator, as applicable, delivers to the
Funding Agent (i) such documents, instruments or agreements, executed by the
Transferor or the Originator, as applicable, as are necessary to reflect such
change and to continue the perfection of the Funding Agent's ownership interests
or security interests in the Receivables and Related Security, Collections and
Proceeds with respect thereto and (ii) new or revised Lock-Box Agreements
executed by the Lock-Box Banks which reflect such change and enable the Funding
Agent to continue to exercise its rights contained in Section 2.8 hereof.
(g) Amendment to Receivables Purchase Agreement. The Transferor and
-------------------------------------------
the Originator will not amend, modify, or supplement the Receivables Purchase
Agreement, except with the prior written consent of the Funding Agent; nor shall
the Transferor nor the Originator take any other action under the Receivables
33
<PAGE>
Purchase Agreement that shall have a Material Adverse Effect or which is
inconsistent with the terms of this Agreement.
(h) Other Debt. Except as provided for herein, the Transferor will
----------
not create, incur, assume or suffer to exist any indebtedness whether current or
funded, or any other liability other than (i) indebtedness of the Transferor
representing fees, expenses and indemnities arising hereunder or under the
Receivables Purchase Agreement, (ii) indebtedness representing the purchase
price of the Receivables under the Receivables Purchase Agreement, (iii) other
indebtedness incurred in the ordinary course of its business in an amount not to
exceed $9,750 at any one time outstanding and (iv) indebtedness permitted by the
terms of the Transferor's Certificate of Incorporation as in effect on the date
hereof.
(i) ERISA Matters. Neither the Transferor nor the Originator will (i)
-------------
engage or permit any of its respective ERISA Affiliates to engage in any
prohibited transaction (as defined in Section 4975 of the Code and Section 406
of ERISA) for which an exemption is not available or has not previously been
obtained from the U.S. Department of Labor; (ii) permit to exist any accumulated
funding deficiency (as defined in Section 302(a) of ERISA and Section 412(a) of
the Code) with respect to any Benefit Plan other than a Multiemployer Plan;
(iii) fail to make any payments to any Multiemployer Plan that the Transferor,
the Originator or any ERISA Affiliate of the Transferor or the Originator is
required to make under the agreement relating to such Multiemployer Plan or any
law pertaining thereto; (iv) terminate any Benefit Plan so as to result in any
liability (other than obligations or liabilities existing as of the date of
termination of such Benefit Plan); or (v) permit to exist any occurrence of any
reportable event described in Section 4043 of ERISA which represents a material
risk of a liability to the Transferor, the Originator, or any ERISA Affiliate of
the Transferor or the Originator under ERISA or the Code, if such prohibited
transactions, accumulated funding deficiencies, payments, terminations and
reportable events occurring within any fiscal year of the Transferor and the
Originator, in the aggregate, involve a payment of money or an incurrence of
liability by the Transferor, the Originator or any ERISA Affiliate of the
Transferor or the Originator.
(j) Payment to the Originator. With respect to each Receivable sold
-------------------------
by the Originator to the Transferor, the Transferor and the Originator shall
effect such sale under, and pursuant to the terms of, the Receivables Purchase
Agreement, including, without limitation, the payment by the Transferor either
in cash, by a capital contribution or by increase in the amount of the
Subordi-
34
<PAGE>
nated Note to the Originator of an amount equal to the purchase price for
such Receivable as required by the terms of the Receivables Purchase Agreement.
SECTION V.3. Representations, Warranties and Covenants of the
------------------------------------------------
Originator. The Originator hereby reaffirms to the Funding Agent, PARCO and the
- ----------
APA Banks its covenants made to the Transferor in Article V of the Receivables
Purchase Agreement.
35
<PAGE>
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION VI.1. Appointment of Collection Agent. The servicing,
-------------------------------
administering and collection of the Receivables shall be conducted by such
Person (the "Collection Agent") so designated from time to time in accordance
----------------
with this Section 6.1. Until PARCO gives notice to the Originator of the
designation of a new Collection Agent pursuant to the next sentence, the
Originator is hereby designated as, and hereby agrees to perform the duties and
obligations of, the Collection Agent pursuant to the terms hereof. The Funding
Agent may, and upon the direction of the Required APA Banks the Funding Agent
shall, after the occurrence of a Collection Agent Default or any other
Termination Event, designate as Collection Agent any Person (including itself)
to succeed the Originator or any successor Collection Agent, on the condition in
each case that any such Person so designated shall agree to perform the duties
and obligations of the Collection Agent pursuant to the terms hereof. Following
a Collection Agent Default or a Termination Event, the Funding Agent may notify
any Obligor of the Transferred Interest of the designation of a successor
Collection Agent. The Collection Agent may not delegate any of its rights,
duties or obligations hereunder, or designate a substitute Collection Agent,
without the prior written consent of the Funding Agent; provided that the
--------
Originator shall be permitted to delegate its duties hereunder to any of its
Affiliates or their agents, but such delegation shall not relieve the Originator
of its duties and obligations hereunder.
SECTION VI.2. Duties of Collection Agent.
--------------------------
(a) The Collection Agent shall take or cause to be taken all such
action as may be necessary or advisable to collect each Receivable from time to
time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the Credit and Collection
Policy. Each of the Transferor, PARCO and the Funding Agent, for the benefit of
the APA Banks, hereby appoints as its agent the Collection Agent, from time to
time designated pursuant to Section 6.1 hereof, to enforce its respective rights
and interests in and under the Receivables and Related Security, Collections and
Proceeds with respect thereto. To the extent permitted by applicable law, each
of the Transferor and the Originator (to the extent not then acting as
Collection Agent hereunder) hereby grants to any Collection Agent appointed
hereunder an irrevocable power of attorney to take in the Transferor's and/or
the Originator's name and on behalf of the Transferor or the Originator any and
all steps necessary or desirable, in the reasonable
36
<PAGE>
determination of the Collection Agent, to collect all amounts due under any and
all Receivables, including, without limitation, endorsing the Transferor's
and/or the Originator's name on checks and other instruments representing
Collections and enforcing such Receivables and the related Contracts. The
Collection Agent shall set aside for the account of the Transferor and PARCO
their respective allocable shares of the Collections of Receivables in
accordance with Sections 2.5 and 2.6 hereof. The Collection Agent shall
segregate and deposit to the Funding Agent's account PARCO's allocable share of
Collections of Receivables when required pursuant to Article II hereof. The
Transferor shall deliver to the Collection Agent and the Collection Agent shall
hold in trust for the Transferor, PARCO, the Funding Agent and the APA Banks, in
accordance with their respective interests, all Records which evidence or relate
to Receivables, Related Security or Collections. Notwithstanding anything to the
contrary contained herein, following a Termination Event or Potential
Termination Event, the Funding Agent shall have the absolute and unlimited right
to direct the Collection Agent (whether the Collection Agent is the Originator
or any other Person) to commence or settle any legal action to enforce
collection of any Receivable or to foreclose upon or repossess any Related
Security. The Collection Agent shall not make the Funding Agent, PARCO or any of
the APA Banks a party to any litigation without the prior written consent of
such Person.
(b) The Collection Agent shall, as soon as practicable following
receipt thereof, turn over to the Originator any collections of any indebtedness
of any Person which is not on account of a Receivable. If the Collection Agent
is not the Transferor, the Originator or an Affiliate of the Transferor or the
Originator, the Collection Agent, by giving three (3) Business Days' prior
written notice to the Funding Agent, may revise the Servicing Fee, provided that
--------
such revised Servicing Fee payable to such successor Collection Agent shall be a
fee agreed upon by the Collection Agent and the Funding Agent on an arms-length
basis reflecting rates and terms prevailing at such time (it being understood
that the Servicing Fee represents an arms-length arrangement as of the date of
this Agreement). The Collection Agent, if other than the Originator or an
Affiliate of the Originator, shall as soon as practicable upon demand, deliver
to the Originator all Records in its possession which evidence or relate to
indebtedness of an Obligor which is not a Receivable.
(c) On or before ninety (90) days after the end of each fiscal year
of the Collection Agent, beginning with the fiscal year ending December 31,
1998, the Collection Agent shall cause a firm of independent public accountants
acceptable to the Funding Agent at the expense of the Transferor (who may also
render other services to the Collection Agent, the Transferor, the Originator or
any Affiliates of any of the foregoing) to furnish a report to the Funding Agent
to the
37
<PAGE>
effect that they have (i) selected at least one Settlement Statement for
each fiscal quarter delivered during the fiscal year then ended and verified
that the amounts presented on such Settlement Statement relating to sales, total
dilution, net sales, collections, write-offs and aging of Receivables agreed
with the information contained within the Collection Agent's underlying
accounting records for such Settlement Period, (ii) recalculated the Net
Receivables Balance as of the end of at least one Settlement Period of each
fiscal quarter, (iii) verified that the Receivables treated by the Collection
Agent as Eligible Receivables in fact satisfied the requirements of clauses
(iii), (iv) and (viii) of the definition of such term contained herein, (iv)
selected at least one Settlement Statement for each fiscal quarter and conducted
a "negative confirmation" of a sample of fifty (50) Receivables (or such other
sample consented to by the Funding Agent, which consent shall not be
unreasonably withheld) and verified that the Collection Agent's records and
computer system used in servicing the Receivables contained correct information
with regard to outstanding balances, and (v) selected at least one Settlement
Statement for each fiscal quarter and selected a sample of fifty (50)
Receivables (or such other sample consented to by the Funding Agent, which
consent shall not be unreasonably withheld) (which can be the same sample
selected in clause (iv) above) and verified that such Receivables were included
in the proper aging category on such Settlement Statement based on the dates
listed on the original Contracts for such Receivables, except, in each case for
(a) such exceptions as such firm shall believe to be immaterial (which
exceptions need not be enumerated) and (b) such other exceptions as shall be set
forth in such statement.
(d) Notwithstanding anything to the contrary contained in this
Article VI, the Collection Agent shall have no obligation to collect, enforce or
take any other action described in this Article VI with respect to any
indebtedness which is not on account of a Receivable other than to deliver to
the Originator the collections and documents with respect to any such
indebtedness as described in Section 6.2(b) hereof.
SECTION VI.3. Rights After Designation of New Collection Agent. At
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any time following the designation of a Collection Agent pursuant to Section 6.1
hereof:
(i) The Funding Agent may, at its option, or shall, at the
direction of the Required APA Banks, direct that payment of all amounts
payable under any Receivable be made directly to the Funding Agent or its
designee for the benefit of PARCO and the APA Banks.
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(ii) The Transferor shall, at the Funding Agent's request and at
the Transferor's expense, give notice of PARCO's, the Transferor's and/or
the APA Banks' ownership of Receivables to each Obligor and direct that
payments be made directly to the Funding Agent or its designee.
(iii) The Transferor shall, at the Funding Agent's request, (A)
assemble all of the Records, and shall make the same available to the
Funding Agent or its designee at a place selected by the Funding Agent or
its designee, and (B) segregate all cash, checks and other instruments
received by it from time to time constituting Collections of Receivables in
a manner acceptable to the Funding Agent and shall, promptly upon receipt,
remit all such cash, checks and instruments, duly endorsed or with duly
executed instruments of transfer, to the Funding Agent or its designee.
(iv) The Transferor and the Originator hereby authorize the
Funding Agent to take any and all steps in the Transferor's or the
Originator's name and on behalf of the Transferor and the Originator
necessary or desirable, in the determination of the Funding Agent, to
collect all amounts due under any and all Receivables, including, without
limitation, endorsing the Transferor's or the Originator's name on checks
and other instruments representing Collections and enforcing such
Receivables and the related Contracts.
SECTION VI.4. Collection Agent Default. The occurrence of any one or
------------------------
more of the following events shall constitute a Collection Agent default (each,
a "Collection Agent Default"):
------------------------
(a (i) the Collection Agent or, to the extent that the
Transferor, the Originator or any Affiliate of the Transferor or the Originator
is then acting as Collection Agent, the Transferor, the Originator or such
Affiliate, as applicable, shall fail to observe or perform any term, covenant or
agreement hereunder (other than as referred to in clause (ii) of this Section
6.4(a)) or under any of the other Transaction Documents to which such Person is
a party or by which such Person is bound, and such failure shall remain
unremedied for ten (10) days, or (ii) the Collection Agent or, to the extent
that the Transferor, the Originator or any Affiliate of the Transferor or the
Originator is then acting as Collection Agent, the Transferor, the Originator or
such Affiliate, as applicable, shall fail to make any
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payment or deposit required to be made by it hereunder and such failure remains
uncured for two (2) Business Days from the due date therefor or the Collection
Agent shall fail to observe or perform in any material respect any term,
covenant or agreement on the Collection Agent's part to be performed under
Section 2.8(b) hereof; or
(b any representation, warranty, certification or statement made by
the Collection Agent or the Transferor, the Originator or any Affiliate of the
Transferor or the Originator (in the event that the Transferor, the Originator
or such Affiliate is then acting as the Collection Agent) in this Agreement, the
Receivables Purchase Agreement or in any of the other Transaction Documents or
in any certificate or report delivered by it pursuant to any of the foregoing
shall prove to have been incorrect in any material respect when made or deemed
made; or
(c (i) failure of the Collection Agent or any of its Affiliates to
pay any principal of, premium or interest on, or any other amount payable in
respect of, one or more items of Indebtedness of the Collection Agent or its
Affiliates that is outstanding (or under which one or more Persons have a
commitment to extend credit) in an aggregate principal amount of at least
$10,000,000 at the time of such failure, when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreements or instruments relating to all such
Indebtedness; or (ii) any other event shall occur or condition shall exist under
the agreements or instruments relating to one or more items of Indebtedness of
the Collection Agent or any of its Affiliates that is outstanding (or under
which one or more Persons have a commitment to extend credit) in an aggregate
principal amount of at least $10,000,000 at the time of such other event or
condition, and shall continue after the applicable grace period, if any,
specified in all such agreements or instruments, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Indebtedness or otherwise to cause, or to permit the holder thereof to
cause, such Indebtedness to mature; or (iii) one or more items of Indebtedness
of the Collection Agent or its Affiliates that is outstanding (or under which
one or more Persons have a commitment to extend credit) in an aggregate
principal amount of at least $10,000,000 shall be declared to be due and payable
or required to be prepaid or redeemed (other than by a regularly scheduled or
required prepayment or redemption), purchased or defeased, or an offer to
prepay, redeem, purchase or defease such Indebtedness shall be required to be
made, in each case prior to the stated maturity thereof (provided that, in the
--------
case of a default or failure in respect of an Affiliate of the Collection Agent
(other than the Transferor) provided in this clause (c), such default or failure
shall constitute a
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Collection Agent Default hereunder solely to the extent such default or failure
is reasonably likely to result in a Material Adverse Effect; or
(d any Event of Bankruptcy shall occur with respect to the
Collection Agent or any of its Affiliates (other than the Transferor), and such
condition shall have continued undismissed or unstayed for sixty (60)
consecutive days and which, in the case of an Affiliate, is reasonably likely to
have a Material Adverse Effect; or
(e there shall have occurred any event which, in the commercially
reasonable judgment of the Funding Agent, materially and adversely affects the
Collection Agent's ability to collect the Receivables in accordance with the
terms of this Agreement.
SECTION VI.5. Indemnities by the Collection Agent. Without limiting
-----------------------------------
any other rights that the Funding Agent, PARCO, the APA Banks or any Indemnified
Party may have hereunder or under applicable law and in consideration of its
appointment as Collection Agent, the Collection Agent hereby agrees to indemnify
each Indemnified Party from and against any and all Indemnified Amounts arising
out of or resulting from (whether directly or indirectly): (a) the failure of
any information provided to the Funding Agent, PARCO or the APA Banks by the
Collection Agent to be true and correct in all material respects, (b) the
failure of any representation, warranty or statement made or deemed made by or
on behalf of the Collection Agent under or in connection with this Agreement to
have been true and correct in all respects as of the date made or deemed made,
(c) the failure by the Collection Agent to comply with any applicable law, rule
or regulation with respect to any Receivable or the related Contract or (d) any
failure of the Collection Agent to perform its covenants, duties or obligations
in accordance with the provisions hereof.
SECTION VI.6. Responsibilities of the Originator. Anything herein to
----------------------------------
the contrary notwithstanding, the Originator shall (i) perform all of the
Originator's obligations under the Contracts related to the Receivables to the
same extent as if the Receivables had not been sold under the Receivables
Purchase Agreement and interests in such Receivables had not been sold hereunder
and the exercise by the Funding Agent, PARCO and the APA Banks of their rights
hereunder and under the Receivables Purchase Agreement shall not relieve the
Originator from such obligations and (ii) pay when due any taxes, including
without limitation, any sales taxes payable in connection with the Receivables
and their creation and satisfaction. Neither the Funding Agent, PARCO nor any
of the APA Banks shall have any
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obligation or liability with respect to any Receivable or related Contracts, nor
shall it be obligated to perform any of the obligations of the Originator
thereunder.
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ARTICLE VII
TERMINATION EVENTS
SECTION VII.1. Termination Events. The occurrence of any one or more
------------------
of the following events shall constitute a Termination Event:
(a the Transferor, the Originator or the Collection Agent shall fail
to make any payment or deposit to be made by it hereunder or under any of the
Transaction Documents when due hereunder or thereunder; or
(b any representation, warranty, certification or statement made by
the Transferor or the Originator in this Agreement, any other Transaction
Document to which it is a party or in any other document delivered pursuant
hereto or thereto shall prove to have been incorrect in any material respect
when made or deemed made; or
(c the Transferor, the Originator, or the Collection Agent shall
default in the performance of any covenant or indemnity (other than those
covered by clause (a) above) under any Transaction Document.
(d failure of the Transferor to pay any Indebtedness (other than as
described in clause (a) above) owing by the Transferor and greater than $25,000
when due; or
(e any Event of Bankruptcy shall occur with respect to the
Transferor, the Originator, or any Affiliate of either the Transferor or the
Originator, and other than with respect to the Transferor such condition shall
have continued undismissed or unstayed for sixty (60) consecutive days (and
which, in the case of such an Affiliate, is reasonably likely to have a Material
Adverse Effect); or
(f the Funding Agent, on behalf of PARCO and the APA Banks, shall,
for any reason (other than as a result of the gross negligence or willful
misconduct of the Funding Agent, PARCO or the APA Banks), fail or cease to have
a valid and perfected first priority ownership or security interest in the
Receivables and Related Security, Collections and Proceeds with respect thereto,
free and clear of any Adverse Claims; or
(g a Collection Agent Default shall have occurred; or
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(h the Purchase Termination Date shall have occurred under the
Receivables Purchase Agreement; or
(i the Transferor or the Originator shall enter into any transaction
or merger which is reasonably likely to have a Material Adverse Effect;
(j (i) the Percentage Factor exceeds the Maximum Percentage Factor
unless the Transferor reduces the Net Investment or increases the balance of the
Receivables on the next Business Day after the earlier of (x) the date on which
a Responsible Officer of the Transferor or the Collection Agent knew, or should
have known, of such condition and (y) the date of delivery of the most recent
Settlement Report or Weekly Report to the Funding Agent, so as to reduce the
Percentage Factor to less than or equal to 100%; or (ii) the Net Investment
shall exceed the Facility Limit; or
(k the average Dilution Ratio for the two (2) preceding
Settlement Periods exceeds 0.05%; or
(l the average Aged Receivables Ratio for the two (2)
preceding Settlement Periods exceeds 2.40 %; or
(m an Event of Default (as such term is defined in the Credit
Agreement) shall have occurred and be continuing under the Credit Agreement; or
(n a notice of Lien has been filed against the Transferor, the
Originator or the Collection Agent under Section 412(n) of the Code or Section
302(f) of ERISA for a failure to make a required installment or other payment to
a plan to which such provisions apply; or
(o the Vendor DSO for the preceding Settlement Periods exceeds
two hundred and twenty five (225) days.
SECTION VII.2. Remedies Upon the Occurrence of a Termination Event.
---------------------------------------------------
(a Upon the occurrence of any Termination Event, the Funding Agent
may, or at the direction of the Required APA Banks shall, by notice to the
Transferor and the Collection Agent, declare the Termination Date to have
occurred; provided, however, that in the case of any event described in Section
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7.1(e), 7.1(f), 7.1(j) and 7.1(n) above, the Termination Date shall be deemed to
have occurred automatically upon the occurrence of such event. At all times
after the declaration or automatic occurrence of the Termination Date pursuant
to this Section 7.2(a), the Funding Agent may, with the consent of the Required
APA Banks and shall, at the direction of the Required APA Banks, declare all
outstanding Tranches to be ended and designate the Base Rate plus 2.00% as the
Tranche Rate applicable to the Net Investment. If an event or condition shall
have occurred which constitutes a Potential Termination Event, the Funding Agent
may, by notice to the Transferor, declare such event or condition a Potential
Termination Event.
(b In addition, if any Termination Event occurs hereunder, (i) the
Funding Agent shall promptly notify the Transferor in writing whether it has
declared a Termination Event or a Potential Termination Event and whether it
will be exercising the remedies specified in this Section 7.2, (ii) the Funding
Agent, on behalf of PARCO and the APA Banks, shall have all of the rights and
remedies provided to a secured creditor or a purchaser of accounts under the
Relevant UCC by applicable law in respect thereto, (iii) the Facility Limit
shall be reduced as of each calendar date thereafter equal to the Net Investment
as of such date, (iv) the Percentage Factor shall be increased to 100% and (v) a
PARCO Wind-Down Event shall be deemed to have automatically occurred.
SECTION VII.3. Reconveyance Under Certain Circumstances. The
----------------------------------------
Transferor agrees to accept the reconveyance from the Funding Agent, on behalf
of PARCO and/or the APA Banks, of the Transferred Interest if the Funding Agent
notifies the Transferor of a material breach of any representation or warranty
made or deemed made pursuant to Article III of this Agreement, and the
Transferor shall fail to cure or cause to be cured such breach within thirty
(30) days (or, in the case of the representations and warranties in Sections
3.1(d) and 3.1(j), five (5) Business Days of such notice. The reconveyance
price shall be paid by the Transferor to the Funding Agent, for the account of
PARCO and the APA Banks, as applicable, in immediately available funds on such
30th day (or 5th day, if applicable) in an amount equal to the Aggregate
Unpaids.
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ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION VIII.1. Indemnities by the Transferor. Without limiting any
-----------------------------
other rights which the Funding Agent, PARCO or the APA Banks may have hereunder
or under applicable law, the Transferor hereby agrees to indemnify PARCO, the
APA Banks and the Funding Agent and any successors and permitted assigns and
their respective officers, directors, agents and employees (collectively,
"Indemnified Parties") from and against any and all damages, losses, claims,
- --------------------
liabilities, costs and expenses, including, without limitation, reasonable
attorneys' fees and disbursements (all of the foregoing being collectively
referred to as "Indemnified Amounts") awarded against or incurred by any of them
-------------------
in any action or proceeding arising out of or as a result of this Agreement, the
other Transaction Documents, the ownership or maintenance, either directly or
indirectly, by the Funding Agent, PARCO or any APA Bank of the Transferred
Interest or any of the other transactions contemplated hereby or thereby,
excluding, however, (i) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of an Indemnified Party; (ii)
recourse (except as otherwise specifically provided in this Agreement) for
uncollectible Receivables or (iii) any income or franchise taxes incurred by
such Indemnified Party arising out of or as a result of this Agreement or the
ownership of the Transferred Interest. Without limiting the generality of the
foregoing, the Transferor shall indemnify each Indemnified Party for Indemnified
Amounts relating to or resulting from:
(a) any representation or warranty made by the Transferor or any
officers of the Transferor under or in connection with this Agreement, any of
the other Transaction Documents, any Settlement Report or any other information
or report delivered by any of them pursuant hereto or thereto, which shall have
been false or incorrect in any material respect when made or deemed made;
(b) the failure by the Transferor or the Originator (including, in
its capacity as the Collection Agent) to comply with any applicable law, rule or
regulation with respect to any Receivable or the related Contract, or the
nonconformity of any Receivable or the related Contract with any such applicable
law, rule or regulation;
(c) the failure to (x) vest and maintain vested in the Funding Agent,
for the benefit of PARCO and the APA Banks, an undivided first priority,
perfected percentage ownership interest, to the extent of the Transferred
Interest, in the
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Receivables and Related Security, Collections and Proceeds with respect thereto,
free and clear of any Adverse Claim or (y) to create or maintain a valid and
perfected first priority security interest in favor of the Funding Agent, for
the benefit of PARCO and the APA Banks, in the Transferor's ownership interest
in, and lien on, the Receivables and Related Security, Collections and Proceeds
with respect thereto, free and clear of any Adverse Claim;
(d) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments or documents
under the Relevant UCC or other applicable laws with respect to any of the
Receivables or Related Security, Collections and Proceeds with respect thereto;
(e) any dispute, claim, offset or defense (other than financial
inability to pay or discharge in bankruptcy) of the Obligor to the payment of
any Receivable (including, without limitation, a defense based on such
Receivable or the related Contract not being legal, valid and binding obligation
of such Obligor enforceable against it in accordance with its terms), or any
other claim resulting from the sale of merchandise or services related to such
Receivable or the furnishing or failure to furnish such merchandise or services;
(f) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions hereof;
(g) any products liability claim or personal injury or property
damage suit or other similar or related claim or action of whatever sort arising
out of or in connection with merchandise or services which are the subject of
any Receivable;
(h) the failure by the Transferor to comply with any term, provision
or covenant contained in this Agreement or any of the other Transaction
Documents to which it is a party;
(i) the Percentage Factor exceeding the Maximum Percentage Factor at
any time on or prior to the Termination Date;
(j) any repayment by any Indemnified Party of any amount previously
distributed in reduction of Net Investment which is required to be made;
(k) the commingling of Collections of Receivables at any time with
other funds;
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(l) any investigation, litigation or proceeding related to this
Agreement, any of the other Transaction Documents, the use of proceeds of
Transfers, the ownership of Transferred Interests, or any Receivable, Related
Security or Contract;
(m) the failure of any Lock-Box Bank to remit any amounts held in the
Lock-Box Accounts pursuant to the instructions of the Collection Agent, the
Transferor, the Originator or the Funding Agent (to the extent such Person is
entitled to give such instructions in accordance with the terms hereof and of
any applicable Lock-Box Agreement) whether by reason of the exercise of set-off
rights or otherwise;
(n) any inability to obtain any judgment in or utilize the court or
other adjudication system of, any state in which an Obligor may be located as a
result of the failure to qualify to do business or file any notice of business
activity report or any similar report;
(o) any failure of the Transferor to give reasonably equivalent value
to the Originator in consideration of the purchase by the Transferor from the
Originator of any Receivable, or any attempt by any Person to void, rescind or
set-aside any such transfer under statutory provisions or common law or
equitable action, including, without limitation, any provision of the Bankruptcy
Code; or
(p) any action taken by the Transferor or any Affiliate or designee
of the Transferor in the enforcement or collection of any Receivable.
SECTION VIII.2. Indemnity for Reserves and Expenses. (a) If after
-----------------------------------
the date hereof, the adoption of any Law or bank regulatory guideline or any
amendment or change in the interpretation of any existing or future Law or bank
regulatory guideline by any Official Body charged with the administration,
interpretation or application thereof, or the compliance with any directive of
any Official Body (in the case of any bank regulatory guideline, whether or not
having the force of Law):
(i) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the account of, or credit
extended by, any Indemnified Party or shall impose on any Indemnified Party
or on the United States market for certificates of deposit or the London
interbank market any other
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condition affecting this Agreement, the other Transaction Documents, the
ownership, maintenance or financing of the Transferred Interest, the
Receivables or payments of amounts due hereunder or its obligation to
advance funds hereunder or under the other Transaction Documents, the
ownership, maintenance or financing of the Transferred Interest or the
Receivables; or
(ii) imposes upon any Indemnified Party any other expense
(including, without limitation, reasonable attorneys' fees and expenses,
and expenses of litigation or preparation therefor in contesting any of the
foregoing) with respect to this Agreement, the other Transaction Documents,
the ownership, maintenance or financing of the Transferred Interest, the
Receivables or payments of amounts due hereunder or its obligation to
advance funds hereunder or otherwise in respect of this Agreement, the
other Transaction Documents, the ownership, maintenance or financing of the
Transferred Interests or the Receivables,
and the result of any of the foregoing is to increase the cost to such
Indemnified Party with respect to this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the Transferred Interest,
the Receivables, the obligations hereunder, the funding of any Purchases
hereunder or under the other Transaction Documents, by an amount deemed by such
Indemnified Party to be material, then, within ten (10) days after demand by
such Indemnified Party through the Funding Agent, the Transferor shall pay to
the Funding Agent, for the benefit of such Indemnified Party, such additional
amount or amounts as will compensate such Indemnified Party for such increased
cost or reduction; provided that no such amount shall be payable with respect to
--------
any period commencing more than two hundred seventy (270) days prior to the date
the Funding Agent first notifies the Transferor of its intention to demand
compensation therefor under this Section 8.2(a); provided further that if such
-------- -------
change in Law, rule or regulation giving rise to such increased costs or
reductions is retroactive, then such 270-day period shall be extended to include
the period of retroactive effect thereof.
(b) If any Indemnified Party shall have determined that after the
date hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation thereof by any Official Body, or any directive regarding capital
adequacy (in the case of any bank regulatory guideline, whether or not having
the force of law) of any such Official Body, has or would have the effect of
reducing the rate of return on capital
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of such Indemnified Party (or its parent) as a consequence of such Indemnified
Party's obligations hereunder or with respect hereto to a level below that which
such Indemnified Party (or its parent) could have achieved but for such
adoption, change, request or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by such Indemnified Party
to be material, then from time to time, within ten (10) days after demand by
such Indemnified Party through the Funding Agent, the Transferor shall pay to
the Funding Agent, for the benefit of such Indemnified Party, such additional
amount or amounts as will compensate such Indemnified Party (or its parent) for
such reduction; provided that no such amount shall be payable with respect to
--------
any period commencing more than two hundred seventy (270) days prior to the date
the Funding Agent first notifies the Transferor of its intention to demand
compensation therefor under this Section 8.2(a); provided further that if such
----------------
change in Law, rule or regulation giving rise to such increased costs or
reductions is retroactive, then such 270-day period shall be extended to include
the period of retroactive effect thereof.
SECTION VIII.3. Indemnity for Taxes. (a) All payments made by the
-------------------
Transferor, the Originator or the Collection Agent to the Funding Agent for the
benefit of PARCO and the APA Banks under this Agreement and any other
Transaction Document shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any Official
Body, excluding (i) taxes imposed on the net income of the Funding Agent or any
---------
other Indemnified Party, however denominated, and (ii) franchise taxes imposed
on the net income of the Funding Agent or any other Indemnified Party, in each
case imposed: (1) by the United States or any political subdivision or taxing
authority thereof or therein; (2) by any jurisdiction under the laws of which
the Funding Agent or such Indemnified Party or lending office is organized or in
which its lending office is located, managed or controlled or in which its
principal office is located or any political subdivision or taxing authority
thereof or therein; or (3) by reason of any connection between the jurisdiction
imposing such tax and the Funding Agent, such Indemnified Party or such lending
office other than a connection arising solely from this Agreement or any other
Transaction Document or any transaction hereunder or thereunder (all such non-
excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, collectively or individually, "Taxes"). If any such Taxes are
-----
required to be withheld from any amounts payable to the Funding Agent or any
Indemnified Party hereunder, the amounts so payable to the Funding Agent or such
Indemnified Party shall be increased to the extent necessary to yield to the
Funding Agent or such Indemnified Party (after payment of all Taxes) all amounts
payable hereunder at the
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rates or in the amounts specified in this Agreement and the other Transaction
Documents. The Transferor shall indemnify the Funding Agent or any such
Indemnified Party for the full amount of any such Taxes within ten (10) days
after the date of written demand therefor by the Funding Agent.
(b) Each Indemnified Party that is not incorporated under the laws of
the United States of America or a state thereof or the District of Columbia
shall:
(i) deliver to the Transferor and the Funding Agent (A) two duly
completed copies of IRS Form 1001 or Form 4224, or successor applicable
form, as the case may be, and (B) an IRS Form W-8 or W-9, or successor
applicable form, as the case may be;
(ii) deliver to the Transferor and the Funding Agent two (2)
further copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Transferor; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the
Transferor or the Funding Agent;
unless, in any such case, an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Indemnified Party from duly completing and
delivering any such form with respect to it, and such Indemnified Party so
advises the Transferor and the Funding Agent. Each such Indemnified Party so
organized shall certify (i) in the case of an IRS Form 1001 or IRS Form 4224,
that it is entitled to receive payments under the this Agreement and the other
Transaction Documents without deduction or withholding of any United States
federal income taxes and (ii) in the case of an IRS Form W-8 or IRS Form W-9,
that it is entitled to an exemption from United States backup withholding tax.
Each Person that is a Purchaser or Participant hereunder, or which otherwise
becomes a party to this Agreement as an APA Bank, shall, prior to the
effectiveness of such assignment, participation or addition, as applicable, be
required to provide all of the forms and statements required pursuant to this
Section 8.3.
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SECTION VIII.4. Other Costs, Expenses and Related Matters. (a) The
-----------------------------------------
Transferor agrees, upon receipt of a written invoice, to pay or cause to be
paid, and to save PARCO, the APA Banks and the Funding Agent harmless against
liability for the payment of, all reasonable out-of-pocket expenses (including,
without limitation, attorneys', accountants' and other third parties' fees and
expenses, any filing fees and expenses incurred by officers or employees of
PARCO, the APA Banks and/or the Funding Agent) or intangible, documentary or
recording taxes incurred by or on behalf of PARCO, any APA Bank and the Funding
Agent (i) in connection with the negotiation, execution, delivery and
preparation of this Agreement, the other Transaction Documents and any documents
or instruments delivered pursuant hereto and thereto and the transactions
contemplated hereby or thereby (including, without limitation, the perfection or
protection of the Transferred Interest) and (ii) from time to time (a) relating
to any amendments, waivers or consents under this Agreement and the other
Transaction Documents, (b) arising in connection with PARCO's, any APA Bank's or
the Funding Agent's enforcement or preservation of rights (including, without
limitation, the perfection and protection of the Transferred Interest under this
Agreement), or (c) arising in connection with any audit, dispute, disagreement,
litigation or preparation for litigation involving this Agreement or any of the
other Transaction Documents (all of such amounts, collectively, "Transaction
-----------
Costs").
- -----
(b) The Transferor shall pay the Funding Agent, for the account of
PARCO and the APA Banks, as applicable, on demand any Early Collection Fee due
on account of the reduction of a Tranche on any day prior to the last day of its
Tranche Period.
(c) The Funding Agent will within forty-five (45) days after receipt
of notice of any event occurring after the date hereof which will entitle an
Indemnified Party to compensation pursuant to this Article VIII, notify the
Transferor in writing. Any notice by the Funding Agent claiming compensation
under this Article VIII and setting forth the additional amount or amounts to be
paid to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, the Funding Agent or any applicable Indemnified Party
may use any reasonable averaging and attributing methods.
52
<PAGE>
ARTICLE IX
MISCELLANEOUS
SECTION IX.1. Term of Agreement. This Agreement shall terminate on
-----------------
the date following the Termination Date upon which the Net Investment has been
reduced to zero, and all accrued Discount, Servicing Fees and all other
Aggregate Unpaids have been paid in full, in each case, in cash; provided,
--------
however, that (i) the indemnification and payment provisions of Article VIII
- -------
hereof, and (ii) the agreements set forth in Section 9.8 and 9.9 hereof, shall
be continuing and shall survive any termination of this Agreement.
SECTION IX.2. Waivers; Amendments. No failure or delay on the part
-------------------
of the Funding Agent, PARCO or any APA Bank in exercising any power, right or
remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or remedy preclude any other
further exercise thereof or the exercise of any other power, right or remedy.
The rights and remedies herein provided shall be cumulative and nonexclusive of
any rights or remedies provided by law. Any provision of this Agreement may be
amended if, but only if, (i) such amendment is in writing and is signed by the
parties hereto and the Required APA Banks, (ii) the Funding Agent shall have
provided notice to the rating agencies and (iii) for material amendments, the
Funding Agent shall have received a Rating Confirmation.
SECTION IX.3. Notices. Except as provided below, all communications
-------
and notices provided for hereunder shall be in writing (including telecopy or
electronic facsimile transmission or similar writing) and shall be given to the
other party at its address or telecopy number set forth below or at such other
address or telecopy number as such party may hereafter specify for the purposes
of notice to such party. Each such notice or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted to the
telecopy number specified in this Section 9.3 and confirmation is received, (ii)
if given by mail three (3) Business Days following such posting, postage
prepaid, U.S. certified or registered, (iii) if given by overnight courier, one
(1) Business Day after deposit thereof with a national overnight courier
service, or (iv) if given by any other means, when received at the address
specified in this Section 9.3. However, anything in this Section 9.3 to the
contrary notwithstanding, the Transferor hereby authorizes the Funding Agent to
effect Transfers, Tranche Period and Tranche Rate selections based on telephonic
notices made by any Person which the Funding Agent in good faith believes to be
acting on behalf of the Transferor. The Transferor agrees to deliver promptly
to the
53
<PAGE>
Funding Agent a written confirmation of each telephonic notice signed by an
authorized officer of Transferor. However, the absence of such confirmation
shall not affect the validity of such notice. If the written confirmation
differs in any material respect from the action taken by the Funding Agent, the
records of the Funding Agent shall govern absent manifest error.
If to PARCO:
-----------
PARK AVENUE RECEIVABLES CORPORATION
c/o Global Securitization Services, LLC
25 West 43rd Street, Suite 704
New York, New York 10036
Attention: President
Telephone: (212) 302-5151
Telecopy: (212) 302-8767
(with a copy to the Funding Agent)
If to the Transferor:
--------------------
MP RECEIVABLES COMPANY
2211 Sanders Road
Northbrook, Illinois 60062
Attention: Chris Luthin
Telephone: (847) 559-4320
Telecopy: (847) 559-5709
Payment Information:
The Chase Manhattan Bank
ABA 021000021
Account 323051057
Reference MP Receivables Company
If to the Originator:
--------------------
CAREMARK INC.
2211 Sanders Road
Northbrook, Illinois 60062
Attention: Chris Luthin
Telephone: (847) 559-4320
Telecopy: (847) 559-5709
54
<PAGE>
If to the Funding Agent:
-----------------------
THE CHASE MANHATTAN BANK
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Structured Finance Services
Telephone: (212) 946-7861
Telecopy: (212) 946-7776
If to the APA Banks, at their respective addresses set forth in the
Asset Purchase Agreement.
SECTION IX.4. Governing Law; Submission to Jurisdiction; Integration.
------------------------------------------------------
(a This Agreement shall be governed by, and construed in accordance
with the laws of the State of New York. Each of the parties hereto hereby
submits to the nonexclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York state court sitting in The
City of New York for purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. Each of the
parties hereto hereby irrevocably waives, to the fullest extent it may
effectively do so, any objection which it may now or hereafter have to the
laying of the venue of any such proceeding brought in such a court and any claim
that any such proceeding brought in such a court has been brought in an
inconvenient forum. Nothing in this Section 9.4 shall affect the right of the
Funding Agent, PARCO or the APA Banks to bring any action or proceeding against
the Transferor, the Originator, or their respective properties in the courts of
other jurisdictions.
(b Each of the parties hereto hereby waives any right to have a jury
participate in resolving any dispute, whether sounding in contract, tort or
otherwise among any of them arising out of, connected with, relating to or
incidental to the relationship between them in connection with this Agreement or
the other Transaction Documents.
(c This Agreement contains the final and complete integration of all
prior expressions by the parties hereto with respect to the subject matter
hereof and shall constitute the entire Agreement among the parties hereto with
55
<PAGE>
respect to the subject matter hereof superseding all prior oral or written
understandings.
SECTION IX.5. Severability; Counterparts. This Agreement may be
--------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
SECTION IX.6. Successors and Assigns. This Agreement shall be
----------------------
binding on the parties hereto and their respective successors and assigns;
provided, however, that, except as specifically provided herein or in the other
- -------- -------
Transaction documents, neither the Transferor, nor the Originator may assign any
of its rights or delegate any of its duties hereunder or under any of the other
Transaction Documents to which it is a party without the prior written consent
of the Funding Agent. No provision of this Agreement shall in any manner
restrict the ability of PARCO or any APA Bank to assign, participate, grant
security interests in, or otherwise transfer any portion of the Transferred
Interest. Without limiting the foregoing, PARCO may (with the consent of each
APA Bank), in one or a series of transactions, transfer all or any portion of
the Transferred Interest held by it, and its rights and obligations under this
Agreement and the other Transaction Documents to which it is a party, to a
Conduit Assignee.
SECTION IX.7. Confidentiality. (a) Each of the Transferor and the
---------------
Originator shall maintain, and shall cause each officer, employee and agent of
itself and its Affiliates to maintain, the confidentiality of the Transaction
Documents and all other confidential proprietary information with respect to
PARCO, the Funding Agent and the APA Banks and each of their respective
businesses obtained by them in connection with the structuring, negotiation and
execution of the transactions contemplated herein and in the other Transaction
Documents, except for information that has become publicly available or
information disclosed (i) to legal counsel, accountants and other professional
advisors to the Transferor, the Originator and their Affiliates, (ii) as
required by law, regulation or legal process or (iii) in connection with any
legal or regulatory proceeding to which the Transferor, the Originator or any of
their Affiliates is subject. Each of the Transferor and the Originator hereby
consents to the disclosure of any non-public information with respect to it
received
56
<PAGE>
by PARCO, the Funding Agent or any APA Bank to (i) any of PARCO, the Funding
Agent, any APA Bank, (ii) any nationally recognized rating agency providing a
rating or proposing to provide a rating to PARCO's Commercial Paper, (iii) any
placement agent which proposes to offer and sell PARCO's Commercial Paper, (iv)
any provider of PARCO's program-wide liquidity or credit support facilities, (v)
any potential APA Bank or (vi) any Participant or potential Participant.
(b Each of PARCO, the Funding Agent and the APA Banks shall
maintain, and shall cause each officer, employee and agent of itself and its
Affiliates to maintain, the confidentiality of the Transaction Documents and all
other confidential proprietary information with respect to the Transferor, the
Originator and their Affiliates and each of their respective businesses obtained
by them in connection with the structuring, negotiation and execution of the
transactions contemplated herein and in the other Transaction Documents, except
for information that has become publicly available or information disclosed (i)
to legal counsel, accountants and other professional advisors to PARCO, the
Funding Agent and the APA Banks, (ii) as required by law, regulation or legal
process or (iii) in connection with any legal or regulatory proceeding to which
PARCO, the Funding Agent and the APA Banks is subject.
SECTION IX.8. No Bankruptcy Petition Against PARCO. Each of the
------------------------------------
Transferor and the Originator hereby covenants and agrees that, prior to the
date which is one year and one day after the payment in full of all outstanding
Commercial Paper or other indebtedness of PARCO, it will not institute against,
or join any other Person in instituting against, PARCO any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceeding under the laws of the United States or any state of the
United States.
SECTION IX.9. Limited Recourse. Notwithstanding anything to the
----------------
contrary contained herein, the obligations of PARCO under this Agreement are
solely the corporate obligations of PARCO and, in the case of obligations of
PARCO other than Commercial Paper, shall be payable at such time as funds are
actually received by, or are available to, PARCO in excess of funds necessary to
pay in full all outstanding Commercial Paper and, to the extent funds are not
available to pay such obligations, the claims relating thereto shall not
constitute a claim against PARCO but shall continue to accrue. Each party
hereto agrees that the payment of any claim (as defined in Section 101 of the
Bankruptcy Code) of any such party shall be subordinated to the payment in full
of all Commercial Paper.
57
<PAGE>
No recourse under any obligation, covenant or agreement of PARCO
contained in this Agreement shall be had against any incorporator, stockholder,
officer, director, member, manager, employee or agent of PARCO, the
Administrative Agent, the Manager or any of their Affiliates (solely by virtue
of such capacity) by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute or otherwise; it being expressly
agreed and understood that this Agreement is solely a corporate obligation of
PARCO, and that no personal liability whatever shall attach to or be incurred by
any incorporator, stockholder, officer, director, member, manager, employee or
agent of PARCO, the Administrative Agent, the Manager or any of their Affiliates
(solely by virtue of such capacity) or any of them under or by reason of any of
the obligations, covenants or agreements of PARCO contained in this Agreement,
or implied therefrom, and that any and all personal liability for breaches by
PARCO of any of such obligations, covenants or agreements, either at common law
or at equity, or by statute, rule or regulation, of every such incorporator,
stockholder, officer, director, member, manager, employee or agent is hereby
expressly waived as a condition of and in consideration for the execution of
this Agreement; provided that the foregoing shall not relieve any such Person
--------
from any liability it might otherwise have as a result of fraudulent actions
taken or fraudulent omissions made by them.
SECTION IX.10. Characterization of the Transactions Contemplated by
----------------------------------------------------
the Agreement. It is the intention of the parties that the transactions
- -------------
contemplated hereby constitute the sale of the Transferred Interest, conveying
good title thereto free and clear of any Adverse Claims to PARCO, and that the
Transferred Interest not be part of the Transferor's estate in the event of an
insolvency. If, notwithstanding the foregoing, the transactions contemplated
hereby should be deemed a financing, the parties intend that the Transferor
shall be deemed to have granted to the Funding Agent, on behalf of PARCO and the
APA Banks, and the Transferor hereby grants to the Funding Agent, on behalf of
PARCO and the APA Banks, a first priority perfected and continuing security
interest in all of the Transferor's right, title and interest in, to and under
the Receivables, together with Related Security, Collections and Proceeds with
respect thereto, and together with all of the Transferor's rights under the
Receivables Purchase Agreement with respect to the Receivables and with respect
to any obligations thereunder of the Originator with respect to the Receivables,
and that this Agreement shall constitute a security agreement under applicable
law. The Transferor hereby assigns to the Funding Agent, on behalf of PARCO and
the APA Banks, all of its rights and remedies under the Receivables Purchase
Agreement with respect to the Receivables and with respect to any obligations
thereunder of the Originator with respect to the Receivables. The Transferor
agrees that it shall not give any consent or waiver required or permitted to be
given
58
<PAGE>
under the Receivables Purchase Agreement without the prior consent of the
Funding Agent.
SECTION IX.11. Waiver of Setoff. Each of the Funding Agent, the
----------------
Transferor, the Collection Agent, and the Originator hereby waives any right of
setoff it may have or to which it may be entitled under this Agreement from time
to time against PARCO or its assets.
SECTION IX.12. Chase Conflict Waiver. Chase acts as Funding Agent
---------------------
and as Administrative Agent for PARCO, as issuing and paying agent for PARCO's
Commercial Paper, as provider of other backup facilities for PARCO, and may
provide other services or facilities from time to time (the "Chase Roles").
-----------
Without limiting the generality of Section 4.8, each of the parties hereto
hereby acknowledges and consents to any and all Chase Roles, waives any
objections it may have to any actual or potential conflict of interest caused by
Chase's acting as the Funding Agent or as an APA Bank under the Asset Purchase
Agreement and acting as or maintaining any of the Chase Roles, and agrees that
in connection with any Chase Role, Chase may take, or refrain from taking, any
action which it in its discretion deems appropriate.
SECTION IX.13. Liability of Funding Agent. Notwithstanding any
--------------------------
provision of this Agreement: (i) the Funding Agent shall not have any
obligations under this Agreement other than those specifically set forth herein,
and no implied obligations of the Funding Agent shall be read into this
Agreement; and (ii) in no event shall the Funding Agent be liable under or in
connection with this Agreement for indirect, special, or consequential losses or
damages of any kind, including lost profits, even if advised of the possibility
thereof and regardless of the form of action by which such losses or damages may
be claimed. Neither the Funding Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
in good faith by it or them under or in connection with this Agreement, except
for its or their own gross negligence or willful misconduct. Without limiting
the foregoing, the Funding Agent (a) may consult with legal counsel (including
counsel for PARCO), independent public accountants and other experts selected by
it and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts, (b) shall not be responsible to PARCO, the Transferor, the Originator
or the Collection Agent for any statements, warranties or representations made
in or in connection with this Agreement or the other Transaction Documents, (c)
shall not be responsible to PARCO, the Transferor, the Originator or the
Collection Agent for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of
59
<PAGE>
this Agreement or the other Transaction Documents, (d) shall incur no liability
under or in respect of any of the Commercial Paper or other obligations of PARCO
under this Agreement or the other Transaction Documents and (e) shall incur no
liability under or in respect of this Agreement or the other Transaction
Documents by acting upon any notice (including notice by telephone), consent,
certificate or other instrument or writing (which may be by facsimile) believed
by it to be genuine and signed or sent by the proper party or parties.
Notwithstanding anything else herein or in the other Transaction Documents, it
is agreed that where the Funding Agent may be required under this Agreement or
the other Transaction Documents to give notice of any event or condition or to
take any action as a result of the occurrence of any event or the existence of
any condition, the Funding Agent agrees to give such notice or take such action
only to the extent that it has actual knowledge of the occurrence of such event
or the existence of such condition, and shall incur no liability for any failure
to give such notice or take such action in the absence of such knowledge.
60
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Receivables Transfer Agreement as of the date first written above.
PARK AVENUE RECEIVABLES
CORPORATION
By: /s/ Andrew L. Stidd
-------------------------------------
Name: Andrew L. Stidd
Title: President
MP RECEIVABLES COMPANY,
as Transferor
By: /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President and Secretary
CAREMARK INC., as Originator and as
Collection Agent
By: /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President and Secretary
THE CHASE MANHATTAN BANK,
as Funding Agent
By: /s/ Andrew Taylor
-------------------------------------
Name: Andrew Taylor
Title: Vice President
61
<PAGE>
EXHIBIT A
---------
[FORM OF CONTRACT]
A-1
<PAGE>
EXHIBIT B
---------
[FORM OF DEPOSIT REPORT]
B-1
<PAGE>
EXHIBIT C
---------
List of Lock-Box Banks and Accounts
-----------------------------------
C-1
<PAGE>
EXHIBIT D
---------
FORM OF LOCK-BOX AGREEMENT
[Date]
[Name and Address
of Lock-Box Bank]
Re: [COLLECTION AGENT]
Lock-Box Account
No[s]. ___________
Ladies and Gentlemen:
[COLLECTION AGENT] ("COLLECTION AGENT") hereby notifies The First
National Bank of Chicago that in connection with certain transactions involving
its accounts receivable, it has transferred exclusive ownership and dominion of
its lock-box account no[s]. __________ maintained with you (collectively the
"Accounts") to MP Receivables Company ("Transferor"), which then transferred
exclusive ownership and dominion of the Accounts to The Chase Manhattan Bank, as
funding agent (the "Funding Agent"), and that [COLLECTION AGENT] and Transferor
will transfer exclusive control of the Accounts to the Funding Agent effective
upon delivery to you of the Notice of Effectiveness (as hereinafter defined).
The Lockbox Service Terms dated _________ are incorporated into this Agreement
by reference; provided, however, in the event of a conflict between the
provisions of the Lockbox Service Terms and this Agreement, the provisions of
this Agreement shall control.
In furtherance of the foregoing, [COLLECTION AGENT], Transferor and
the Funding Agent hereby instruct you, beginning on the date of your receipt of
the Notice of Effectiveness: (i) to collect the monies, checks, instruments and
other items of payment mailed to the Accounts; (ii) to deposit into the Accounts
all such monies, checks, instruments and other items of payment or all funds
collected with respect thereto (unless otherwise instructed by the Funding
Agent); and (iii) to transfer all funds deposited and collected in the Accounts
pursuant to instructions given to you by the Funding Agent from time to time.
You are hereby further instructed: (i) unless and until the Funding
Agent notifies you to the contrary at any time after your receipt of the Notice
of Effectiveness, to
D-1
<PAGE>
make such transfers from the Accounts at such times and in such manner as
[COLLECTION AGENT], in its capacity as collection agent for the Funding Agent
and Transferor, shall from time to time instruct to the extent such instructions
are not inconsistent with the instructions set forth herein, and (ii) to permit
[COLLECTION AGENT] (in its capacity as collection agent for the Funding Agent
and Transferor), Transferor and the Funding Agent to obtain upon request any
information relating to the Accounts, including, without limitation, any
information regarding the balance or activity of the Accounts.
Each of [COLLECTION AGENT] and Transferor also hereby notifies you
that, beginning on the date of your receipt of the Notice of Effectiveness and
notwithstanding anything herein or elsewhere to the contrary, the Funding Agent,
and not the Collection Agent or Transferor, shall be irrevocably entitled to
exercise any and all rights in respect of or in connection with the Accounts,
including, without limitation, the right to specify when payments are to be made
out of or in connection with the Accounts. The Funding Agent has a continuing
interest in all of the checks and their proceeds and all monies and earnings, if
any, thereon in the Accounts, and you shall be the Funding Agent's agent for the
purpose of holding and collecting such property. The monies, checks,
instruments and other items of payment mailed to, and funds deposited to, the
Accounts will not be subject to deduction, set-off, banker's lien, or any other
right in favor of any person other than the Funding Agent (except that you may
set off (i) all amounts due to you in respect of your customary fees and
expenses for the routine maintenance and operation of the Accounts, and (ii) the
amount of any checks and any ACH transactions which have been credited to the
Accounts and returned for any reason.
You may terminate this Agreement at any time with 30 days prior
written notice to the Funding Agent.
None of the Collection Agent, Funding Agent or you may assign or
transfer any of its rights or obligations under this Agreement, except that you
may assign or transfer your rights hereunder to a wholly owner subsidiary.
Subject to the preceding sentence, this Agreement shall be binding upon each of
the parties hereto and their respective successors and assigns, and shall inure
to the benefit of, and be enforceable by, the Funding Agent, each of the parties
hereto and their respective successors and assigns.
You hereby represent that the person signing this Agreement on your
behalf is duly authorized by you to so sign.
You agree to give the Funding Agent, Transferor and [COLLECTION AGENT]
prompt notice if the Accounts become subject to any writ, garnishment, judgment,
warrant of attachment, execution or similar process.
D-2
<PAGE>
[COLLECTION AGENT] AGREES TO INDEMNIFY AND HOLD YOU HARMLESS FROM AND
AGAINST ANY AND ALL LIABILITIES, LOSSES, COSTS AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES) WHICH YOU MAY SUFFER OR INCUR IN CONNECTION WITH
THIS AGREEMENT OR THE MAINTENANCE OF THE ACCOUNTS, INCLUDING BUT NOT LIMITED TO
THOSE WHICH IN WHOLE OR IN PART ARISE OUT OF YOUR NEGLIGENCE, BUT NOT INCLUDING
THOSE ARISING OUT OF YOUR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. YOU WILL BE
LIABLE ONLY FOR DIRECT DAMAGES IN THE EVENT THAT YOU FAIL TO EXERCISE ORDINARY
CARE. IN NO EVENT SHALL YOU BE LIABLE FOR ANY INCIDENTAL, INDIRECT, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
Notwithstanding any other provision of this Agreement, you shall not
be liable for any failure, inability to perform, or delay in performance
hereunder, if such failure, inability, or delay is due to acts of God, war,
civil commotion, governmental action, fire, explosion, terrorist activities,
strikes, other industrial disturbances, equipment malfunction, outages of
computers, action, non-action or delayed action on the part of [COLLECTION
AGENT], Transferor or Funding Agent, or any other entity or any other causes
that are beyond your reasonable control, or for any such failure, or delay
resulting from your reasonable belief that the action would violate any
guideline, rule or regulation of any governmental authority.
Any notice, demand or other communication required or permitted to be
given hereunder shall be in writing and may be personally served or sent by
facsimile or by courier service or by United States mail and shall be deemed to
have been delivered when delivered in person or by courier service or by
facsimile or three (3) Business Days after deposit in the United States mail
(registered or certified, with postage prepaid and properly addressed). For the
purposes hereof, (i) the addresses of the parties hereto shall be as set forth
below each party's name below, or, as to each party, at such other address as
may be designated by such party in a written notice to the other party and the
Funding Agent and (ii) the address of the Funding Agent shall be The Chase
Manhattan Bank, 450 West 33rd Street, 15th Floor, New York, New York 10001,
Attention: Structured Finance Services, Telephone: (212) 946-7861, Telecopy:
(212) 946-7776 or at such other address as may be designated by the Funding
Agent in a written notice to each of the parties hereto.
Please agree to the terms of, and acknowledge receipt of, this notice
by signing in the space provided below.
The transfer of control of the Accounts, referred to in the first
paragraph of this letter, shall become effective upon delivery to you of a
notice (the "Notice of Effectiveness") in substantially the form attached hereto
as Annex "1".
D-3
<PAGE>
Very truly yours,
[COLLECTION AGENT]
By:
----------------------------------------------------
Title:
-------------------------------------------------
Attention:
---------------------------------------------
Facsimile No.:
-----------------------------------------
ACKNOWLEDGED AND AGREED:
[NAME OF LOCK-BOX BANK]
THE CHASE MANHATTAN BANK
By: By:
------------------------------ -----------------------------------
Title: Title:
--------------------------- --------------------------------
Date: Date:
---------------------------- ---------------------------------
[Address] [Address]
Attention: Attention:
------------------------ ----------------------------
Facsimile No.: Facsimile No.:
-------------------- ------------------------
MP RECEIVABLES COMPANY
By:
------------------------------
Title:
---------------------------
Date:
----------------------------
[Address]
Attention:
------------------------
Facsimile No.:
--------------------
D-4
<PAGE>
ANNEX 1
TO LOCK-BOX AGREEMENT
[FORM OF NOTICE OF EFFECTIVENESS]
DATED: ______________, 199__
TO: [Name of Lock-Box Bank]
[Address]
ATTN: ______________________
Re: Lock-Box Account No[s]._______
Ladies and Gentlemen:
We hereby give you notice that the transfer of control of the above-
referenced Lock-Box Account[s], as described in our letter agreement with you
dated __________, 199__ is effective as of the date hereof. You are hereby
instructed to comply immediately with the instructions set forth in that letter.
Very truly yours,
[NAME OF COLLECTION AGENT]
By:
----------------------------------------
Title:
-------------------------------------
ACKNOWLEDGED AND AGREED:
[NAME OF LOCK-BOX BANK]
By:
------------------------------
Title:
---------------------------
Date:
----------------------------
[Address]
Attention:
------------------------
Facsimile No.:
--------------------
D-5
<PAGE>
EXHIBIT E
---------
[FORM OF SETTLEMENT REPORT]
E-1
<PAGE>
EXHIBIT F
---------
[FORM OF TRANSFER CERTIFICATE]
TRANSFER CERTIFICATE
--------------------
Reference is made to the Receivables Transfer Agreement, dated as of
December 4, 1998 (as amended, supplemented or otherwise modified and in effect
from time to time, the "Agreement"), by and among MP Receivables Company, as
transferor (in such capacity, the "Transferor"), Caremark Inc., individually and
as collection agent (in such capacity, the "Collection Agent"), Park Avenue
Receivables Corporation ("PARCO") and The Chase Manhattan Bank, as funding
agent. Terms defined in the Agreement, or incorporated therein by reference,
are used herein as therein defined.
The Transferor hereby conveys, transfers and assigns to the Funding
Agent, for the benefit of PARCO and the APA Banks, an undivided ownership
interest in the Receivables and the Related Security, Collections and Proceeds
with respect thereto (each, an "Incremental Transfer"). Each Incremental
--------------------
Transfer by the Transferor to PARCO, and each reduction or increase in the Net
Investment in respect of each Incremental Transfer evidenced hereby, shall be
indicated by the Funding Agent on the grid attached hereto which is part of this
Transfer Certificate.
This Transfer Certificate is made without recourse except as otherwise
provided in the Agreement.
This Transfer Certificate shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned has caused this Transfer
Certificate to be duly executed and delivered by its duly authorized officer as
of the date first above written.
MP RECEIVABLES COMPANY
By
-----------------------------------------
Name:
Title:
F-1
<PAGE>
GRID
<TABLE>
<CAPTION>
Net Investment
Date of Amount of (Giving Effect to
Incremental Transfer Incremental Transfer Incremental Transfer)
- --------------------------- ----------------------- ---------------------------
<S> <C> <C>
</TABLE>
<PAGE>
Exhibit G
---------
List of Actions and Suits
-------------------------
G-1
<PAGE>
Exhibit H
---------
Location of Records
-------------------
H-1
<PAGE>
Exhibit I
---------
List of Subsidiaries, Divisions and Tradenames
----------------------------------------------
I-1
<PAGE>
Exhibit J
---------
FORM OF SECRETARY'S CERTIFICATE
I, __________________, the undersigned ________________ of
________________________ ("_______"), a ________ corporation, DO HEREBY CERTIFY
that:
1. Attached hereto as Annex A is a true and complete copy of the
Certificate of Incorporation of ____________________ as in effect on the date
hereof.
2. Attached hereto as Annex B is a true and complete copy of the By-
laws of ___________________________ as in effect on the date hereof.
3. Attached hereto as Annex C is a true and complete copy of the
resolutions duly adopted by the Board of Directors of
____________________________ [adopted by consent] as of __________ __, 199__,
authorizing the execution, delivery and performance of each of the documents
mentioned therein, which resolutions have not been revoked, modified, amended or
rescinded and are still in full force and effect.
4. Attached hereto as Annex D are copies of good standing
certificates of _________________________, certified by the Secretaries of State
of the States of ___________ and ___________.
5. The below-named persons have been duly qualified as and at all
times since ________________, 199__, to and including the date hereof have been
officers or representatives of __________________________ holding the respective
offices or positions below set opposite their names and are authorized to
execute on behalf of ______________________________ the below-mentioned
Receivables Transfer Agreement and all other Transaction Documents (as defined
in such Receivables Transfer Agreement) to which _________________________ is a
party and the signatures below set opposite their names are their genuine
signatures:
Name Office Signatures
---- ------ ----------
[OFFICE]
-------------------------------------
[OFFICE]
-------------------------------------
J-1
<PAGE>
The representations and warranties of ____________________________
contained in Article III of the Receivables Transfer Agreement, dated as of
__________ __, 199__ among __________, __________, Park Avenue Receivables
Corporation and The Chase Manhattan Bank are true and correct as if made on the
date hereof.
WITNESS my hand and seal of _______________________ as of this ____
day of __________, 199__.
-----------------------------------
Secretary
I, the undersigned, __________________ of ________________________, DO
HEREBY CERTIFY that _____________________ is the duly elected and qualified
Secretary of ___________________________ and the signature above is his/her
genuine signature.
WITNESS my hand as of this ____ day of __________, 199__.
-----------------------------------
[Officer]
J-2
<PAGE>
EXHIBIT 10.28
================================================================================
RECEIVABLES PURCHASE AGREEMENT
between
-------
CAREMARK INC.,
as Seller
and
---
MP RECEIVABLES COMPANY,
as Purchaser
Dated as of December 4, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I DEFINITIONS
<S> <C>
SECTION 1.1. Definitions....................................... 1
SECTION 1.2. Other Terms....................................... 2
SECTION 1.3. Computation of Time Periods....................... 2
ARTICLE II PURCHASE, CONVEYANCE
AND SERVICING OF RECEIVABLES
SECTION 2.1. Sales............................................. 3
SECTION 2.2. Servicing of Receivables.......................... 4
ARTICLE III CONSIDERATION AND
PAYMENT; REPORTING
SECTION 3.1. Purchase Price.................................... 6
SECTION 3.2. Payment of Purchase Price......................... 6
SECTION 3.3. Settlement Report................................. 7
ARTICLE IV REPRESENTATIONS AND
WARRANTIES
SECTION 4.1. Seller's Representations and Warranties........... 9
SECTION 4.2. Reaffirmation of Representations and Warranties
by the Seller; Notice of Breach................................ 12
ARTICLE V COVENANTS OF THE
SELLER
SECTION 5.1. Covenants of the Seller........................... 13
ARTICLE VI REPURCHASE OBLIGATION
SECTION 6.1. Mandatory Repurchase.............................. 18
SECTION 6.2. Dilutions, Etc.................................... 18
ARTICLE VII CONDITIONS PRECEDENT
SECTION 7.1. Conditions Precedent.............................. 18
ARTICLE VIII TERM AND TERMINATION
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 8.1. Term.............................................. 20
SECTION 8.2. Effect of Termination............................. 20
ARTICLE IX MISCELLANEOUS
PROVISIONS
SECTION 9.1. Amendments, Etc................................... 21
SECTION 9.2. Governing Law; Submission to Jurisdiction......... 21
SECTION 9.3. Notices........................................... 21
SECTION 9.4. Severability of Provisions........................ 22
SECTION 9.5. Assignment........................................ 22
SECTION 9.6. Further Assurances................................ 23
SECTION 9.7. No Waiver; Cumulative Remedies.................... 23
SECTION 9.8. Counterparts...................................... 23
SECTION 9.9. Binding Effect; Third-Party Beneficiaries......... 23
SECTION 9.10. Merger and Integration........................... 23
SECTION 9.11. Headings......................................... 24
SECTION 9.12. Exhibits......................................... 24
EXHIBITS
EXHIBIT A Form of Subordinated Note........................... A-1
</TABLE>
ii
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
------------------------------
This RECEIVABLES PURCHASE AGREEMENT, dated as of December 4, 1998 (as
amended, supplemented or otherwise modified and in effect from time to time,
this "Agreement"), is entered into between CAREMARK INC., a California
---------
corporation, as seller (in such capacity, the "Seller") and MP RECEIVABLES
------
COMPANY, a Delaware corporation, as purchaser (in such capacity, the
"Purchaser").
---------
W I T N E S S E T H :
-------------------
WHEREAS, the Purchaser desires to purchase from time to time certain
accounts receivable from the Seller existing on the Effective Date and
thereafter until the Purchase Termination Date;
WHEREAS, the Seller desires to sell and assign from time to time all
of the Seller's right, title and interest in, to and under certain accounts
receivable to the Purchaser upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and between
the Purchaser and the Seller as follows:
ARTICLE I
DEFINITIONS
SECTION I.1. Definitions. All capitalized terms used herein shall
-----------
have the meanings specified herein or, if not so specified, the meanings
specified in, or incorporated by reference into, Schedule A to the Receivables
Transfer Agreement, dated as of December 4, 1998 (as amended, supplemented or
otherwise modified and in effect from time to time, the "Receivables Transfer
--------------------
Agreement"), by and among MP Receivables Company, as Transferor thereunder,
- ---------
Caremark Inc., as Collection Agent thereunder, Park Avenue Receivables
Corporation, as purchaser thereunder and The Chase Manhattan Bank, as Funding
Agent thereunder.
<PAGE>
SECTION I.2. Other Terms. All accounting terms not specifically
-----------
defined herein shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the Relevant UCC, and not
specifically defined herein, are used herein as defined in such Article 9.
SECTION I.3. Computation of Time Periods. Unless otherwise stated in
---------------------------
this Agreement, in the computation of a period of time from a specified date to
a later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding."
2
<PAGE>
ARTICLE II
PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES
SECTION II.1. Sales. (a) Upon the terms and subject to the
-----
conditions set forth herein, and without recourse to the Seller (except to the
extent specifically provided herein), the Seller hereby sells, assigns,
transfers and conveys to the Purchaser, and the Purchaser hereby purchases from
the Seller, all of the Seller's right, title and interest, whether now owned or
hereafter acquired and wherever located, in, to and under the Receivables
outstanding on the Effective Date and thereafter owned by the Seller through any
Purchase Termination Date, together with all Related Security and Collections
with respect thereto and all Proceeds of the foregoing. Any sale, assignment,
transfer and conveyance hereunder does not constitute an assumption by the
Purchaser of any obligations of the Seller or any other Person to Obligors or to
any other Person in connection with the Receivables or under any Related
Security or any other agreement or instrument relating to the Receivables.
(b) In connection with the sales provided for herein, the Seller
agrees to record and file on or prior to the Effective Date, at its own expense,
a financing statement or statements with respect to the Receivables and the
other property described in Section 2.1(a) sold by the Seller hereunder meeting
the requirements of applicable state law in such manner and in such
jurisdictions as are necessary to perfect and protect the interests of the
Purchaser created hereby under the Relevant UCC against all creditors of, and
purchasers from, the Seller, and to deliver either the originals of such
financing statements or file-stamped copies of such financing statements or
other evidence of such filings to the Purchaser on or prior to the Effective
Date.
(c) The Seller agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents and take all actions
as may be necessary or as the Purchaser may reasonably request in order to
perfect or protect the interest of the Purchaser in the Receivables purchased
hereunder or to enable the Purchaser to exercise or enforce any of its rights
hereunder. Without limiting the foregoing, the Seller will, in order to
accurately reflect the purchase and sale transactions contemplated by this
Agreement, execute and file such financing or continuation statements or
amendments thereto or assignments thereof (as permitted pursuant hereto) as may
be requested by the Purchaser and will mark its master data processing records
(or related subledger) and other documents with a legend describing the purchase
by the Purchaser of the Receivables and the lien of the Funding Agent pursuant
to the Receivables Transfer Agreement and stating "These accounts
3
<PAGE>
receivable have been sold to MP Receivables Company. Subsequent to such sale, an
interest in these accounts receivable has been granted to The Chase Manhattan
Bank, as Funding Agent, pursuant to a Receivables Transfer Agreement dated as of
December 4, 1998". The Seller shall, upon request of the Purchaser, obtain such
search reports as the Purchaser shall request. To the fullest extent permitted
by applicable law, the Purchaser shall be permitted to sign and file
continuation statements and amendments thereto and assignments thereof without
the Seller's signature. Carbon, photographic or other reproduction of this
Agreement or any financing statement shall be sufficient as a financing
statement.
(d) It is the express intent of the Seller and the Purchaser that each
conveyance of the Receivables by the Seller to the Purchaser pursuant to this
Agreement be construed as a sale of such Receivables by the Seller to the
Purchaser. Further, it is not the intention of the Seller and the Purchaser
that such conveyances be deemed a grant of a security interest in the
Receivables by the Seller to the Purchaser to secure a debt or other obligation
of the Seller. However, in the event that, contrary to the mutual intent of the
parties, any conveyance of Receivables is not construed to be a sale of such
Receivables, then (i) this Agreement also shall be deemed to be, and hereby is,
a security agreement within the meaning of the Relevant UCC; and (ii) the Seller
shall be deemed to have granted to the Purchaser, and the Seller hereby grants
to the Purchaser, a security interest in, to and under all of the Seller's
right, title and interest in, to and under the Receivables, together with all
Related Security and Collections with respect thereto and all Proceeds of the
foregoing, to secure the rights of the Purchaser set forth in this Agreement or
as may be determined in connection therewith by applicable law. The Seller and
the Purchaser shall, to the extent consistent with this Agreement, take such
actions as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Receivables, such security interest would be
deemed to be a perfected security interest in favor of the Purchaser under
applicable law and will be maintained as such throughout the term of this
Agreement.
SECTION II.2. Servicing of Receivables. In connection with the
------------------------
consummation of the sales provided for in this Agreement, Seller hereby assigns
and transfers to Purchaser and Purchaser's assignees all of Seller's right,
title and interest in and to each Lock-Box Account, and Purchaser relinquishes
all power to transfer, possess and control the Lock-Box Accounts and the
contents thereof (except any powers with respect to the Lock-Box Accounts and
contents thereof that are granted to Purchaser in its capacity as Collection
Agent). The servicing, administering and collection of the Receivables shall be
conducted by the Seller for the benefit of the Purchaser and its assignees. The
Seller hereby agrees to perform, take or cause to be
4
<PAGE>
taken all such action as may be necessary or advisable to collect each
Receivable from time to time, all in accordance with applicable laws, rules and
regulations and with the care and diligence which the Seller employs in
servicing similar receivables for its own account, in accordance with the Credit
and Collection Policy. The Purchaser hereby appoints the Seller as its agent to
enforce the Purchaser's rights and interests in, to and under the Receivables,
the Related Security and the Collections with respect thereto. The Seller shall
hold in trust for the Purchaser all Records which evidence or relate to the
Receivables or Related Security, Collections and Proceeds with respect thereto.
Notwithstanding anything to the contrary contained herein, from and after the
occurrence of a Termination Event (or a Potential Termination Event that will
unavoidably lead to a Termination Event and that has a material adverse effect
on the ability of the Seller, as Collection Agent under the Receivables Transfer
Agreement, to perform its servicing obligations under the Receivables Transfer
Agreement) the Funding Agent, on behalf of PARCO and the APA Banks and in its
capacity as the agent for the assignees of the Purchaser under the Receivables
Transfer Agreement, shall have the absolute and unlimited right to terminate the
Seller's servicing activities described in this Section 2.2. In consideration of
the foregoing, the Purchaser agrees to pay the Seller a servicing fee of one
percent (1%) per annum on the aggregate amount of Receivables sold, payable
monthly, for its performance of the duties and obligations described in this
Section 2.2.; provided that any such monthly payment shall be reduced by any
--------
amounts payable in such month by PARCO or the APA Banks to the Seller, in its
capacity as Collection Agent pursuant to the Receivables Transfer Agreement.
The obligations of the Seller hereunder in the administration,
servicing and collection of Receivables may be delegated from time to time by
the Seller to any of its Affiliates; provided that no such delegation of duties
--------
shall relieve the Seller of any of its duties and obligations hereunder.
5
<PAGE>
ARTICLE III
CONSIDERATION AND PAYMENT; REPORTING
SECTION III.1. Purchase Price. The purchase price for the
--------------
Receivables and related property conveyed to the Purchaser by the Seller under
this Agreement on any Business Day shall be a dollar amount equal to the product
of (i) the aggregate Outstanding Balance of the Receivables sold on such
Business Day and (ii) one minus the then applicable Discount Percentage (the
-----
"Purchase Price").
- ---------------
SECTION III.2. Payment of Purchase Price. (a) The Purchase Price
-------------------------
for Receivables sold by the Seller on any Business Day shall be paid either (i)
in cash to the extent funds are available therefor in excess of necessary
working capital or (ii) if Purchaser does not have sufficient cash to pay the
Purchase Price, by means of (A) an advance under the Subordinated Note (each, an
"Advance") or (B) with the consent of the Seller, treating a portion of the
-------
Purchase Price as capital contributed by the Seller to Purchaser or (iii) with
the consent of the Seller, any combination of the foregoing. In the event
Purchaser does not have sufficient cash to pay the Purchase Price due with
respect to any sale of Receivables hereunder, and the Seller is not willing to
consent to the treatment of such insufficiency as a capital contribution, such
insufficiency shall be evidenced by the making of an Advance in an original
principal amount equal to such cash shortfall owed to the Seller; provided,
--------
however, that the Seller shall not make an Advance to Purchaser to the extent
- -------
that the aggregate amount of outstanding Advances would be an amount such that
the net worth of the Purchaser would be less than 90% of the Outstanding Balance
of the Receivables then owned by the Purchaser (the "Advance Limit"). No sales
-------------
of Receivables hereunder shall be made on and after the Purchase Termination
Date. On the date of the initial purchase of Receivables hereunder, the net
worth of the Purchaser shall be $20,000,000.
(b) All Advances made by the Seller to Purchaser shall be evidenced by
a single subordinated note, duly executed on behalf of Purchaser, in
substantially the form of Exhibit A annexed hereto, delivered on the Effective
Date and payable to the Seller in a principal amount equal to the Advance Limit
thereunder (as amended, supplemented or otherwise modified and in effect from
time to time, the "Subordinated Note"). The Seller is hereby authorized by
-----------------
Purchaser to endorse on the schedule attached to the Subordinated Note (or a
continuation of such schedule attached thereto and made a part thereof) an
appropriate notation evidencing the date and amount of each Advance, as well as
the date and amount of each payment made by the Purchaser with respect thereto;
provided, however, that the
- -------- -------
6
<PAGE>
failure of any Person to make such a notation shall not affect any obligations
of Purchaser thereunder. Any such notation shall be conclusive and binding as to
the date and amount of such Advance, or payment of principal or interest
thereon, absent manifest error.
(c) The terms and conditions of the Subordinated Note and all Advances
thereunder shall be as follows:
(i) Repayment of Advances. All amounts paid by the Purchaser with
---------------------
respect to the Advances shall be allocated first to the repayment of accrued
interest until all such interest is paid, and then to the outstanding principal
amount of the Advances. Subject to the provisions of this Agreement, the
Purchaser may borrow, repay and reborrow Advances on and after the date hereof
and prior to the termination of this Agreement, subject to the terms, provisions
and limitations set forth herein, including, without limitation, the requirement
that no Advance be made to the extent that after giving effect thereto the
aggregate outstanding principal amount of all Advances would exceed the Advance
Limit.
(ii) Interest. The Subordinated Note shall bear interest from its
--------
date on the outstanding principal balance thereof at a rate per annum equal to
the Prime Rate plus 2%, calculated as of the Effective Date, as reset for each
----
succeeding calendar month following December 1998 as the rate in effect as of
the last Business Day of the calendar month immediately preceding such calendar
month. Interest on each Advance shall be computed based on the number of days
elapsed in a year of 360 days.
(iii) Subordination. The Seller's rights under the Subordinated
-------------
Note shall be fully subordinated to any rights of the Funding Agent, on behalf
of PARCO and the APA Banks pursuant to the Receivables Transfer Agreement and
the Asset Purchase Agreement, and shall not evidence any rights in the
Receivables or related property.
(iv) Offsets, etc. The Purchaser may offset any amount due and
-------------
owing by the Seller against any amount due and owing by Purchaser to the Seller
under the terms of the Subordinated Note.
SECTION III.3. Settlement Report. On each Settlement Date, the
-----------------
Seller shall deliver to the Purchaser a monthly report, substantially in the
form of Exhibit E attached to the Receivables Transfer Agreement, showing, among
other things, (i) the aggregate Purchase Price of Receivables sold by the Seller
to the
7
<PAGE>
Purchaser in the preceding month and (ii) the aggregate Outstanding Balance of
such Receivables that are Eligible Receivables.
8
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION IV.1. Seller's Representations and Warranties. The Seller
---------------------------------------
represents and warrants to the Purchaser as of the Effective Date and on each
Business Day on which Receivables are sold hereunder:
(a) Corporate Existence and Power. The Seller is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all corporate power and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business in each jurisdiction in which its business is now conducted,
except where the failure to have such licenses, authorizations, consents and
approvals is not reasonably likely to have a Material Adverse Effect. The
Seller is duly qualified to do business in, and is in good standing in, every
other jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention. The
-------------------------------------------------------
execution, delivery and performance by the Seller of the Transaction Documents
to which it is a party are within the Seller's corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any Official Body or official thereof (except for the filing
of UCC financing statements as required by this Agreement), and do not
contravene, or constitute a default under, any provision of applicable law, rule
or regulation or of the Certificate of Incorporation or Bylaws of the Seller or
of any material agreement or instrument or any judgment, injunction, order, writ
or decree binding upon the Seller and will not result in the creation or
imposition of any Adverse Claim (except those created by this Agreement and the
Receivables Transfer Agreement) on the assets of the Seller or any of its
Affiliates (other than, in the case of an Affiliate, Adverse Claims that are not
reasonably likely to have a Material Adverse Effect).
(c) Valid Sale; Binding Effect. Each purchase of Receivables and
--------------------------
Related Security by the Purchaser hereunder shall constitute a valid sale and
assignment by the Seller to the Purchaser, enforceable against creditors of, and
purchasers from, the Seller. Each of the Transaction Documents to which the
Seller is a party will constitute the legal, valid and binding obligation of the
Seller, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium
9
<PAGE>
or other similar laws affecting the rights of creditors and general equitable
principles (whether considered in a proceeding in equity or at law).
(d) Quality of Title. Immediately preceding the sale of the
----------------
Receivables and related property pursuant to this Agreement, the Seller was the
owner of all of the Receivables, free and clear of any Adverse Claim. On or
prior to the date hereof, all financing statements and other documents required
to be recorded or filed in order to perfect and protect the interest of the
Purchaser in, to and under the Receivables against all creditors of and
purchasers from the Seller will have been duly filed in each filing office
necessary for such purpose and all filing fees and taxes, if any, payable in
connection with such filings shall have been paid in full.
(e) Accuracy of Information. All information heretofore furnished by
-----------------------
the Seller to the Purchaser and the Funding Agent for purposes of or in
connection with this Agreement, any other Transaction Document, or any
transaction contemplated hereby or thereby is, and all such information
hereafter furnished by the Seller to the Purchaser, the Funding Agent, PARCO and
the APA Banks will be, true and correct in every material respect, on the date
such information is stated or certified.
(f) Tax Status. The Seller has filed all tax returns (Federal, state
----------
and local) required to be filed and has paid or made adequate provision for the
payment of all taxes, assessments and other governmental charges.
(g) Action, Suits. There are no actions, suits or proceedings
-------------
pending, or to the knowledge of the Seller threatened, against or affecting the
Seller or its properties, in or before any court, arbitrator or other body,
which are reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect.
(h) Place of Business. The principal place of business and chief
-----------------
executive office of the Seller are located at 2211 Sanders Road, Northbrook,
Illinois 60062, and the offices where the Seller keeps all of the Records, are
located at 2211 Sanders Road, Northbrook, Illinois 60062, or such other
locations notified to the Purchaser in accordance with this Agreement in
jurisdictions where all action required by the terms of this Agreement has been
taken and completed.
(i) Solvency. The Seller is not insolvent, does not have unreasonably
--------
small capital with which to carry on its business, is able to pay its debts
generally as they become due and payable, and its liabilities do not exceed its
assets.
10
<PAGE>
(j) Tradenames, Etc. As of the date hereof: (i) the Seller's chief
----------------
executive office is located at 2211 Sanders Road, Northbrook, Illinois 60062;
(ii) the Seller has only the subsidiaries and divisions listed on Exhibit J to
the Receivables Transfer Agreement; and (iii) the Seller has, within the last
five (5) years, operated only under the tradenames identified on Exhibit J to
the Receivables Transfer Agreement, and, within the last five (5) years, has not
changed its name, merged with or into or consolidated with any other corporation
or been the subject of any proceeding under Title 11, United States Code
(Bankruptcy), except as disclosed in Exhibit J to the Receivables Transfer
Agreement.
(k) Nature of Receivables. Each Receivable sold by the Seller to the
---------------------
Purchaser hereunder is an Eligible Receivable as of the date of sale. Each
Receivable included in the calculation of the Net Receivables Balance in fact
satisfies at such time the definition of "Eligible Receivable" and is an
"eligible asset" as defined in Rule 3a-7 under the Investment Company Act of
1940, as amended.
(l) Credit and Collection Policy. Since November 1, 1998, there has
----------------------------
been no change in the Credit and Collection Policy which could have a Material
Adverse Effect. Since such date, no change has occurred in the overall rate of
collection of the Receivables which could have a Material Adverse Effect.
(m) Collections and Servicing. Since November 1, 1998, there has been
-------------------------
no change in the ability of the Seller to service and collect the Receivables
which could have a Material Adverse Effect.
(n) Binding Effect of Receivables and Contract. Each Receivable and
------------------------------------------
related Contract constitutes a legal, valid and binding obligation of the
Obligor, enforceable against the Obligor, subject to the effect of bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
(whether considered in a proceeding at law or in equity).
(o) Not an Investment Company. The Seller is not, and is not
-------------------------
controlled by, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all provisions of such Act.
(p) ERISA. Each of the Seller and its ERISA Affiliates is in
-----
compliance in all material respects with ERISA, and no lien exists in favor of
the Pension Benefit Guaranty Corporation on any of the Receivables.
11
<PAGE>
(q) Lock-Box Accounts. The names and addresses of all the Lock-Box
-----------------
Banks, together with the account numbers of the Lock-Box Accounts at such Lock-
Box Banks, are specified in Exhibit C to the Receivables Transfer Agreement.
All Obligors have been instructed to make payment to a Lock-Box Account.
(r) Bulk Sales. No transaction contemplated by this Agreement
----------
requires compliance with any bulk sales act or similar law.
(s) Year 2000. Seller is implementing a comprehensive, detailed
---------
program to address on a timely basis the "Year 2000 Problem" (i.e., the risk
----
that computer applications used by Seller may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999); Seller will on a timely basis successfully resolve the
"Year 2000 Problem" for all computer applications used in relation to
Receivables by no later than July 31, 1999 except where the failure to do so is
not reasonably likely to result in a Material Adverse Effect.
SECTION IV.2. Reaffirmation of Representations and Warranties by the
------------------------------------------------------
Seller; Notice of Breach. On the Effective Date and on each Business Day on
- ------------------------
which Receivables are sold hereunder, the Seller, by accepting the proceeds of
such sale, shall be deemed to have certified that all representations and
warranties described in Section 4.1 are true and correct on and as of such day
as though made on and as of such day. The representations and warranties set
forth in Section 4.1 shall survive the conveyance of the Receivables to the
Purchaser. Upon discovery by the Purchaser or the Seller of a breach of any of
the foregoing representations and warranties, the party discovering such breach
shall give prompt written notice to the other within three (3) Business Days of
such discovery.
12
<PAGE>
ARTICLE V
COVENANTS OF THE SELLER
SECTION V.1. Covenants of the Seller. The Seller hereby covenants
-----------------------
and agrees with the Purchaser that, for so long as this Agreement is in effect,
and until all Receivables sold to the Purchaser pursuant hereto shall have been
paid in full or written-off as uncollectible, unless the Purchaser otherwise
consents in writing, the Seller covenants and agrees as follows:
(a) Conduct of Business. The Seller will, and will cause each of its
-------------------
Affiliates to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction of
incorporation and will maintain all requisite authority to conduct its business
in each jurisdiction in which its business is conducted, except where the
failure to carry on and conduct such business, remain duly incorporated, validly
existing and in good standing or maintain such authority is not reasonably
likely to have a Material Adverse Effect.
(b) Compliance with Laws. The Seller will, and will cause each of its
--------------------
Affiliates to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject, except where the failure to so comply is not reasonably
likely to have a Material Adverse Effect.
(c) Furnishing of Information and Inspection of Records. The Seller
---------------------------------------------------
will furnish to the Purchaser from time to time such information with respect to
the Receivables as the Purchaser may reasonably request, including, without
limitation, listings identifying the Obligor and the Outstanding Balance for
each Receivable. The Seller will, at any time and from time to time during
regular business hours, upon at least one (1) Business Day's prior notice, at
the Purchaser's expense, permit the Purchaser, or its agents or representatives,
(i) to examine and make copies of and abstracts from all Records and (ii) to
visit the offices and properties of the Seller for the purpose of examining such
Records, and to discuss matters relating to Receivables or the Seller's
performance hereunder with any of the officers, directors, employees or
independent public accountants of the Seller having knowledge of such matters.
13
<PAGE>
(d) Keeping of Records and Books of Account. The Seller will maintain
---------------------------------------
a system of accounting established and administered in accordance with generally
accepted accounting principles, and will maintain and implement administrative
and operating procedures (including, without limitation, for up to twenty-four
(24) months, an ability to recreate records evidencing Receivables in the event
of the destruction of the originals thereof), and keep and maintain, or obtain,
as and when required, all documents, books, records and other information
reasonably necessary or advisable for the collection of all Receivables
(including, without limitation, records adequate to permit the daily
identification of each Receivable and all Collections of and adjustments to each
existing Receivable). The Seller will give the Purchaser prompt notice of any
change in the administrative and operating procedures referred to in the
previous sentence to the extent such change is reasonably likely to have a
Material Adverse Effect.
(e) Performance and Compliance with Receivables and Contracts. The
---------------------------------------------------------
Seller at its expense will timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by it under the
Contracts related to the Receivables and shall pay when due any taxes
(including, without limitation, sales, excise or personal property taxes)
payable by it in connection with any of the Receivables.
(f) Credit and Collection Policies. The Seller will comply in all
------------------------------
material respects with the Credit and Collection Policy in regard to each
Receivable and the related Contract.
(g) Collections. The Seller shall instruct all Obligors to cause all
-----------
Collections to be deposited directly to a Lock-Box Account.
(h) Collections Received. The Seller shall hold in trust, and remit
--------------------
immediately, but in no event later than one (1) Business Day after receipt
thereof, all Collections received from time to time by the Seller to a Lock-Box
Account.
(i) Sale Treatment. Except to the extent a conveyance is treated as a
--------------
capital contribution pursuant to Section 3.2(a) hereof, the Seller agrees to
treat each conveyance hereunder for all purposes (including, without limitation,
tax and financial accounting purposes) as a sale and, to the extent any
reporting is required, shall report the transactions contemplated by this
Agreement on all relevant books, records, tax returns, financial statements and
other applicable documents as a sale of the Receivables to the Purchaser.
14
<PAGE>
(j) No Sales, Liens, Etc. Except as otherwise provided herein, the
--------------------
Seller will not sell, assign (by operation of law or otherwise) or otherwise
dispose of, or create or suffer to exist any Adverse Claim upon (or the filing
of any financing statement) or with respect to, any Receivable, Related Security
or Collections or upon or with respect to any Lockbox Account to which any
Collections of any Receivable are sent, or, in each case, assign any right to
receive income in respect thereof.
(k) No Extension or Amendment of Receivables. The Seller will extend,
----------------------------------------
amend or otherwise modify the terms of any Receivable, and will amend, modify or
waive any term or condition of any Contract related thereto, only as provided in
the Receivables Transfer Agreement or as contemplated by the Credit and
Collection Policy unless such modification is not reasonably likely to have a
Material Adverse Effect (solely with respect to the collectibility of such
Receivable).
(l) No Change in Business or Credit and Collection Policy. The Seller
-----------------------------------------------------
will not make any change in the Credit and Collection Policy which might impair
the collectibility of any Receivable, unless such change is not reasonably
likely to have a Material Adverse Effect.
(m) No Mergers, Etc. The Seller will not (i) consolidate or merge
---------------
with or into any other Person, or (ii) sell, lease or transfer all or
substantially all of its assets to any other Person; provided, that the Seller
--------
may merge with another Person if such merger or consolidation does not cause a
Termination Event or Potential Termination Event under the Receivables Transfer
Agreement.
(n) Change in Payment Instructions to Obligors; Deposits to Lockboxes.
-----------------------------------------------------------------
The Seller will not add or terminate, or make any change to, any Lock-Box
Account, except in accordance with the Receivables Transfer Agreement. The
Seller will not deposit or otherwise credit, or instruct to be so deposited or
credited, to any Lock-Box Account, cash or cash proceeds other than Collections
of Receivables.
(o) Change of Name, Etc. The Seller shall not change its name,
--------------------
identity or structure or its chief executive office, unless at least ten (10)
days prior to the effective date of any such change the Seller delivers to the
Purchaser and the Funding Agent (i) financing statements under the Relevant UCC,
executed by the Seller necessary to reflect such change and to continue the
perfection of the Purchaser's interest in the Receivables and (ii) new or
revised Lock-Box Agreements
15
<PAGE>
which reflect such change and enable the Funding Agent, on behalf of PARCO and
the APA Banks, to exercise its rights under the Transaction Documents.
(p) Indemnification. The Seller agrees to indemnify, defend and hold
---------------
the Purchaser and its assignees harmless from and against any and all loss,
liability, damage, judgment, claim, deficiency, or expense (including interest,
penalties, reasonable attorneys' fees and amounts paid in settlement) to which
the Purchaser and its assignees may become subject insofar as such loss,
liability, damage, judgment, claim, deficiency, or expense arises out of or is
based upon a breach by the Seller of its representations, warranties and
covenants contained herein, or any written information certified in any schedule
or certificate delivered by the Seller hereunder or in connection with the
Transaction Documents, being untrue in any material respect at the time when
made or deemed made; provided, however (x) the foregoing indemnification is not
-------- -------
intended to, and shall not, constitute a guaranty of the collectibility or
payment of the Receivables conveyed hereunder and (y) nothing in this Section
5.1(p) shall require the Seller to indemnify the Purchaser or its assignees for
Receivables which are not collected, not paid or otherwise uncollectible on
account of the insolvency, bankruptcy or financial inability to pay of the
applicable Obligor. The obligations of the Seller under this Section 5.1(p)
shall be considered to have been relied upon by the Purchaser and the Funding
Agent and shall survive the execution, delivery, performance and termination of
this Agreement for a period of three (3) years following the Purchase
Termination Date, regardless of any investigation made by the Purchaser or the
Funding Agent or on behalf of either of them.
(q) ERISA. The Seller shall promptly give the Purchaser written
-----
notice upon becoming aware that the Seller is not in compliance in all material
respects with ERISA or that any ERISA lien on any of the Receivables exists.
(r) Separate Existence. The Seller shall at all times:
------------------
(i) maintain its deposit account or accounts separate from those
of the Purchaser and ensure that its funds will not be diverted to the
Purchaser nor will such funds be commingled with the funds of the Purchaser
(other than funds deposited to a Lock-Box Account, which funds may be
commingled for a period not exceeding two (2) Business Days);
(ii) to the extent that it shares any officers or other employees
with the Purchaser, the salaries of and the expenses related
16
<PAGE>
to providing benefits to such officers and other employees shall be fairly
allocated among it and the Purchaser, and the Seller and the Purchaser
shall bear their respective fair share of the salary and benefit costs
associated with all such common officers and employees;
(iii) to the extent that it jointly contracts with the Purchaser
to do business with vendors or service providers or to share overhead
expenses, the costs incurred in so doing shall be allocated fairly between
it and the Purchaser, and it and the Purchaser shall bear their fair shares
of such costs. To the extent that it contracts or does business with
vendors or service providers where the goods and services provided are
partially for the benefit of the Purchaser, the costs incurred in so doing
shall be fairly allocated between it and the Purchaser in proportion to the
benefit of the goods or services each is provided, and the Seller and the
Purchaser shall bear their respective fair shares of such costs;
(iv) enter into all material transactions with the Purchaser,
whether currently existing or hereafter entered into, only on an arm's
length basis, it being understood and agreed that the transactions
contemplated in the Transaction Documents meet the requirements of this
clause (iv);
(v) maintain office space that is physically segregated from the
office space of the Purchaser (but which may be located at the same address
as the Purchaser) and, to the extent that it and the Purchaser have offices
in the same location, there shall be a fair and appropriate allocation of
overhead costs between them, and each shall bear its fair share of such
expenses; and
(vii) take, or refrain from taking, as the case may be, all
other actions that are necessary to be taken or not to be taken in order to
comply with this Section 5.1.
17
<PAGE>
ARTICLE VI
REPURCHASE OBLIGATION
SECTION VI.1. Mandatory Repurchase. If, on any day, any
--------------------
representation or warranty made herein with respect to any Receivable which has
been sold by the Seller hereunder is determined to be incorrect or untrue in any
material respect as of the date such representation or warranty was made, the
Seller shall on such day repurchase such Receivable and pay to the Purchaser an
amount equal to the aggregate Outstanding Balance of such Receivable.
SECTION VI.2. Dilutions, Etc. The Seller agrees that if, on any day,
---------------
the Outstanding Balance of a Receivable which has been sold by the Seller
hereunder is either (x) reduced as a result of defective, rejected or returned
goods or other dilution factor, any billing adjustment or other adjustment, or
(y) reduced or cancelled as a result of (i) a setoff or offset in respect of any
claim by any Person (whether such claim arises out of the same or a related
transaction or an unrelated transaction), or (ii) any action by any Federal or
state taxing authority or as a result of the payment by any Obligor of any
portion of a Receivable constituting a tax or governmental fee or charge to any
Person other than the Purchaser, then the Seller shall be deemed to have
received on such day a collection of such Receivable to the extent of the amount
of such reduction, cancellation or payment made by the Obligor and shall pay to
the Purchaser an amount equal to such reduction or cancellation on the last
Business Day of the calendar month in which such reduction or cancellation
occurred.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1. Conditions Precedent. The obligations of the Purchaser
--------------------
to purchase the Receivables on the Effective Date and on any Business Day on
which Receivables are sold hereunder shall be subject to the satisfaction of the
following conditions:
(a) All representations and warranties of the Seller contained in this
Agreement shall be true and correct on the Effective Date and on the applicable
Business Day of sale, with the same effect as though such representations and
warranties had been made on such date;
18
<PAGE>
(b) All information concerning the Receivables provided to the
Purchaser shall be true and correct in all material respects as of the Effective
Date, in the case of any Receivables sold on the Effective Date, or the date
such Receivables are sold, in the case of any Receivables created after the
Effective Date and sold by the Seller to the Purchaser on a subsequent Business
Day;
(c) The Seller shall have substantially performed all other
obligations required to be performed by the provisions of this Agreement and the
other Transaction Documents to which it is a party;
(d) The Seller shall have either filed or caused to be filed the
financing statement(s) required to be filed pursuant to Section 2.1(b);
(e) All corporate and legal proceedings, and all instruments in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents shall be satisfactory in form and substance to the
Purchaser, and the Purchaser shall have received from the Seller copies of all
documents (including, without limitation, records of corporate proceedings)
relevant to the transactions herein contemplated as the Purchaser may reasonably
have requested;
(f) On the Effective Date, the Seller shall deliver to the Purchaser
and the Funding Agent a certification of the aggregate Outstanding Balance of
the Receivables in existence as of the close of business on November 23, 1998
(except that, with respect to Vendor Receivables, the aggregate Outstanding
Balance of the Vendor Receivables shall be as of the close of business on
October 31, 1998); and
(g) the Purchase Termination Date shall not have occurred.
19
<PAGE>
ARTICLE VIII
TERM AND TERMINATION
SECTION VIII.1. Term. This Agreement shall commence as of the first
----
day on which all of the conditions precedent have been satisfied and shall
continue in full force and effect until the date following the earliest of (i)
the date designated by the Purchaser or the Seller as the Purchase Termination
Date at any time following ten (10) days= prior written notice to the other
(with a copy thereof to the Funding Agent), (ii) the date on which the Funding
Agent, on behalf of PARCO and the APA Banks, declares a Termination Event or a
Potential Termination Event pursuant to the Receivables Transfer Agreement,
(iii) upon the occurrence of an Event of Bankruptcy with respect to either the
Purchaser or the Seller or (iv) the date on which either the Purchaser or the
Seller defaults on its obligations hereunder, which default continues unremedied
for more than ten (10) days after written notice (any such date being a
"Purchase Termination Date"); provided, however, that the termination of this
- -------------------------- -------- -------
Agreement pursuant to this Section 8.1 hereof shall not discharge any Person
from any obligations incurred prior to such termination, including, without
limitation, any obligations to make any payments with respect to any Receivable
sold prior to such termination.
SECTION VIII.2. Effect of Termination. Following the termination of
---------------------
this Agreement pursuant to Section 8.1, the Seller shall not sell, and the
Purchaser shall not purchase, any Receivables. No termination, rejection or
failure to assume the executory obligations of this Agreement in any Event of
Bankruptcy with respect to the Seller or the Purchaser shall be deemed to impair
or affect the obligations pertaining to any executed sale or executed
obligations, including, without limitation, pre-termination breaches of
representations and warranties by the Seller or the Purchaser. Without limiting
the foregoing, prior to termination, the failure of the Seller to deliver
computer records of Receivables or any reports regarding the Receivables shall
not render such transfer or obligation executory, nor shall the continued duties
of the parties pursuant to this Agreement render a completed sale executory.
20
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION IX.1. Amendments, Etc. This Agreement and the rights and
---------------
obligations of the parties hereunder may not be amended, supplemented, waived or
otherwise modified except in an instrument in writing signed by the Purchaser
and the Seller and consented to in writing by the Funding Agent (with the
consent of the Required APA Banks). Any reconveyance executed in accordance
with the provisions hereof shall not be considered an amendment or modification
to this Agreement.
SECTION IX.2. Governing Law; Submission to Jurisdiction.
-----------------------------------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(b) The parties hereto hereby submit to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York state court sitting in The City of New York for purposes of all
legal proceedings arising out of or relating to this agreement or the
transactions contemplated hereby. Each party hereto hereby irrevocably waives,
to the fullest extent it may effectively do so, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum. Nothing in this Section 9.2 shall affect
the right of the Purchaser to bring any other action or proceeding against the
Seller or its property in the courts of other jurisdictions.
SECTION IX.3. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by registered mail, return receipt requested,
to:
(a) in the case of the Purchaser:
MP RECEIVABLES COMPANY
2211 Sanders Road
Northbrook, Illinois 60062
Attention: Chris Luthin
Telecopy: (847) 559-5709
21
<PAGE>
(b) in the case of the Seller:
CAREMARK INC.
2211 Sanders Road
Northbrook, Illinois 60062
Attention: Chris Luthin
Telecopy: (847) 559-5709
in each case, with a copy to:
THE CHASE MANHATTAN BANK,
as Funding Agent
450 West 33rd Street, 15th Floor
New York, New York 10001
Attention: Structured Finance Services
Telephone: (212) 946-7861
Telecopy: (212) 946-7776
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
SECTION IX.4. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements, provisions,
or terms shall be deemed severable from the remaining covenants, agreements,
provisions, or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
SECTION IX.5. Assignment. This Agreement may not be assigned by the
----------
parties hereto, except that the Purchaser may assign its rights hereunder
pursuant to the Receivables Transfer Agreement to the Funding Agent for the
benefit of PARCO and the APA Banks as security for the Purchaser=s repayment
obligations under the Receivables Transfer Agreement and the Asset Purchase
Agreement. The Purchaser hereby notifies the Seller (and the Seller hereby
acknowledges) that the Purchaser, pursuant to the Receivables Transfer
Agreement, has assigned its rights (but not its obligations) hereunder to the
Funding Agent for the benefit of PARCO and the APA Banks. All rights of the
Purchaser hereunder may be exercised by the Funding Agent to the extent of its
rights hereunder and under the other Transaction Documents.
22
<PAGE>
SECTION IX.6. Further Assurances. The Purchaser and the Seller agree
------------------
to do and perform, from time to time, any and all acts and to execute any and
all further instruments required or reasonably requested by the other party more
fully to effect the purposes of this Agreement and the other Transaction
Documents, including, without limitation, the execution of any financing
statements or continuation statements or equivalent documents relating to the
Receivables for filing under the provisions of the Relevant UCC or other laws of
any applicable jurisdiction.
SECTION IX.7. No Waiver; Cumulative Remedies. No failure to exercise
------------------------------
and no delay in exercising, on the part of the Purchaser, the Seller or the
Funding Agent, any right, remedy, power or privilege hereunder, shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exhaustive of any rights, remedies, powers and privilege provided by law.
SECTION IX.8. Counterparts. This Agreement may be executed in two or
------------
more counterparts including telecopy transmission thereof (and by different
parties on separate counterparts), each of which shall be an original, but all
of which together shall constitute one and the same instrument.
SECTION IX.9. Binding Effect; Third-Party Beneficiaries. This
-----------------------------------------
Agreement and the other Transaction Documents will inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns. PARCO, the APA Banks and the Funding Agent are each intended by the
parties hereto to be third-party beneficiaries of this Agreement.
SECTION IX.10. Merger and Integration. Except as specifically stated
----------------------
otherwise herein, this Agreement and the other Transaction Documents set forth
the entire understanding of the parties relating to the subject matter hereof,
and all prior understandings, written or oral, are superseded by this Agreement
and the other Transaction Documents.
SECTION IX.11. Headings. The headings herein are for purposes of
--------
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
23
<PAGE>
SECTION IX.12. Exhibits. The schedules and exhibits referred to
--------
herein shall constitute a part of this Agreement and are incorporated into this
Agreement for all purposes.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller each have caused this
Receivables Purchase Agreement to be duly executed by their respective officers
as of the day and year first above written.
CAREMARK INC.,
as Seller
By: /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President and Secretary
MP RECEIVABLES COMPANY,
as Purchaser
By: /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President and Secretary
Acknowledged and agreed as
of the date first above written:
THE CHASE MANHATTAN BANK, as
Funding Agent for the benefit of Park Avenue
Receivables Corporation and the several APA Banks
By: /s/ Andrew Taylor
------------------------
Name: Andrew Taylor
Title: Vice President
25
<PAGE>
EXHIBIT A
---------
FORM OF SUBORDINATED NOTE
$81,290,000
December 4, 1998
FOR VALUE RECEIVED, the undersigned, MP RECEIVABLES COMPANY, a
Delaware corporation (the "Maker"), hereby promises to pay to the order of
-----
CAREMARK INC., a California corporation (the "Payee"), on December 4, 2001 or
-----
earlier as provided for in the Receivables Purchase Agreement dated as of the
date hereof between the Maker and the Payee (as such agreement may from time to
time be amended, supplemented or otherwise modified and in effect, the
"Receivables Purchase Agreement"), the lesser of the principal sum of EIGHTY
- -------------------------------
ONE MILLION TWO HUNDRED NINETY THOUSAND Dollars ($81,290,000.00) or the
aggregate unpaid principal amount of all Advances to the Maker from the Payee
pursuant to the terms of the Receivables Purchase Agreement, in lawful money of
the United States of America in immediately available funds, and to pay interest
from the date thereof on the principal amount hereof from time to time
outstanding, in like funds, at said office, at the rate per annum set forth in
the Receivables Purchase Agreement and shall be payable in arrears on the last
Business Day of each calendar month.
The Maker hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The non-exercise by the holder hereof of any of
its rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Subordinated Note and all payments
and prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by the holder hereof on the schedule attached
hereto and made a part hereof, or on a continuation thereof which shall be
attached hereto and made a part hereof, or otherwise recorded by such holder in
its internal records; provided, however, that the failure of the holder hereof
-------- -------
to make such a notation or any error in such a notation shall not in any manner
affect the obligation of the Maker to make payments of principal and interest in
accordance with the terms of this Subordinated Note and the Receivables Purchase
Agreement.
A-1
<PAGE>
The Maker shall have the right to prepay and, subject to the
limitations set forth in the Receivables Purchase Agreement, reborrow Advances
made to it without penalty or premium.
This Subordinated Note is the Subordinated Note referred to in the
Receivables Purchase Agreement, which, among other things, contains provisions
for the subordination of this Subordinated Note to the rights of certain parties
under the Receivables Transfer Agreement, all upon the terms and conditions
therein specified. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in, or incorporated by
reference into, the Receivables Purchase Agreement.
This Subordinated Note shall be governed by, and construed in
accordance with, the laws of the State of New York.
MP RECEIVABLES COMPANY
By: /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President and Secretary
A-2
<PAGE>
Advances and Payments
<TABLE>
<CAPTION>
Amount of Payments Unpaid Principal Name of Person
Date Advance Principal/Interest Balance of Note Making Notation
- ---- ------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
A-3
<PAGE>
EXHIBIT 10.31
EXECUTION COPY
Amendment No. 3 to the Loan Documents
AMENDMENT dated as of February 9, 1999 to the Amended and Restated Credit
Agreement dated as of June 9, 1998 (as amended and otherwise modified by
Amendment No. 1 to the Loan Documents dated as of December 4, 1998 and Amendment
No. 2 to the Loan Documents dated as of January 13, 1999, the "Credit
Agreement") among MedPartners, Inc., a Delaware corporation (the "Borrower"),
the Lenders party thereto, NationsBank, N.A., as the Initial Issuing Bank and
the Swing Line Bank thereunder, Credit Lyonnais New York Branch, The First
National Bank of Chicago and Morgan Guaranty Trust Company of New York, as the
Syndication Agents therefor, NationsBanc Montgomery Securities LLC, as the
Arranger therefor, and NationsBank, N.A., as the Administrative Agent for the
Lender Parties thereunder. Capitalized terms not otherwise defined in this
Amendment and Waiver have the same meanings as specified therefor in the Credit
Agreement.
PRELIMINARY STATEMENTS
(1) The Borrower has requested that the Lender Parties agree to amend the
Credit Agreement in order to (a) increase the aggregate amount of cash and
noncash charges that are permitted to be excluded from the determination of the
Consolidated EBITDA of the Borrower and its Subsidiaries for all Fiscal Quarters
ending on or after December 31, 1998 as a result of the reclassification of the
physician practice management businesses of the Borrower and its Subsidiaries as
"discontinued operations", (b) increase the aggregate amount of cash
consideration that may be deducted from the determination of the Net Cash
Proceeds received by the Borrower and its Subsidiaries from the sale, lease,
transfer or other disposition of Team Health and Government Services for the
payment of insurance premiums on one or more policies of insurance covering
medical malpractice liabilities of Team Health or Government Services, as the
case may be, arising prior to the date of consummation of the sale, lease,
transfer or other disposition thereof in accordance with Section 5.02(d)(vii) or
5.02(d)(viii) of the Credit Agreement and (c) permit the Borrower and its
Subsidiaries to transfer to Team Health all of its Equity Interests in the
Excluded Subsidiaries the businesses and operations of which are related to Team
Health, and the property and assets of the Borrower and its Subsidiaries which
are substantially related to the business and operations of Team Health, which
are proposed to be sold, transferred or otherwise disposed of as part of the
sale, transfer or other disposition of Team Health pursuant to Section
5.02(d)(vii) or 5.02(d)(viii) of the Credit Agreement.
(2) The Lender Parties have indicated their willingness to agree to amend
the Credit Agreement in order to permit the modifications thereto described
above in Preliminary Statement (1) on the terms and subject to the satisfaction
of the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein and in the Loan Documents, the parties
hereto hereby agree as follows:
SECTION 1. Amendments of Certain Provisions of the Credit Agreement. The
--------------------------------------------------------
Credit Agreement is, upon the occurrence of the Amendment Effective Date (as
hereinafter defined), hereby amended to read as follows:
(a) The definition of "Net Cash Proceeds" set forth in Section 1.01 of the
Credit Agreement is hereby amended to delete the dollar amount "40,000,000"
set forth in the first proviso clause to clause (e) thereof and to
substitute therefor the new dollar amount "57,000,000".
<PAGE>
-2-
(b) Section 5.02(b) of the Credit Agreement is hereby amended to delete the
dollar amount "40,000,000" set forth in the last line of clause (xv) thereof and
to substitute therefor the new dollar amount "57,000,000".
(c) Section 5.02(d) of the Credit Agreement is hereby amended (i) to delete
the word "and" at the end of subclause (iii)(D) thereof and to substitute
therefor the new punctuation "," and (ii) to add the following new subclause
(iii)(E) thereto immediately prior to the proviso clause at the end of clause
(iii) thereof:
"and (E) the Borrower and its Subsidiaries may transfer (through a series
of related intercompany transactions) to Team Health all of its Equity
Interests in one or more of the Excluded Subsidiaries the businesses and
operations of which are related to Team Health, and the property and assets
of the Borrower and its Subsidiaries which are substantially related to the
business and operations of Team Health, which are proposed to be sold,
transferred or otherwise disposed of as part of the sale, transfer or other
disposition of Team Health pursuant to clause (vii) or (viii) of this
Section 5.02(d)".
(d) Section 5.02(e) of the Credit Agreement is hereby amended to delete the
language "and (G)" after the phrase "of the Caremark Receivables Purchase
Agreement)," in clause (iii) thereof and to substitute therefor the following
new language:
", (G) the Borrower or any of its Subsidiaries in one or more other
Subsidiaries solely to effect the intercompany transfer (through a series
of related intercompany transactions) to Team Health of (1) all of its
Equity Interests in one or more of the Excluded Subsidiaries the businesses
and operations of which are related to Team Health and (2) the property and
assets of the Borrower or any such Subsidiaries which are substantially
related to the business and operations of Team Health, all in accordance
with the terms of Section 5.02(d)(iii)(E) and (H)".
(e) Section 5.02(f) of the Credit Agreement is hereby amended (i) to delete
the word "and" at the end of clause (iii) thereof, (ii) to delete the
punctuation "." at the end of clause (iv) thereof and to substitute
therefor the new language "; and" and (iii) to add the following new clause
(v) thereto:
"(v) the Borrower or any of its Subsidiaries may distribute to the Borrower
or one or more of its wholly owned Subsidiaries (through a series of
related intercompany transactions) all of its Equity Interests in one or
more of the Excluded Subsidiaries the businesses and operations of which
are related to Team Health, and the property and assets of the Borrower and
its Subsidiaries which are substantially related to the business and
operations of Team Health, in order to effect the sale of Team Health,
together with such Equity Interests and such other substantially related
property and assets, in accordance with the terms of Section 5.02(d)(vii)
or 5.02(d)(viii)."
(f) Schedule II to the Credit Agreement is hereby amended (i) to add in
each of clauses (x) and (y) of paragraph (1) thereof immediately prior to the
phrase "for all Fiscal Quarters ending on or after December 31, 1998" the new
parenthetical "(other than any such charges resulting from the premiums on the
AIC Insurance Policy)" and (ii) to delete the dollar amount "1,150,000,000" set
forth in the last line of paragraph (1) thereof and to substitute therefor the
new dollar amount "1,350,000,000".
<PAGE>
-3-
(g) Schedule 4.01(b) to the Credit Agreement is hereby amended to
delete Part B thereof in its entirety and to substitute therefor the new
Part B of Schedule 4.01(b) to the Credit Agreement attached hereto as Annex
A.
SECTION 2. Conditions Precedent to the Effectiveness of This
-------------------------------------------------
Amendment. This Amendment shall become effective as of the first date (the
- ---------
"Amendment Effective Date") on which, and only if, each of the following
conditions precedent shall have been satisfied:
(a) The Administrative Agent shall have received (i) counterparts of
this Amendment executed by the Borrower and the Required Lenders or, as to
any of the Lender Parties, advice satisfactory to the Administrative Agent
that such Lender Party has executed this Amendment and (ii) the Consent
attached hereto shall have been executed and delivered by each of the Loan
Parties (other than the Borrower).
(b) The representations and warranties set forth in each of the Loan
Documents shall be correct in all material respects on and as of the
Amendment Effective Date, before and after giving effect to this Amendment,
as though made on and as of such date (except (i) for any such
representation and warranty that, by its terms, refers to a specific date
other than the Amendment Effective Date, in which case as of such specific
date, (ii) that the Consolidated financial statements of the Borrower and
its Subsidiaries referred to in Sections 4.01(f) and 4.01(g) of the Credit
Agreement shall be deemed to refer to the Consolidated financial statements
of the Borrower and its Subsidiaries comprising part of the Required
Financial Information most recently delivered to the Administrative Agent
and the Lender Parties pursuant to Sections 5.03(b) and 5.03(c),
respectively, on or prior to the Amendment Effective Date and (iii) that
the forecasted Consolidated financial statements of the Borrower and its
Subsidiaries referred to in Section 4.01(h) of the Credit Agreement shall
be deemed to refer to the forecasted Consolidated financial statements of
the Borrower and its Subsidiaries most recently delivered to the
Administrative Agent and the Lender Parties prior to the Amendment
Effective Date).
(c) No event shall have occurred and be continuing, or shall result
from the effectiveness of this Amendment, that constitutes a Default.
The effectiveness of this Amendment is further conditioned upon the accuracy of
all of the factual matters described herein. This Amendment is subject to the
provisions of Section 8.01 of the Credit Agreement.
SECTION 3. Reference to and Effect on the Loan Documents. (a) On and
---------------------------------------------
after the Amendment Effective Date, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the Notes and each of the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, except to the extent of the amendments specifically provided above,
are and shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy
<PAGE>
-4-
of any of the Guaranteed Parties or the Administrative Agent under any of the
Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 4. Costs and Expenses. The Borrower hereby agrees to pay, upon
------------------
demand, all of the reasonable costs and expenses of the Administrative Agent and
the Arranger (including, without limitation, the reasonable fees and expenses of
counsel for the Administrative Agent) in connection with the preparation,
execution, delivery, administration, modification and amendment of this
Amendment and all of the agreements, instruments and other documents delivered
or to be delivered in connection herewith, all in accordance with the terms of
Section 8.04 of the Credit Agreement.
SECTION 5. Execution in Counterparts. This Amendment may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 6. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers, thereunto duly authorized, as of the date
first written above.
THE BORROWER
MEDPARTNERS, INC.
By
------------------------------------
Name: Peter J. Clemens, IV
Title: Vice President & Treasurer
THE ADMINISTRATIVE AGENT
NATIONSBANK, N.A.
By
------------------------------------
Name:
Title:
<PAGE>
-5-
THE LENDER PARTIES
NATIONSBANK, N.A., as a Lender,
the Swing Line Bank and the Issuing Bank
By
-------------------------------------
Name:
Title:
AMSOUTH BANK
By
--------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By
---------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
By
--------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By
--------------------------------------
Name:
Title:
<PAGE>
-6-
DEBT STRATEGIES FUND, INC.
By
------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
------------------------------------
Name:
Title:
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured Management,
Inc., as attorney in fact
By
-------------------------------------
Name:
Title:
KZH HIGHLAND-2 LLC
By
------------------------------------
Name:
Title:
<PAGE>
-7-
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By
------------------------------------
Name:
Title:
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO, INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By
--------------------------------------
Name:
Title:
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES
PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor
By
---------------------------------------
Name:
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
----------------------------------------
Name:
Title:
<PAGE>
-8-
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By
--------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
---------------------------------------
Name:
Title:
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
---------------------------------------
Name:
Title:
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By
---------------------------------------
Name:
Title:
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By
--------------------------------------
Name:
Title:
<PAGE>
-9-
CITIBANK, N.A.
By
-------------------------------------
Name:
Title:
SCOTIABANC INC.
By
-------------------------------------
Name:
Title:
STEIN ROE & FARNHAM
INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By
------------------------------------
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By
------------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE INCOME
TRUST
By
------------------------------------
Name:
Title:
<PAGE>
-10-
VAN KAMPEN SENIOR INCOME TRUST
By
-------------------------------------
Name:
Title:
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By
-------------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
By
--------------------------------------
Name:
Title:
<PAGE>
CONSENT TO AMENDMENT NO. 3
TO THE LOAN DOCUMENTS
As of February 9, 1999
Reference is made to Amendment No. 3 to the Loan Documents dated as of
February 9, 1999 (the "Amendment") to the Amended and Restated Credit Agreement
dated as of June 9, 1998 (as amended and otherwise modified by Amendment No. 1
to the Loan Documents dated as of December 4, 1998 and Amendment No. 2 to the
Loan Documents dated as of January 13, 1999, the "Credit Agreement") among
MedPartners, Inc., a Delaware corporation, the Lenders party thereto,
NationsBank, N.A., as the Initial Issuing Bank and Swing Line Bank thereunder,
Credit Lyonnais New York Branch, The First National Bank of Chicago and Morgan
Guaranty Trust Company of New York, as the Syndication Agents therefor,
NationsBanc Montgomery Securities LLC, as Arranger therefor, and NationsBank,
N.A., as the Administrative Agent for the Lender Parties thereunder.
Capitalized terms not otherwise defined herein shall have the same meanings as
specified therefor in the Credit Agreement.
Each of the undersigned, as a guarantor under the Subsidiaries
Guarantee dated as of June 9, 1998 (the "Subsidiaries Guarantee") in favor of
the Guaranteed Parties, hereby consents to the execution and delivery of the
Amendment and the performance of the Credit Agreement, as amended thereby, and
hereby confirms and agrees that, notwithstanding the effectiveness of the
Amendment, the Subsidiaries Guarantee is, and shall continue to be, in full
force and effect and is hereby in all respects ratified and confirmed, except
that each reference in the Subsidiaries Guarantee to "the Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as amended by
the Amendment.
This Consent may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Consent. Delivery of an executed counterpart of a
signature page to this Consent by telecopier shall be effective as delivery of a
manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in accordance with,
the laws of the State of New York.
MEDGP, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-2-
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
GEORGIA MEDPARTNERS
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS-TEXAS, INC.
By /s/ Michael Fitzgerald
----------------------------------
Name: Michael Fitzgerald
Title: President & CEO
MEDPARTNERS INTEGRATED NETWORK-
CHANDLER, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-3-
MEDPARTNERS PROFESSIONAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
ADS HEALTH MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
BAY AREA PRACTICE MANAGEMENT
GROUP, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-4-
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa Kizer
----------------------------------
Name: Leisa Kizer
Title: Treasurer
CAREMARK PHYSICIAN SERVICES OF
TEXAS INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-5-
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
STRATEGIC HEALTHCARE
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL
HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PHYSICIAN
SERVICES INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-6-
CAREMARK RESOURCES CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE
NETWORK INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
NORTH SUBURBAN CLINIC LTD.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET MEDICAL
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET ADMINISTRATIVE
SERVICES, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-7-
INPHYNET MANAGED CARE, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL
MANAGEMENT, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTH SERVICES OF PEMBROKE
LAKES, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HOME HEALTH AGENCY OF GREATER
MIAMI, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-8-
MEDPARTNERS MEDICAL MANAGEMENT,
INC.
(Formerly know as INPHYNET MANAGED
CARE CONTRACTING SERVICES, INC.)
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MANAGED CARE
CONTRACTING SERVICES OF CENTURY
VILLAGE, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MANAGED CARE OF SOUTH
BROWARD, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MEDICAL MANAGEMENT OF
OHIO, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-9-
SACHS, MORRIS & SKLAVER, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
EMSA SOUTH BROWARD, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET HOSPITAL SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
EMSA CONTRACTING SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
EMSA LOUISIANA, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-10-
INPHYNET ANESTHESIA OF WEST
VIRGINIA, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
METROAMERICAN RADIOLOGY, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
NEO-MED, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PARAGON ANESTHESIA, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PARAGON CONTRACTING SERVICES, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-11-
PARAGON IMAGING CONSULTANTS, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
ROSENDORF, MARGULIES, BORUSHOK,
SCHOENBAUM RADIOLOGY ASSOCIATES
OF HOLLYWOOD, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
VIRGINIA EMERGENCY PHYSICIANS, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
IMBS, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET MEDICAL MANAGEMENT
INSTITUTE, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-12
ACUTE CARE SPECIALISTS, CO.
By /s/ James H. Dickerson, Jr.
---------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
OCUCARE, INC.
By /s/ James J. Ryback, M.D.
---------------------------------------
Name: James J. Ryback, M.D.
Title: President, Treasurer & Secretary
LFMG, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
---------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-13-
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS NORTH CAROLINA MEDICAL
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION
AND MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
--------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PPS INDEMNITY, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-14-
PACIFIC PHYSICIAN SERVICES
ARIZONA, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES
NEVADA, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
--------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-15-
TEAM HEALTH, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CLINIC MANAGEMENT SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
DANIEL & YEAGER, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
DRS. SHEER, AHEARN &
ASSOCIATES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
THE EMERGENCY ASSOCIATES FOR
MEDICINE, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-16-
EMERGENCY COVERAGE CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
EMERGENCY PHYSICIAN
ASSOCIATES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
EMERGENCY PROFESSIONAL
SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
HOSPITAL BASED PHYSICIAN
SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MED: ASSURE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-17-
NORTHWEST EMERGENCY PHYSICIANS,
INCORPORATED
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
REICH, SEIDELMANN & JANICKI CO.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
QUANTUM PLUS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CHARLES L. SPRINGFIELD, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-18-
SOUTHEASTERN EMERGENCY
PHYSICIANS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
SOUTHEASTERN EMERGENCY
PHYSICIANS OF MEMPHIS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
EMERGICARE MANAGEMENT
INCORPORATED
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TEAM RADIOLOGY, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS/TALBERT MEDICAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-19-
TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT HEALTH SERVICES
CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
KARL G. MANGOLD, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HERSCHEL FISCHER, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-20-
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
MEDPARTNERS PHYSICIAN MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
MEDOHIO, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
MEDTEN, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
MEDTEX, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
<PAGE>
-21-
MEDPARTNERS PHYSICIAN SERVICES OF
ILLINOIS L.L.C.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of
MedPartners, Inc.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
FAMILY MEDICAL CENTER
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary of
Pacific Medical Group, Inc.
<PAGE>
-22-
FISCHER MANGOLD
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
Karl G. Mangold, Inc.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary of Karl
G. Mangold, Inc.
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
KS-PSI OF TEXAS L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
Caremark Physician Services of
Texas, Inc.
PARAGON HEALTHCARE LIMITED PARTNERSHIP
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
InPhyNet Hospital Services, Inc.
<PAGE>
-23-
TEAM HEALTH SOUTHWEST, L.P.
By /s/ James H. Dickerson, Jr.
--------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
Team Radiology, Inc.
<PAGE>
EXHIBIT 10.32
EXECUTION COPY
--------------
Amendment and Waiver No. 4 to the Loan Documents
AMENDMENT AND WAIVER dated as of March 18, 1999 to the Amended and
Restated Credit Agreement dated as of June 9, 1998 (as amended and otherwise
modified by Amendment and Waiver No. 1 to the Loan Documents dated as of
December 4, 1998, Amendment No. 2 to the Loan Documents dated as of January 13,
1999 and Amendment No. 3 to the Loan Documents dated as of February 9, 1999, the
"Credit Agreement") among MedPartners, Inc., a Delaware corporation (the
"Borrower"), the Lenders party thereto, NationsBank, N.A., as the Initial
Issuing Bank and the Swing Line Bank thereunder, Credit Lyonnais New York
Branch, The First National Bank of Chicago and Morgan Guaranty Trust Company of
New York, as the Syndication Agents therefor, NationsBanc Montgomery Securities
LLC, as the Arranger therefor, and NationsBank, N.A., as the Administrative
Agent for the Lender Parties thereunder. Capitalized terms not otherwise
defined in this Amendment and Waiver have the same meanings as specified
therefor in the Credit Agreement.
Preliminary Statements
(1) The Borrower has requested that the Lender Parties waive the
Defaults and Events of Default under Section 6.01(f) of the Credit Agreement
that have occurred and are continuing as a result of the appointment of a
conservator of MedPartners Provider Network, Inc., a California corporation and
a Subsidiary of the Borrower ("MPN"), by the Department of Corporations of the
State of California and the filing by such conservator of a petition for relief
under the United States Bankruptcy Code on behalf of MPN so long as the Borrower
agrees that it will and will cause its Subsidiaries to restrict their
Investments in, their Indebtedness owing from or on behalf of, and their other
liabilities and Obligations to or in respect of, MPN or any of its Subsidiaries.
(2) The Required Lenders have indicated their willingness to agree to
the waiver of the Defaults and Events of Default under Section 6.01(f) the
Credit Agreement described above in Preliminary Statement (1) on the terms and
subject to the satisfaction of the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein and in the Loan Documents, the parties
hereto hereby agree as follows:
SECTION 1. Amendments of Certain Provisions of the Credit Agreement.
--------------------------------------------------------
The Credit Agreement is, upon the occurrence of the Amendment Effective Date (as
hereinafter defined), hereby amended to read as follows:
(a) Section 1.01 of the Credit Agreement is hereby further amended to
add the following new definitions in their appropriate alphabetical order:
"Amendment No. 4 Effective Date" means the first date on which
all of the conditions precedent to the effectiveness of Amendment and
Waiver No. 4 to the Loan Documents were satisfied.
"MPN Management Agreement" means the Amended and Restated
MedPartners Provider Network, Inc. Management Agreement entered into
as of December 31, 1997 by and between MPN and the Borrower, as in
effect on the Amendment No. 4 Effective Date.
<PAGE>
-2-
(b) Section 5.02(b) of the Credit Agreement is hereby amended (i) to
add after the words "any of the Unrestricted Subsidiaries" in each of
subclause (iv)(D) and the second line of clause (viii) thereof the new
parenthetical "(other than MPN or any of its Subsidiaries)" and (ii) to add
the following new proviso clause at the end of clause (xiii) thereof:
"provided, however, that the aggregate amount of all payments made by
the Borrower and its Subsidiaries (other than MPN and its
Subsidiaries) on or after the Amendment No. 4 Effective Date under or
in respect of all such indemnities, guarantees or similar undertakings
in favor of the purchasers of property and assets sold pursuant to
divestiture transactions to which MPN or any of its Subsidiaries were
also a party shall not exceed $10,000,000;".
(c) Section 5.02(d) of the Credit Agreement is hereby amended to add
after the words "to any of the Unrestricted Subsidiaries" at the end of
subclause (iii)(D) thereof the new parenthetical "(other than MPN or any of
its Subsidiaries)".
(d) Section 5.02(e) of the Credit Agreement is hereby amended (i) to
add after the words "one or more Unrestricted Subsidiaries" in subclause
(iii)(D) thereof the new parenthetical "(other than MPN or any of its
Subsidiaries)" and (ii) to amend and restate subclause (iii)(E) thereof in
its entirety to read as follows:
"(E) the Borrower in MPN in an aggregate amount not to exceed (1) the
statutory reserve requirements for managed care entities generally
under the Knox-Keene Health Care Service Plan Act of 1975 (or similar
Requirements of Law) plus (2) such amounts as are reasonably
anticipated to be necessary to satisfy claims against MPN relating to
patient care in the ordinary course of business, provided that at the
time of any such Investment by the Borrower in MPN, (x) neither MPN
nor any of its Subsidiaries shall be under the authority of a
conservator, receiver, trustee or similar official or be subject to
any bankruptcy, insolvency or other similar proceeding and (y) no
Default shall have occurred and be continuing or shall occur as a
result thereof," and
(iii) to add after the words "any of the other Unrestricted Subsidiaries"
at the end of subclause (iii)(G) thereof the new parenthetical "(other than
MPN or any of its Subsidiaries)".
(e) Section 5.02(g) of the Credit Agreement is hereby amended to add
the following new proviso clause at the end of such Section 5.02(g):
"; and provided further, however, that, notwithstanding the provisions
of the immediately preceding proviso to this Section 5.02(g), neither
the Borrower nor any of its Subsidiaries (other than MPN or its
Subsidiaries) shall make any Capital Expenditures on behalf of MPN or
any of its Subsidiaries or their respective property, assets or
businesses".
(f) Section 5.03 of the Credit Agreement is hereby amended (i) to add
the following new subsection (t):
"(t) MPN Claims and Obligations. As soon as possible and in any
--------------------------
event within three Business Days after a Responsible Officer of the
Borrower or any of its Subsidiaries knows or has reason to know of the
assertion or occurrence thereof, notice of (i) each claim against the
Borrower or any of its Subsidiaries (other than MPN or any of its
Subsidiaries)
<PAGE>
-3-
that arises out of any liabilities or Obligations of MPN or any of its
Subsidiaries or the ownership or control of MPN or any of its
Subsidiaries (whether direct or indirect) by the Borrower or any of
its other Subsidiaries and (ii) the payment (whether in cash, property
or securities) by the Borrower or any of its Subsidiaries (other than
MPN or its Subsidiaries) of any liabilities or Obligations to MPN or
any of its Subsidiaries or to any Person, on behalf of (or in
financial or credit support of) MPN or any of its Subsidiaries, or the
creation, incurrence, assumption or suffering to exist of any
Obligation of the Borrower or any such Subsidiary to make any such
payment to or on behalf of MPN or any of its Subsidiaries, in each
case other than claims against the Borrower and payments made by the
Borrower pursuant to its obligations under the MPN Management
Agreement so long as the MPN Management Agreement is in full force and
effect and has not been rejected under Section 365 of the United
States Federal Bankruptcy Code.",
and (ii) to reletter the existing subsection (t) of Section 5.03 of the
Credit Agreement as subsection (u) thereof.
(g) Section 6.01 of the Credit Agreement is hereby amended (i) to add
the word "or" at the end of subsection (p) thereof and (ii) to add the
following new subsection (q) thereto:
"(q) (i) any claim shall be asserted against the Borrower or any
of its Subsidiaries (other than MPN or any of its Subsidiaries) that
arises out of any of the liabilities or Obligations of MPN or any of
its Subsidiaries or the ownership or control of MPN or any of its
Subsidiaries (whether direct or indirect) by the Borrower or any of
its other Subsidiaries and the Required Lenders shall determine, in
their reasonable judgment, that the Borrower or any such Subsidiary is
likely to be required to pay or otherwise satisfy such claim or (ii)
the Borrower or any of its Subsidiaries (other than MPN or its
Subsidiaries) shall make any payments (whether in cash, property or
securities), or create, incur, assume or suffer to exist any
liabilities or Obligations, to MPN or any of its Subsidiaries or to
any Person, on behalf of (or in financial or credit support of) MPN or
any of its Subsidiaries, that in the aggregate for all such claims,
payments, liabilities and Obligations of the types described above in
clauses (i) and (ii) shall exceed $10,000,000 at any time; provided,
however, that any such claim against the Borrower or payment made by
the Borrower pursuant to its obligations under the MPN Management
Agreement shall not give rise to (or be included in the determination
of) an Event of Default under this Section 6.01(q) if and for so long
as the MPN Management Agreement is in full force and effect and has
not been rejected under Section 365 of the United States Federal
Bankruptcy Code; and provided further, however, that at any time
during which neither MPN nor any of its Subsidiaries is under the
authority of a conservator, receiver, trustee or similar official or
is subject to any bankruptcy, insolvency or other similar proceeding
and no Default shall have occurred and be continuing or shall occur as
a result thereof, the Borrower and its Subsidiaries may make such
Investments in MPN as are necessary for MPN and its Subsidiaries (A)
to comply with the statutory reserve requirements for managed care
entities generally under the Knox-Keene Health Care Service Plan Act
of 1975 (or similar Requirements of Law) and (B) to satisfy claims
against MPN relating to patient care in the ordinary course of
business, all as otherwise expressly permitted under Section
5.02(e)(iii)(E);".
SECTION 2. Waiver of Certain Provisions of the Credit Agreement. Any
----------------------------------------------------
and all Defaults and Events of Default under Section 6.01(f) of the Credit
Agreement that have occurred and are continuing
<PAGE>
-4-
as a result of the appointment of a conservator of MPN by the Department of
Corporations of the State of California and the filing by such conservator of a
petition for relief under the United States Bankruptcy Code on behalf of MPN
are, on and as of the Amendment Effective Date, hereby waived by the Lender
Parties.
SECTION 3. Conditions Precedent to the Effectiveness of this
-------------------------------------------------
Amendment and Waiver. This Amendment and Waiver shall become effective as of
- --------------------
the first date (the "Amendment Effective Date") on which, and only if, each of
the following conditions precedent shall have been satisfied:
(a) The Administrative Agent shall have received (i) counterparts of
this Amendment and Waiver executed by the Borrower and the Required Lenders
or, as to any of the Lender Parties, advice satisfactory to the
Administrative Agent that such Lender Party has executed this Amendment and
Waiver and (ii) the Consent attached hereto shall have been executed and
delivered by each of the Loan Parties other than the Borrower.
(b) The Lender Parties shall have received a true and complete copy of
the Amended and Restated MedPartners Provider Network, Inc. Management
Agreement entered into as of December 31, 1997 by and between MPN and the
Borrower.
(c) The representations and warranties set forth in each of the Loan
Documents shall be correct in all material respects on and as of the
Amendment Effective Date, before and after giving effect to this Amendment
and Waiver, as though made on and as of such date (except (i) for any such
representation and warranty that, by its terms, refers to a specific date
other than the Amendment Effective Date, in which case as of such specific
date, (ii) that the Consolidated financial statements of the Borrower and
its Subsidiaries referred to in Sections 4.01(f) and 4.01(g) of the Credit
Agreement shall be deemed to refer to the Consolidated financial statements
of the Borrower and its Subsidiaries comprising part of the Required
Financial Information most recently delivered to the Administrative Agent
and the Lender Parties pursuant to Sections 5.03(b) and 5.03(c),
respectively, on or prior to the Amendment Effective Date and (iii) that
the forecasted Consolidated financial statements of the Borrower and its
Subsidiaries referred to in Section 4.01(h) of the Credit Agreement shall
be deemed to refer to the forecasted Consolidated financial statements of
the Borrower and its Subsidiaries most recently delivered to the
Administrative Agent and the Lender Parties prior to the Amendment
Effective Date).
(d) No event shall have occurred and be continuing, or shall result
from the effectiveness of this Amendment and Waiver, that constitutes a
Default other than the Defaults and Events of Default to be expressly
waived under Section 2.
The effectiveness of this Amendment and Waiver is further conditioned upon the
accuracy of all of the factual matters described herein. This Amendment and
Waiver is subject to the provisions of Section 8.01 of the Credit Agreement.
SECTION 3. Reference to and Effect on the Loan Documents. (a) On
---------------------------------------------
and after the Amendment Effective Date, each reference in the Credit Agreement
to "this Agreement", "hereunder", "hereof" or words of like import referring to
the Credit Agreement, and each reference in the Notes and each of the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended and otherwise modified by this Amendment and
Waiver.
<PAGE>
-5-
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, except to the extent of the amendments and waivers specifically
provided above, are and shall continue to be in full force and effect and are
hereby in all respects ratified and confirmed. The execution, delivery and
effectiveness of this Amendment and Waiver shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy of any of the
Guaranteed Parties or the Administrative Agent under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
SECTION 4. Costs and Expenses. The Borrower hereby agrees to pay,
------------------
upon demand, all of the reasonable costs and expenses of the Administrative
Agent and the Arranger (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Amendment and Waiver and all of the agreements, instruments and other
documents delivered or to be delivered in connection herewith, all in accordance
with the terms of Section 8.04 of the Credit Agreement.
SECTION 5. Execution in Counterparts. This Amendment and Waiver may
-------------------------
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment and Waiver by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment and Waiver.
SECTION 6. Governing Law. This Amendment and Waiver shall be
-------------
governed by, and construed in accordance with, the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed by their respective officers, thereunto duly authorized,
as of the date first written above.
THE BORROWER
MEDPARTNERS, INC.
By_________________________________
Name:
Title:
THE ADMINISTRATIVE AGENT
NATIONSBANK, N.A.
By_________________________________
Name:
Title:
<PAGE>
-6-
THE LENDER PARTIES
NATIONSBANK, N.A., as a Lender,
the Swing Line Bank and the Issuing Bank
By_________________________________
Name:
Title:
AMSOUTH BANK
By_________________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By_________________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By_________________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By_________________________________
Name:
Title:
<PAGE>
-7-
DEBT STRATEGIES FUND, INC.
By_________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By_________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By_________________________________
Name:
Title:
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured Management,
Inc., as attorney in fact
By_________________________________
Name:
Title:
KZH HIGHLAND-2 LLC
By_________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By_________________________________
Name:
Title:
<PAGE>
-8-
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO, INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By_________________________________
Name:
Title:
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
BY: MERRILL LYNCH ASSET MANAGEMENT, L.P.,
as Investment Advisor
By_________________________________
Name:
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By_________________________________
Name:
Title:
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By_________________________________
Name:
Title:
<PAGE>
-9-
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By_________________________________
Name:
Title:
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By_________________________________
Name:
Title:
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By_________________________________
Name:
Title:
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By_________________________________
Name:
Title:
CITIBANK, N.A.
By_________________________________
Name:
Title:
<PAGE>
-10-
SCOTIABANC INC.
By_________________________________
Name:
Title:
STEIN ROE & FARNHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By_________________________________
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By_________________________________
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By_________________________________
Name:
Title:
VAN KAMPEN SENIOR INCOME TRUST
By_________________________________
Name:
Title:
<PAGE>
-11-
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By_________________________________
Name:
Title:
WACHOVIA BANK, N.A.
By_________________________________
Name:
Title:
<PAGE>
Consent to Amendment and Waiver No. 4
to the Loan Documents
As of March 18, 1999
Reference is made to Amendment and Waiver No. 4 to the Loan Documents
dated as of March 18, 1999 (the "Amendment and Waiver") to the Amended and
Restated Credit Agreement dated as of June 9, 1998 (as amended and otherwise
modified by Amendment and Waiver No. 1 to the Loan Documents dated as of
December 4, 1998, Amendment No. 2 to the Loan Documents dated as of January 13,
1999 and Amendment No. 3 to the Loan Documents dated as of February 9, 1999, the
"Credit Agreement") among MedPartners, Inc., a Delaware corporation, the Lenders
party thereto, NationsBank, N.A., as the Initial Issuing Bank and Swing Line
Bank thereunder, Credit Lyonnais New York Branch, The First National Bank of
Chicago and Morgan Guaranty Trust Company of New York, as the Syndication Agents
therefor, NationsBanc Montgomery Securities LLC, as Arranger therefor, and
NationsBank, N.A., as the Administrative Agent for the Lender Parties
thereunder. Capitalized terms not otherwise defined herein shall have the same
meanings as specified therefor in the Credit Agreement.
Each of the undersigned, as a guarantor under the Subsidiaries
Guarantee dated as of June 9, 1998 (as modified to the date hereof, the
"Subsidiaries Guarantee") in favor of the Guaranteed Parties, hereby consents to
the execution and delivery of the Amendment and Waiver and the performance of
the Credit Agreement, as amended and otherwise modified thereby, and hereby
confirms and agrees that, notwithstanding the effectiveness of the Amendment and
Waiver, the Subsidiaries Guarantee is, and shall continue to be, in full force
and effect and is hereby in all respects ratified and confirmed, except that
each reference in the Subsidiaries Guarantee to "the Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as amended and
otherwise modified by the Amendment and Waiver.
This Consent may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Consent. Delivery of an executed counterpart of a
signature page to this Consent by telecopier shall be effective as delivery of a
manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in accordance with,
the laws of the State of New York.
MEDGP, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-2-
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
GEORGIA MEDPARTNERS MANAGEMENT,
INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS-TEXAS, INC.
By /s/ Michael Fitzgerald
---------------------------------
Name: Michael Fitzgerald
Title: President & CEO
<PAGE>
-3-
MEDPARTNERS INTEGRATED NETWORK-CHANDLER,
INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PROFESSIONAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
ADS HEALTH MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-4-
BAY AREA PRACTICE MANAGEMENT
GROUP, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa Kizer
---------------------------------
Name: Leisa Kizer
Title: Treasurer
CAREMARK PHYSICIAN SERVICES OF TEXAS INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-5-
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
STRATEGIC HEALTHCARE MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PHYSICIAN SERVICES INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-6-
CAREMARK RESOURCES CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE
NETWORK INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
NORTH SUBURBAN CLINIC LTD.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET MEDICAL MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET ADMINISTRATIVE SERVICES, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-7-
INPHYNET MANAGED CARE, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL MANAGEMENT, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTH SERVICES OF PEMBROKE LAKES, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HOME HEALTH AGENCY OF GREATER MIAMI, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-8-
MEDPARTNERS MEDICAL MANAGEMENT, INC.
(Formerly know as INPHYNET MANAGED CARE
CONTRACTING SERVICES, INC.)
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MANAGED CARE CONTRACTING SERVICES
OF CENTURY VILLAGE, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MANAGED CARE OF SOUTH BROWARD, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MEDICAL MANAGEMENT OF OHIO, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-9-
SACHS, MORRIS & SKLAVER, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
LFMG, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-10-
PPS NORTH CAROLINA MEDICAL
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION
AND MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PPS INDEMNITY, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES
ARIZONA, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-11-
PACIFIC PHYSICIAN SERVICES
NEVADA, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS/TALBERT MEDICAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-12-
TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT HEALTH SERVICES
CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
MEDPARTNERS PHYSICIAN MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
MEDOHIO, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
<PAGE>
-13-
MEDTEN, L.P.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
MEDTEX, L.P.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
MEDPARTNERS PHYSICIAN SERVICES OF ILLINOIS
L.L.C.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of MedPartners,
Inc.
By /s/ Sara J. Finley
--------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
<PAGE>
-14-
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
-------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of MedPartners,
Inc.
By /s/ Sara J. Finley
-------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
FAMILY MEDICAL CENTER
By /s/ Sara J. Finley
-------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary of
Pacific Medical Group, Inc.
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
----------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of MedPartners,
Inc.
By /s/ Sara J. Finley
-------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
KS-PSI OF TEXAS L.P.
By /s/ James H. Dickerson, Jr.
----------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
Caremark Physician Services
of Texas, Inc.
<PAGE>
EXHIBIT 10.33
EXECUTION COPY
--------------
Amendment and Waiver No. 5 to the Loan Documents
AMENDMENT AND WAIVER dated as of April 1, 1999 to the Amended and
Restated Credit Agreement dated as of June 9, 1998 (as amended and otherwise
modified by Amendment and Waiver No. 1 to the Loan Documents dated as of
December 4, 1998, Amendment No. 2 to the Loan Documents dated as of January 13,
1999, Amendment No. 3 to the Loan Documents dated as of February 9, 1999 and
Amendment and Waiver No. 4 to the Loan Documents dated as of March 18, 1999, the
"Credit Agreement") among MedPartners, Inc., a Delaware corporation (the
"Borrower"), the Lenders party thereto, NationsBank, N.A., as the Initial
Issuing Bank and the Swing Line Bank thereunder, Credit Lyonnais New York
Branch, The First National Bank of Chicago and Morgan Guaranty Trust Company of
New York, as the Syndication Agents therefor, NationsBanc Montgomery Securities
LLC, as the Arranger therefor, and NationsBank, N.A., as the Administrative
Agent for the Lender Parties thereunder. Capitalized terms not otherwise
defined in this Amendment and Waiver have the same meanings as specified
therefor in the Credit Agreement.
Preliminary Statements
(1) The Borrower has requested that the Required Lenders confirm their
agreement made on a conference call held on the date of this Amendment and
Waiver with the Borrower, the Agents and the Lender Parties (a) to amend Section
5.03(c) of the Credit Agreement to permit the Consolidated financial statements
of the Borrower and its Subsidiaries for the Fiscal Year ended December 31, 1998
required to be delivered thereunder, and the reports, statements and other
documentation of the independent public accountants of the Borrower required to
be delivered together with such Consolidated financial statements, to be
delivered to the Administrative Agent and the Lender Parties no later than April
15, 1999 and (b) to waive, solely for and during the period ending on April 15,
1999, the Events of Default under Section 6.01(c) of the Credit Agreement that
have occurred and are continuing as a result of any Contingent Obligations of
the Borrower incurred thereby prior to the Amendment No. 2 Effective Date which
guarantee outstanding leasehold obligations of various Excluded Subsidiaries.
(2) The Required Lenders hereby confirm their agreement to the
amendment and the waiver described above in Preliminary Statement (1) on the
terms and subject to the satisfaction of the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein and in the Loan Documents, the parties
hereto have agreed as follows:
SECTION 1. Amendment of Certain Provisions of the Credit Agreement.
-------------------------------------------------------
Section 5.03(c) of the Credit Agreement is, so long as the conditions set forth
in Section 3 hereof have been satisfied, amended to delete the phrase "within 95
days after the end of each Fiscal Year" in the first and second lines thereof
and to substitute therefor the following new language:
"no later than April 15, 1999 in the case of the Fiscal Year ended December
31, 1998 and within 95 days after the end of each Fiscal Year in the case
of each Fiscal Year thereafter".
SECTION 2. Conditional Waiver of Certain Provisions of the Credit
------------------------------------------------------
Agreement. Any and all Events of Default under Section 6.01(c) of the Credit
- ---------
Agreement that have occurred and are continuing as a result of any Contingent
Obligations of the Borrower incurred thereby prior to the Amendment No. 2
<PAGE>
-2-
Effective Date which guarantee outstanding leasehold obligations of various
Excluded Subsidiaries are, so long as the conditions set forth in Section 3
hereof have been satisfied and solely for and during the period ending on April
15, 1999 (the "Waiver Termination Date"), waived by the Lender Parties. On the
Waiver Termination Date, without any further action by or notice to or from any
Agent or any Lender Party, all of the terms and provisions set forth in the Loan
Documents with respect to the Events of Default under Section 6.01(c) of the
Credit Agreement that are waived under this Section 2 and not modified or
further waived prior to such time shall be and become in full force and effect,
and the Agents and the other Guaranteed Parties shall have all of the rights and
remedies afforded to them under the Loan Documents with respect to any and all
such Events of Default as though no waiver had been granted under this
Section 2.
SECTION 3. Conditions Precedent to the Effectiveness of this
-------------------------------------------------
Amendment and Waiver. This Amendment and Waiver shall have become effective as
- --------------------
of the date hereof so long as each of the following conditions precedent shall
have been satisfied:
(a) The representations and warranties set forth in each of the Loan
Documents shall be correct in all material respects on and as of the date
hereof, after giving effect to this Amendment and Waiver, as though made on
and as of such date (except (i) for any such representation and warranty
that, by its terms, refers to a specific date other than the date hereof,
in which case as of such specific date, (ii) that the Consolidated
financial statements of the Borrower and its Subsidiaries referred to in
Sections 4.01(f) and 4.01(g) of the Credit Agreement shall be deemed to
refer to the Consolidated financial statements of the Borrower and its
Subsidiaries comprising part of the Required Financial Information most
recently delivered to the Administrative Agent and the Lender Parties
pursuant to Sections 5.03(b) and 5.03(c), respectively, on or prior to the
date hereof and (iii) that the forecasted Consolidated financial statements
of the Borrower and its Subsidiaries referred to in Section 4.01(h) of the
Credit Agreement shall be deemed to refer to the forecasted Consolidated
financial statements of the Borrower and its Subsidiaries most recently
delivered to the Administrative Agent and the Lender Parties prior to the
date hereof).
(b) No event shall have occurred and be continuing, or shall result
from the effectiveness of this Amendment and Waiver, that constitutes a
Default other than the Events of Default expressly waived under Section 2
hereof.
The effectiveness of this Amendment and Waiver is further conditioned upon the
accuracy of all of the factual matters described herein and in the presentation
of the Borrower to the Agents and the Lender Parties on the conference call held
therewith on the date hereof regarding the terms of this Amendment and Waiver.
This Amendment and Waiver is subject to the provisions of Section 8.01 of the
Credit Agreement.
SECTION 4. Reference to and Effect on the Loan Documents. (a) On
---------------------------------------------
and after the date hereof, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the Notes and each of the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended and otherwise modified by this Amendment and
Waiver.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, except to the extent of the amendments and other modifications
specifically provided above, are and shall continue to
<PAGE>
-3-
be in full force and effect and are hereby in all respects ratified and
confirmed. The execution, delivery and effectiveness of this Amendment and
Waiver shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of any of the Guaranteed Parties or the
Administrative Agent under any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents.
SECTION 5. Costs and Expenses. The Borrower hereby agrees to pay,
------------------
upon demand, all of the reasonable costs and expenses of the Administrative
Agent and the Arranger (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Amendment and Waiver and all of the agreements, instruments and other
documents delivered or to be delivered in connection herewith, all in accordance
with the terms of Section 8.04 of the Credit Agreement.
SECTION 6. Execution in Counterparts. This Amendment and Waiver may
-------------------------
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment and Waiver by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment and Waiver.
SECTION 7. Governing Law. This Amendment and Waiver shall be
-------------
governed by, and construed in accordance with, the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed by their respective officers, thereunto duly authorized,
as of the date first written above.
THE BORROWER
MEDPARTNERS, INC.
By______________________________
Name:
Title:
THE ADMINISTRATIVE AGENT
NATIONSBANK, N.A.
By______________________________
Name:
Title:
<PAGE>
-4-
THE LENDER PARTIES
NATIONSBANK, N.A., as a Lender,
the Swing Line Bank and the Issuing Bank
By______________________________
Name:
Title:
AMSOUTH BANK
By______________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By______________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By______________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By______________________________
Name:
Title:
<PAGE>
-5-
DEBT STRATEGIES FUND, INC.
By______________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By______________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By______________________________
Name:
Title:
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured Management,
Inc., as attorney in fact
By______________________________
Name:
Title:
KZH HIGHLAND-2 LLC
By______________________________
Name:
Title:
<PAGE>
-6-
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By______________________________
Name:
Title:
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO, INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By______________________________
Name:
Title:
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
BY: MERRILL LYNCH ASSET MANAGEMENT, L.P.,
as Investment Advisor
By______________________________
Name:
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By______________________________
Name:
Title:
<PAGE>
-7-
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By______________________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By______________________________
Name:
Title:
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By______________________________
Name:
Title:
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By______________________________
Name:
Title:
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By______________________________
Name:
Title:
<PAGE>
-8-
CITIBANK, N.A.
By______________________________
Name:
Title:
SCOTIABANC INC.
By______________________________
Name:
Title:
STEIN ROE & FARNHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By______________________________
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By______________________________
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By______________________________
Name:
Title:
<PAGE>
-9-
VAN KAMPEN SENIOR INCOME TRUST
By
-------------------------------
Name:
Title:
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By
-------------------------------
Name:
Title:
WACHOVIA BANK, N.A.
By
-------------------------------
Name:
Title:
<PAGE>
-10-
SRV-HIGHLAND, INC.
By______________________________
Name:
Title:
<PAGE>
Consent to Amendment and waiver No. 5
to the Loan Documents
As of April 1, 1999
Reference is made to Amendment and Waiver No. 5 to the Loan Documents
dated as of April 1, 1999 (the "Amendment and Waiver") to the Amended and
Restated Credit Agreement dated as of June 9, 1998 (as amended and otherwise
modified by Amendment No. 1 to the Loan Documents dated as of December 4, 1998,
Amendment No. 2 to the Loan Documents dated as of January 13, 1999, Amendment
No. 3 to the Loan Documents dated as of February 9, 1999 and Amendment and
Waiver No. 4 to the Loan Documents dated as of March 18, 1999, the "Credit
Agreement") among MedPartners, Inc., a Delaware corporation, the Lenders party
thereto, NationsBank, N.A., as the Initial Issuing Bank and Swing Line Bank
thereunder, Credit Lyonnais New York Branch, The First National Bank of Chicago
and Morgan Guaranty Trust Company of New York, as the Syndication Agents
therefor, NationsBanc Montgomery Securities LLC, as Arranger therefor, and
NationsBank, N.A., as the Administrative Agent for the Lender Parties
thereunder. Capitalized terms not otherwise defined herein shall have the same
meanings as specified therefor in the Credit Agreement.
Each of the undersigned, as a guarantor under the Subsidiaries
Guarantee dated as of June 9, 1998 (as modified to the date hereof, the
"Subsidiaries Guarantee") in favor of the Guaranteed Parties, hereby consents to
the execution and delivery of the Amendment and Waiver and the performance of
the Credit Agreement, as amended and otherwise modified thereby, and hereby
confirms and agrees that, notwithstanding the effectiveness of the Amendment and
Waiver, the Subsidiaries Guarantee is, and shall continue to be, in full force
and effect and is hereby in all respects ratified and confirmed, except that
each reference in the Subsidiaries Guarantee to "the Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement, as amended and
otherwise modified by the Amendment and Waiver.
This Consent may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Consent. Delivery of an executed counterpart of a
signature page to this Consent by telecopier shall be effective as delivery of a
manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in accordance with,
the laws of the State of New York.
MEDGP, INC.
By /s/ James H. Dickerson, Jr.
------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-2-
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
GEORGIA MEDPARTNERS MANAGEMENT,
INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS-TEXAS, INC.
By /s/ Michael Fitzgerald
---------------------------------
Name: Michael Fitzgerald
Title: President & CEO
<PAGE>
-3-
MEDPARTNERS INTEGRATED NETWORK-CHANDLER,
INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PROFESSIONAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
ADS HEALTH MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-4-
BAY AREA PRACTICE MANAGEMENT
GROUP, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa Kizer
---------------------------------
Name: Leisa Kizer
Title: Treasurer
CAREMARK PHYSICIAN SERVICES OF TEXAS INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-5-
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
STRATEGIC HEALTHCARE MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PHYSICIAN SERVICES INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-6-
CAREMARK RESOURCES CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE
NETWORK INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
NORTH SUBURBAN CLINIC LTD.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET MEDICAL MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
INPHYNET ADMINISTRATIVE SERVICES, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-7-
INPHYNET MANAGED CARE, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL MANAGEMENT, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTH SERVICES OF PEMBROKE LAKES, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HOME HEALTH AGENCY OF GREATER MIAMI, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-8-
MEDPARTNERS MEDICAL MANAGEMENT, INC.
(Formerly know as INPHYNET MANAGED CARE
CONTRACTING SERVICES, INC.)
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MANAGED CARE CONTRACTING SERVICES
OF CENTURY VILLAGE, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MANAGED CARE OF SOUTH BROWARD, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
INPHYNET MEDICAL MANAGEMENT OF OHIO, INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-9-
SACHS, MORRIS & SKLAVER, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
LFMG, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-10-
PPS NORTH CAROLINA MEDICAL
MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION
AND MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PPS INDEMNITY, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES
ARIZONA, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-11-
PACIFIC PHYSICIAN SERVICES
NEVADA, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS/TALBERT MEDICAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-12-
TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT HEALTH SERVICES
CORPORATION
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
MEDPARTNERS PHYSICIAN MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
MEDOHIO, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
<PAGE>
-13-
MEDTEN, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
MEDTEX, L.P.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition Corporation
MEDPARTNERS PHYSICIAN SERVICES OF ILLINOIS
L.L.C.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of MedPartners,
Inc.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
<PAGE>
-14-
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of MedPartners,
Inc.
By /s/ Sara J. Finley
--------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
FAMILY MEDICAL CENTER
By /s/ Sara J. Finley
--------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary of
Pacific Medical Group, Inc.
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President & Chief
Financial Officer of MedPartners,
Inc.
By /s/ Sara J. Finley
--------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
KS-PSI OF TEXAS L.P.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
Caremark Physician Services
of Texas, Inc.
<PAGE>
EXHIBIT 21
List of MedPartners Subsidiaries
<TABLE>
<CAPTION>
Company Name Incorporation
State/Country
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Acute Care Medical Management, Inc. Ohio
- ---------------------------------------------------------------------------------------------------------
ADS Health Management, Inc. California
- ---------------------------------------------------------------------------------------------------------
Bay Area Practice Management Group, Inc. California
- ---------------------------------------------------------------------------------------------------------
BGS Healthcare, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
Caremark Holdings N.V. The Netherlands
- ---------------------------------------------------------------------------------------------------------
Caremark International Holdings Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Caremark International Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Caremark Limited (New Zealand) New Zealand
- ---------------------------------------------------------------------------------------------------------
Caremark Physician Services of Texas Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Caremark Pty. Ltd. Australia
- ---------------------------------------------------------------------------------------------------------
Caremark Resources Corporation Delaware
- ---------------------------------------------------------------------------------------------------------
Caremark Inc. California
- ---------------------------------------------------------------------------------------------------------
CHS Management, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Friendly Hills Healthcare Network Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Georgia MedPartners Management, Inc. Georgia
- ---------------------------------------------------------------------------------------------------------
Health Services of Pembroke Lakes, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
HealthWays, Inc. Illinois
- ---------------------------------------------------------------------------------------------------------
Home Health Agency of Greater Miami, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
MedPartners Administrative Services, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
MedPartners Managed Care Contracting Services of Century Village, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
MedPartners Managed Care of South Broward, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
MedPartners Managed Care, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
MedPartners Medical Management of Ohio, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
MedPartners Medical Management, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
LFMG, Inc. California
- ---------------------------------------------------------------------------------------------------------
MedGP, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
MedPartners Acquisition Corporation Delaware
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Company Name Incorporation
State/Country
- ---------------------------------------------------------------------------------------------------------
<S> <C>
MedPartners Aviation, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
MedPartners East, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
MedPartners Integrated Network-Chandler, Inc. Arizona
- ---------------------------------------------------------------------------------------------------------
MedPartners Medical Management, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
MedPartners Physician Services Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
MedPartners Professional Management Corporation Connecticut
- ---------------------------------------------------------------------------------------------------------
MedPartners Provider Network, Inc. California
- ---------------------------------------------------------------------------------------------------------
MedPartners-Texas, Inc. Texas
- ---------------------------------------------------------------------------------------------------------
MedPartners/Talbert Medical Management Corporation Delaware
- ---------------------------------------------------------------------------------------------------------
MP Indemnity, Ltd. Bermuda
- ---------------------------------------------------------------------------------------------------------
MP Receivables Company Delaware
- ---------------------------------------------------------------------------------------------------------
North Suburban Clinic Ltd. Illinois
- ---------------------------------------------------------------------------------------------------------
Pacific Indemnity, Ltd. British Virgin Islands
- ---------------------------------------------------------------------------------------------------------
Pacific Medical Group, Inc. Oregon
- ---------------------------------------------------------------------------------------------------------
Pacific Physician Services Arizona, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Pacific Physician Services Nevada, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Pacific Physician Services, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
Physicians' Hospital Management Corporation Delaware
- ---------------------------------------------------------------------------------------------------------
PPS East, Inc. Delaware
- ---------------------------------------------------------------------------------------------------------
PPS Indemnity, Inc. Hawaii
- ---------------------------------------------------------------------------------------------------------
PPS North Carolina Medical Management, Inc. North Carolina
- ---------------------------------------------------------------------------------------------------------
PPS Riverside Division Acquisition and Management Corp. I Delaware
- ---------------------------------------------------------------------------------------------------------
PPS Valley Management, Inc. California
- ---------------------------------------------------------------------------------------------------------
Prescription Health Services Inc. California
- ---------------------------------------------------------------------------------------------------------
Reliant Healthcare Systems, Inc. California
- ---------------------------------------------------------------------------------------------------------
Sachs, Morris & Sklaver, Inc. Florida
- ---------------------------------------------------------------------------------------------------------
Strategic Healthcare Management, Inc. California
- ---------------------------------------------------------------------------------------------------------
Talbert Health Services Corporation Delaware
- ---------------------------------------------------------------------------------------------------------
Talbert Medical Management Corporation Delaware
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
List of MedPartners Non-Corporate Subsidiaries
<TABLE>
<CAPTION>
Company Name Incorporation
State/Country
- ---------------------------------------------------------------------------------------------------------
<S> <C>
5000 Airport Plaza, L.P. California
- ---------------------------------------------------------------------------------------------------------
Cerritos Investment Group California
- ---------------------------------------------------------------------------------------------------------
Cerritos Investment Group II, A California Limited Partnership California
- ---------------------------------------------------------------------------------------------------------
Family Medical Center Oregon
- ---------------------------------------------------------------------------------------------------------
KS-PSI of Texas, L.P. Delaware
- ---------------------------------------------------------------------------------------------------------
MedOhio, L.P. Delaware
- ---------------------------------------------------------------------------------------------------------
MedPartners Administration, L.P. Delaware
- ---------------------------------------------------------------------------------------------------------
MedPartners Physician Management, L.P. Delaware
- ---------------------------------------------------------------------------------------------------------
MedPartners Physicians Services of Illinois, L.L.C. Illinois
- ---------------------------------------------------------------------------------------------------------
MedTen, L.P. Delaware
- ---------------------------------------------------------------------------------------------------------
MedTex, L.P. Delaware
- ---------------------------------------------------------------------------------------------------------
MPI/Memorial IPA, LLC California
- ---------------------------------------------------------------------------------------------------------
PPS Medical Management and Consulting, L.L.C. Delaware
- ---------------------------------------------------------------------------------------------------------
Sierra Meadows Associates, Ltd. Nevada
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of MedPartners, Inc. and in the related Prospectuses of our report
dated March 12, 1999, except for Notes 7 and 15 as to which the date is
April 15, 1999, and our report included in the following paragraph, with
respect to the consolidated financial statements and schedule, respectively,
of MedPartners, Inc. included in this Annual Report (Form 10-K) for the year
ended December 31, 1998:
Form S-8 033-86806 pertaining to the 1993 Stock Option Plan;
Form S-8 333-11875 pertaining to MedPartners' Incentive Compensation
Plan;
Form S-8 333-11127 pertaining to the 1995 Stock Option Plan;
Form S-8 333-05703 pertaining to MedPartners' Employee Savings Plan;
Form S-8 333-14159 pertaining to Caremarks' Employee Savings Plan;
Form S-8 333-14163 pertaining to Caremarks' Non-Employee/Director Stock
Option Plan and Caremarks' Stock Purchase Plan;
Form S-8 333-38835 pertaining to MedPartners' 1997 Long Term Incentive
Compensation Plan;
Form S-8 333-16863 pertaining to MedPartners' Employee Stock Purchase
Plan;
Form S-3 333-17339 pertaining to the resale of common stock by certain
selling shareholders;
Form S-8 333-30145 pertaining to MedPartners' 1994 Non-Employee
Director Stock Option Plan and 1994 Stock Incentive Plan;
Form S-8 333-42967 pertaining to the Amended and Restated 1995 Stock
Option Plan;
Form S-8 333-50849 pertaining to MedPartners' 1997 Long Term Incentive
Compensation Plan;
Form S-3 333-53761 pertaining to resale of common stock by certain
selling shareholders;
Form S-8 333-64371 pertaining to MedPartners' 1998 Employee Stock
Option Plan;
Form S-8 333-68709 pertaining to the Non-Qualified Stock Option
Agreement Dated August 6, 1998 Between MedPartners and Edwin M.
Crawford; and
Form S-8 333-68707 pertaining to MedPartners' 1998 New Employee Stock
Option Plan.
Our audits also included the financial statement schedule of MedPartners, Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
Birmingham, Alabama
April 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 109,098 23,100
<SECURITIES> 0 0
<RECEIVABLES> 304,624 185,719
<ALLOWANCES> 0 0
<INVENTORY> 138,235 171,739
<CURRENT-ASSETS> 1,321,107 1,185,566
<PP&E> 114,152 115,835
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 2,891,896 1,862,106
<CURRENT-LIABILITIES> 1,237,294 1,100,455
<BONDS> 1,395,079 1,735,096
0 0
0 0
<COMMON> 198 199
<OTHER-SE> 92,023 (1,144,373)
<TOTAL-LIABILITY-AND-EQUITY> 2,891,896 1,862,106
<SALES> 0 0
<TOTAL-REVENUES> 2,363,404 2,634,017
<CGS> 2,153,005 2,383,666
<TOTAL-COSTS> 109,882 112,443
<OTHER-EXPENSES> 10,610 9,500
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27,169 78,796
<INCOME-PRETAX> 62,738 49,612
<INCOME-TAX> 24,689 18,852
<INCOME-CONTINUING> 38,049 30,760
<DISCONTINUED> (832,775) (1,284,878)
<EXTRAORDINARY> 0 0
<CHANGES> (25,889) (6,348)
<NET-INCOME> (820,615) (1,260,466)
<EPS-PRIMARY> (4.42) (6.66)
<EPS-DILUTED> (4.33) (6.64)
</TABLE>
