<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996
REGISTRATION NO.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BIRMAN MANAGED CARE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 6749 62-1584092
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
502 GOULD DRIVE
COOKEVILLE, TENNESSEE 38506
(615) 432-6532
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)
DAVID N. BIRMAN, M.D.
PRESIDENT AND CEO
502 GOULD DRIVE
COOKEVILLE, TENNESSEE 38506
(615) 432-6532; (615) 432-6536 (TELECOPIER)
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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JOHN H. HEUBERGER, ESQ. ROBERT S. KANT, ESQ.
PETER B. ROSS, ESQ. JERE M. FRIEDMAN, ESQ.
RUDNICK & WOLFE O'CONNOR, CAVANAGH, ANDERSON, KILLINGSWORTH & BESHEARS, P.A.
203 NORTH LASALLE STREET, SUITE 1800 ONE EAST CAMELBACK ROAD, SUITE 1100
CHICAGO, ILLINOIS 60601 PHOENIX, ARIZONA 85012
(312) 368-4014 (602) 263-2400
(312) 984-2299 (TELECOPIER) (602) 263-2900 (TELECOPIER)
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the registration statement is declared effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share(2)................................ $12,031,875 $4,148.92
- ----------------------------------------------------------------------------------------------------------------------------
Warrants(3)............................................................... 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share, reserved for issuance under
Warrants(4)............................................................. $15,650,350 $5,396.67
- ----------------------------------------------------------------------------------------------------------------------------
Representative's Warrants................................................. $1,550 $0.53
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Representative's Warrants.......... $1,255,500 $432.93
- ----------------------------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise of Representative's Warrants.............. 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of Warrants issuable upon exercise of
Representative's Warrants............................................... $1,360,900 $469.28
- ----------------------------------------------------------------------------------------------------------------------------
Total $30,300,175 $10,448.33
============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of computing the registration fee.
(2) Includes 232,500 shares which the Underwriters have the option to purchase
to cover over-allotments.
(3) Includes 232,500 warrants which the Underwriters have the option to purchase
to cover over-allotments.
(4) Includes 232,500 shares issuable upon exercise of warrants included in the
Underwriters' over-allotment option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 1996
PROSPECTUS
BIRMAN
MANAGED CARE, INC.
1,550,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT
Birman Managed Care, Inc. (the "Company") is offering hereby 1,550,000
units ("Units"), each consisting of one share of the Company's Common Stock
("Common Stock") and one redeemable Common Stock Purchase Warrant ("Warrant") to
purchase one share of Common Stock at a price of $ (130% of the initial
public offering price of the Units), subject to adjustment in certain
circumstances, until 36 months from the date of this Prospectus. The Common
Stock and the Warrants included in the Units will be separately transferable
upon issuance. Commencing 90 days after the date of this Prospectus, the
Warrants will be redeemable by the Company at $.01 per Warrant upon 30 days'
notice mailed within 15 days after the closing bid price of the Common Stock on
the Nasdaq National Market ("Nasdaq") has equalled or exceeded $ per
share (110% of the exercise price of the Warrants) for a period of 20
consecutive trading days. See "Description of Securities."
Prior to this offering, there has been no public market for the Units,
Common Stock, or Warrants, and there can be no assurance that any such market
will develop. It is currently anticipated that the initial public offering price
will range between $5.75 and $6.75 per Unit. Application has been made to have
the Common Stock and Warrants approved for quotation on Nasdaq under the symbols
"BMAN" and "BMANW," respectively. The public offering price for the Units has
been determined arbitrarily by negotiations between the Company and W.B. McKee
Securities, Inc. (the "Representative") and does not necessarily bear any
relationship to the Company's results of operations, net worth, prospects, or
other commonly recognized criteria of value. See "Risk Factors" and
"Underwriting."
---------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AS WELL AS
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6 AND
"DILUTION."
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------
Per Unit................ $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)................ $ $ $
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</TABLE>
(1) Excludes a non-accountable expense allowance to the Representative of the
Underwriters equal to 3% of the total Price to Public and the value of
warrants to purchase 155,000 Units (the "Representative's Warrants") to be
issued to the Representative. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $ , including the non-accountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
232,500 additional Units at the public offering price solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ , and $ , respectively. See
"Underwriting."
---------------------
The Units are being offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the right to reject any order, in whole or in part, and subject to certain other
conditions. It is expected that delivery of the Units will be made against
payment therefor at the offices of W.B. McKee Securities, Inc., Phoenix, Arizona
on or about , 1996.
---------------------
W.B. MCKEE SECURITIES, INC.
The date of this Prospectus is , 1996
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified pubic accountants after the end of each fiscal year, and quarterly
reports for the first three fiscal quarters of each year containing unaudited
summary consolidated financial information.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus assumes that (i) neither the
over-allotment option granted to the Underwriters nor the Representative's
Warrants will be exercised, and (ii) no other currently outstanding warrants or
options will be exercised.
THE COMPANY
The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost, and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. In pursuing these goals,
the Company currently provides its proprietary "Quality Management Program" to
hospitals to educate their medical staffs on patient management. As an expansion
of its business, the Company is developing and will operate various managed care
health programs ("health plans") in association with physician networks,
hospitals, and other health care providers based upon its belief that it can
apply its Quality Management Program experience to improve the management and
delivery of health care services in managed care systems. As part of its health
plan business, the Company will organize physicians into independent practice
associations, or networks, that will provide services to the Company's health
plans as well as independent health plans. The Company concentrates its efforts
on rural communities, particularly in the south-central, southeast, and central
United States, with an initial focus for its health plans on Mississippi and
Tennessee, where the development of managed care programs has lagged behind
other areas of the country.
Under its Quality Management Program, physicians employed by the Company
consult directly with attending physicians at hospitals regarding their overall
patient management program, as systematized in the medical record. The Quality
Management Program is designed to (i) improve patient care by encouraging the
use of the Company's proprietary methodology to assist physicians in the
identification of symptoms and conditions, to determine appropriate treatment,
and to prioritize the goals and objectives of the treatment plan, (ii) reduce
the cost to its hospital-clients of patient care as a result of the early
intervention in identified health problems, and (iii) more accurately describe
in the medical record the severity and complexity of the patient's illness and
the resources utilized to treat the patient. The benefits of the Quality
Management Program typically result in increased Medicare reimbursements for the
Company's hospital-clients.
To leverage the expertise and professional relationships it has gained from
providing its Quality Management Program and to capitalize on the evolution from
traditional fee-for-service to capitated systems in rural communities, the
Company currently is developing and will operate a variety of community-based,
physician-driven, comprehensive health plans. The Company's health plans are
being designed to provide high-quality and cost-efficient health care by
aligning the interests of physicians and their patients by involving selected
community physicians in the development and implementation of treatment
standards, by including selected leaders in the physician community as owners of
the local health plans, and by providing participating physicians with the
opportunity to share in savings realized from their own practice management
through the return of a portion of risk pools established to protect against
cost overruns.
The Company's strategy is to be an important provider of health care
consulting services and health plans. Key aspects of this strategy include (a)
concentrating the Company's Quality Management Program and health plan
operations in predominately rural areas in order to take advantage of the lack
of market penetration, the relative lack of competition, and the local
reputation and relationships it has developed; (b) focusing on the role of the
physician as the most important factor in the delivery of health care services
through co-ownership of the Company's health plans with physicians who provide
services to those health plans and through local physician participation in
developing and implementing treatment standards for their communities; (c)
increasing the number of clients for its Quality Management Program by offering
new services and expanding its marketing efforts in its existing market area and
by introducing its services into new market areas; and (d) applying the
experience it has gained through its Quality Management Program to the
development and operation of health plans.
3
<PAGE> 5
THE OFFERING
Securities Offered.................. 1,550,000 Units, each consisting of one
share of Common Stock and one Warrant.
The Common Stock and Warrants included
in the Units will be separately
transferable upon issuance.
Terms of Warrants................... Each Warrant entitles the holder
thereof to purchase, at any time until
three years after the date of this
Prospectus, one share of Common Stock
at a price of $ per share (130% of
the initial public offering price of
the Units), subject to adjustment.
Commencing 90 days after date of this
Prospectus, the Warrants will be
subject to redemption by the Company,
in whole but not in part, at $.01 per
Warrant on 30 days' notice mailed
within 15 days after the closing bid
price of the Common Stock as reported
on Nasdaq equals or exceeds $ per
share (110% of the exercise price of
the Warrants) for a period of 20
consecutive trading days. See
"Description of Securities."
Common Stock outstanding prior to
this offering..................... 6,931,082 shares(1)
Securities to be outstanding after
this offering....................... 8,481,082 shares of Common Stock and
1,550,000 Warrants(1)
Use of Proceeds..................... The Company intends to apply the net
proceeds of this offering to develop,
establish, and expand its health plans
($2,500,000); establish reserves in
furtherance of its health plans
($3,000,000); complete an acquisition
($1,000,000); expand its Quality
Management Program ($500,000); and
provide working capital for general
corporate purposes ($1,128,125). See
"Use of Proceeds."(2)
Proposed Nasdaq Symbols............. Common Stock: BMAN
Warrants: BMANW
Risk Factors and Dilution........... A purchase of Units involves a high
degree of risk and immediate and
substantial dilution to the purchasers
in this offering. See "Risk Factors"
and "Dilution."
- ---------------
(1) Does not include (a) 1,018,566 shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options, or (b) 57,805 shares of
Common Stock reserved for issuance upon the exercise of outstanding
warrants. The outstanding stock options vest over a three-year period. The
outstanding warrants first become exercisable in January 1997. See
"Management -- Stock Option Plans" and "Description of
Securities -- Warrants."
(2) At an assumed offering price of $6.25 per Unit, the net proceeds to the
Company from this offering are expected to be approximately $8.1 million
(approximately $9.4 million if the Underwriters' over- allotment is
exercised in full).
4
<PAGE> 6
SUMMARY FINANCIAL DATA
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HISTORICAL
------------------------- PRO FORMA(2)
--------------
FISCAL YEAR ENDED JUNE 12 MONTHS
30, ENDED
------------------------- JUNE 30,
1995 1996 1996
---------- ---------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENT OF OPERATIONS:
Revenue.......................................... $ 4,818 $ 8,417 $ 8,417
Costs and expenses:
Cost of revenue............................... 2,381 2,279 2,279
Selling, general and administrative........... 3,114 4,237 4,309
---------- ---------- ----------
Income (loss) from operations................. (677) 1,901 1,829
---------- ---------- ----------
Income (loss) from continuing operations......... (483) 1,172 1,130
---------- ---------- ----------
Net income (loss)................................ $ (699) $ 1,172 $ 1,130
========== ========== ==========
Net income (loss) per share(1)................... $ (.09) $ .15 $ .12
========== ========== ==========
Weighted average common shares outstanding......... 7,725,434 7,725,434 9,275,434
========== ========== ==========
</TABLE>
<TABLE>
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JUNE 30, 1996
-----------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................. $2,916,807 $ 10,136,883
Total assets.................................................... $4,009,891 $ 13,185,613
Total liabilities............................................... $ 820,912 $ 1,868,509
Stockholders' equity............................................ $3,188,979 $ 11,317,104
</TABLE>
- ---------------
(1) Net income per share is calculated on the basis of the weighted average
shares outstanding of Common Stock for each year presented. See Note 1 of
Notes to Consolidated Financial Statements.
(2) Gives effect on a pro forma basis to the pending acquisition of the capital
stock of Canton Management Group, Inc. ("Canton"), as to which the Company
had entered into a definitive acquisition agreement. The pro forma combined
statement of operations data for fiscal 1996 does not purport to represent
what the Company's results of operations would have been if such acquisition
had been consummated on July 1, 1995. Although the Company anticipates that
the acquisition will close prior to the completion of this offering, there
can be no assurance that such transaction will close by such time, or at
all. See "Unaudited Pro Forma Financial Information."
(3) Gives effect on a pro forma, as adjusted basis to (a) the acquisition of
Canton, and (b) the sale by the Company of the Units offered hereby at an
assumed initial public offering price of $6.25 per Unit and the application
of the estimated net proceeds therefrom. See "Use of Proceeds."
---------------------
Unless the context otherwise requires, the term "Company" refers to Birman
Managed Care, Inc., a Delaware corporation, and its subsidiaries, including
Birman & Associates, Inc., BMC Health Plans, Inc., and Hughes & Associates, Inc.
The address of the Company is 502 Gould Drive, Cookeville, Tennessee 38506, and
its telephone number is (615) 432-6532. Except as otherwise indicated, the
information in this Prospectus has been adjusted to give effect to the change of
the state of incorporation of the Company from Tennessee to Delaware on
September 9, 1996 by means of a merger in which the shareholders of the
predecessor Tennessee corporation received 72.939 shares of the Company's Common
Stock for each 100 shares of common stock of the Tennessee corporation then
outstanding.
5
<PAGE> 7
RISK FACTORS
The purchase of Units involves a high degree of risk. In addition to the
other information contained in this Prospectus, prospective purchasers should
consider carefully the factors listed below in evaluating a purchase of Units.
EXPANSION INTO NEW BUSINESS
Since it began its business in 1991, the Company has derived substantially
all of its revenue from its Quality Management Program activities. The Company's
health plan business is in the start-up stage. There can be no assurance that
the Company will be successful in introducing its health plans or that the
health plans will achieve or maintain profitability in the future. Thus,
historic operating results may not be indicative of future operating results.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Growth Strategy."
GROWTH STRATEGY AND LIMITATIONS ON GROWTH
The Company's growth strategy involves the development and operation of
health plans, primarily in rural communities. The success of these health plans
will depend upon the Company's ability to obtain and maintain necessary state
licenses, organize physician networks, secure employers as subscribers to the
health plans, secure Medicare and Medicaid contracts for its health plans,
secure adequate numbers of enrollees to make its health plans economically
viable, and manage the health plans. Identifying and recruiting candidates to be
participating providers and obtaining the necessary licenses to offer and
operate health plans can be a lengthy, complex, and costly process. Although the
Company believes that its reputation and relationships with hospitals and
physicians in market areas in which it intends to establish health plans will
enable it to organize physician networks and enlist other providers for its
health plans, there can be no assurance that the Company will be able to do so,
that the Company will be able to obtain necessary licenses, or that the Company
will be able to operate profitably any health plan.
The Company has recently experienced rapid growth in its Quality Management
Program business. The continued rapid growth of that business may impair the
Company's ability to provide effectively its consulting services, particularly
if the Company is unable to recruit and train an adequate number of qualified
physicians and allied health specialists and adequately manage and supervise its
staff of physicians and allied health specialists. In addition, there can be no
assurance that the Company will manage its expanding operations effectively or
that it will be able to achieve its planned growth. See "Business -- Growth
Strategy."
POTENTIAL FLUCTUATION IN OPERATIONS AND OPERATING RESULTS
The Company's operating results could vary from period to period as a
result of seasonality in discharges of Medicare patients by Quality Management
Program hospital-clients, fluctuations in severity of illness, changes in the
Medicare prospective payment system, the expiration of contracts to provide
Quality Management Program services coupled with a failure to replace such
contracts with comparable engagements, underperforming contract engagements, and
changes in governmental regulations. The Company's operating results will also
vary from period to period as a result of the development, marketing, start-up,
and management of its health plan business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISK OF MEDICARE AUDITS ON QUALITY MANAGEMENT PROGRAM BUSINESS
Hospitals and physicians providing services under Medicare are subject to
regulatory responsibilities imposed by the Health Care Financing Administration
("HCFA"). Peer Review Organizations ("PROs") engaged by HCFA in each state
routinely review and audit reimbursement requests, including patient admissions,
quality of care, and appropriateness of diagnostic-related group ("DRG")
selections, among other things. The depth of review varies from hospital to
hospital. There is always a risk that PRO attention may focus with increased
scrutiny on reimbursement requests submitted by hospital-clients of the Company
that achieve increased reimbursements as a result of the Quality Management
Program. In addition, HCFA
6
<PAGE> 8
investigates allegations of fraud and abuse of Medicare and Medicaid and has
instituted a multi-state program called "Operation Restore Trust" to punish
persons engaged in fraud and abuse of Medicare and Medicaid, recover funds,
identify areas of vulnerability, and prevent fraud. Among the areas of
investigatory interest to HCFA are billing code fraud, billing schemes, and
kickbacks involving providers. Historically, the Quality Management Program has
not been the cause of a focused review or audit by a PRO or a formal
investigation by HCFA. However, there can be no assurance that focused reviews,
audits, or investigations will not occur in the future. A denial of
reimbursement requests submitted by a hospital-client as a result of the
implementation of the Quality Management Program may result in the Company being
required to reimburse a portion of its fees to the hospital-client, could result
in one or more hospital-clients seeking to withdraw from their contracts, and
could result in a formal investigation by HCFA. Such events could have a
material adverse effect on the Company.
PRINCIPAL CLIENT
The Company has provided Quality Management Program services to various
hospitals operated by Quorum Health Care, Inc. ("Quorum") since 1991. Services
to hospitals operated by Quorum produced approximately 42% of the Company's
Quality Management Program revenue in fiscal 1996. Historically, the on-site
management of each Quorum hospital has made its own decision regarding the
engagement of the Company, and the Company has entered into a separate contract
with each engaging Quorum facility. The Company is endeavoring to expand its
Quality Management Program client base to reduce its dependence on Quorum
hospitals.
NEED TO PREDICT AND CONTROL HEALTH CARE COSTS
The profitability of the Company's health plans will depend in large part
upon the ability of the Company to predict health care costs accurately and to
control those costs through the negotiation of favorable provider contracts and
the imposition of utilization management, case management, and quality assurance
programs. The demographic characteristics in the rural communities to be served
by the Company's health plans may contribute to health care costs that exceed
Company projections or increase more rapidly than anticipated. In this regard,
persons in the rural communities to be served by the Company's health plans may,
among other things, be older and have lower incomes than persons in other areas
of the country. Changes in health care practices, inflation, new technologies,
major epidemics, diseases and catastrophes, clusters of high-cost cases, and
numerous other factors affecting the delivery and costs of health care cannot be
predicted or controlled and may adversely affect the Company's ability to
predict and control health care costs and claims. In addition, there can be no
assurance that provider agreements negotiated in the future will not result in
substantially higher costs to the Company that cannot be passed through to
payors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISK OF LIMITED HEALTH PLANS
The Company intends to offer prospective payors three health plan
alternatives: a health maintenance organization ("HMO"), a preferred provider
organization ("PPO"), and a point-of-service option. Initially, it will offer
only HMOs to commercial and perhaps Medicaid enrollees. Because PPOs and the
point-of-service option require the additional component of indemnity insurance,
the availability of the PPOs and point-of-service option will require separate
licensure of an insurance company and agent and is not expected to be available
to payors and/or enrollees for at least six months following the launch of each
HMO plan. National Benefits Resources, Inc. ("NBR"), a managing general
underwriter of indemnity insurance products and a stockholder in the Company, is
assisting the Company in arranging the necessary insurance licenses. However,
there can be no assurance that the Company will be able to offer a PPO or a
point-of-service option at the time or times that it desires to do so or that
any of the Company's health plans that are launched will be successful in
offering its intended spectrum of plans.
HEALTH CARE REFORM
As a result of the escalation of health care costs and the inability of
many individuals and employers to obtain affordable health insurance, numerous
health care reform proposals have been, and may continue to be, introduced in
the United States Congress and state legislatures. Among the proposals under
consideration are
7
<PAGE> 9
price controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health care coverage to their employees, the creation of a
government health insurance plan or plans that would cover all citizens,
mandated health plan benefits, mandated provider payment arrangements, and other
proposals involving various aspects of health plan operations. There can be no
assurance which, if any, of these proposals will be adopted or the effect on the
Company of any such proposals that are adopted. See "Business -- Government
Regulation."
GOVERNMENT REGULATION
The Company, its Quality Management Program hospital-clients, the health
plans to be organized by the Company, and health insurance companies are subject
to substantial regulation at both the federal and state levels. The Company is
subject to a number of laws governing issues as diverse as relationships between
health care providers and their referral sources, prohibitions against providers
referring patients to an entity with which the provider has a financial
relationship, licensure and other regulatory approvals, the corporate practice
of medicine, and regulation of unprofessional conduct by providers, including
fee-splitting arrangements. Although the Company believes that its current
operations comply, and its proposed operations will comply, with relevant
federal and state laws, many aspects of the relationships between the Company
and its hospital-clients and the Company's health plans have not been the
subject of judicial or administrative interpretation. An adverse review or
determination by any court or applicable administrative agency or changes in the
regulatory requirements could have a material adverse effect on the operations
and financial condition of the Company.
Regulatory matters affecting HMOs and health insurance companies in
particular include regulations relating to cash reserves, minimum net worth,
licensing requirements, approval of policy language and benefits, mandatory
products and benefits, provider compensation arrangements, premium rates, and
periodic examinations by federal and state agencies. The Company will be subject
to state insurance laws if and to the extent it assumes the risk for the
provision of health services. In addition, the Company is subject to federal and
state antitrust laws, which prohibit the Company from engaging in
anticompetitive activities, such as monopolization and price fixing. State
regulations may also restrict the ability of Company HMOs to distribute funds to
the Company. Changes also could be made in Medicare and Medicaid reimbursement
rates. Many states have adopted, or are considering, regulations relating to
mandatory benefits, provider compensation, "any willing provider" provisions,
and the composition of physician networks. Changes in federal and state laws
could increase health care costs and administrative expenses. There can be no
assurance that any future regulatory action by governmental agencies will not
have an adverse impact on the profitability or marketability of the Company's
health plans in their respective jurisdictions. See "Business -- Government
Regulation."
DEPENDENCE UPON REIMBURSEMENT BY THIRD-PARTY PAYORS
Clients for the Company's Quality Management Program derive, and the
Company through its health plans will derive, substantial revenue from
third-party payors. The health care industry is undergoing cost-containment
pressures as third-party payors seek to impose lower reimbursement and
utilization rates and to negotiate reduced rate payments with medical service
providers. The Company believes that this trend will continue. Reductions in
payments to hospitals or other changes in reimbursements for health care
services could have a direct or indirect material adverse effect on the Company.
SUBSTANTIAL COMPETITION
The Company's Quality Management Program competes for hospitals as clients
in the revenue optimization sector of the health care consulting business. The
Company's health plans will compete in the managed care and insurance sectors of
the health care industry. Both sectors are highly competitive. Within each
sector, there are a large number of competitors, many of which have
substantially greater financial, technical, marketing, and management resources
than the Company. Although the Company believes the acceptance of its Quality
Management Program and its familiarity with and reputation in rural areas will
enable it to compete successfully, there can be no assurance that the Company
will be able to compete
8
<PAGE> 10
effectively against existing competitors or that additional competitors will not
enter the rural markets the Company plans to serve. See
"Business -- Competition."
RISKS ASSOCIATED WITH HEALTH PLAN CONTRACTS; CAPITATED FEE REVENUE
The Company's success will depend, in part, upon its ability to develop and
market its point-of-service options that offer enrollees the right to select
providers at the time services are sought from the HMO or the PPO or from
outside the system. The Company will offer its HMOs to payors on a prepaid
basis, pursuant to which the HMO will accept a capitated or prepaid per member
per month fee for providing all necessary covered services to a payor's
enrollees. Comparable per member per month capitated fees are then paid by an
HMO to the participating providers. HMO contracts shift much of the financial
risk of providing health care from the payor to the provider. The proliferation
of HMO elections by enrollees could result in greater predictability of Company
revenue and related expenses, while increased elections for PPO and point of
service options by enrollees could result in greater unpredictability of
expenses if enrollees that do not select the HMO option require more frequent or
extensive care than anticipated. As a result, the Company may incur additional
costs that would reduce or eliminate any earnings under its contracts. The
Company intends to reinsure catastrophic and excess risks. There can be no
assurance that the Company will be able to negotiate satisfactory contracts with
payors or with health care providers or obtain or maintain catastrophic
reinsurance.
LIABILITY AND INSURANCE
The physicians and allied health specialists employed by the Company in its
Quality Management Program do not treat patients, make any treatment or
diagnostic decisions, or provide any medical services. Although the Company
believes that the Quality Management Program activities of its physicians do not
constitute the practice of medicine or establish physician-patient relationships
for which the Company could incur liability, the Company may be exposed to the
risk that professional liability claims could be brought against the Company by
third parties.
In its health plan business, the Company will provide only non-medical
services. It will not control or direct the practice of medicine by the
physicians or the compliance with certain regulatory and other requirements
directly applicable to physicians or physician groups. However, Company-managed
networks may become subject to claims, suits, or complaints relating to services
and products provided by the physicians in the network, and there can be no
assurance that such claims will not be asserted against the Company.
Although the Company maintains, and expects to continue to maintain,
insurance coverage for professional liability claims, such insurance, by its
nature, is limited in the scope of coverage and amount. Each of the Company's
health plans will maintain, and the Company will require each physician
participating in the Company's health plans to maintain, comprehensive
professional liability insurance. There can be no assurance that any claims
asserted against the Company will not be successful or, if successful, will not
exceed the limits of any insurance coverage maintained by or for the benefit of
the Company. Furthermore, there can be no assurance that insurance coverage will
continue to be available at acceptable rates. See "Business -- Potential
Liability and Insurance."
New forms of health care organizations have increasingly been subject to
liability for reasons such as failing to credential providers properly or
contributing to physician malpractice. In response, many health care
organizations obtain general liability, managed care, and professional liability
insurance coverage. In addition, medical directors have also faced professional
liability claims and state licensure challenges. The Health Care Quality
Improvement Act of 1986, however, provides immunity from damages for
professional review actions taken by professional review bodies, including
health plans, in good faith, provided that certain procedural standards are met.
The Company intends to comply with such procedures in its professional review
actions. However, no assurance can be given that the Company will satisfy the
indemnity requirements or that any insurance coverage the Company obtains will
be adequate to protect against all claims that may be asserted against the
Company.
9
<PAGE> 11
Like HMOs and health insurers generally, the Company intends to exclude
certain health care services from coverage under its health plans. In the
ordinary course of its health plan business, the Company will be subject to
claims by its enrollees arising out of decisions made by its health plans to
restrict treatment or to restrict reimbursements for certain services. The loss
of any such claim, resulting in a significant punitive or other damage award or
a directive that the Company significantly change its operations, could have a
material adverse effect on the Company. In addition, the risk of potential
liability under punitive damage theories may increase significantly the
difficulty of obtaining reasonable settlements of coverage claims. There can be
no assurance that successful claims of enrollees will not have a material
adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company depends to a significant extent on the efforts and skills of
its key personnel, particularly David Birman, M.D. and D. Bradley Seitzinger,
M.D., with respect to its Quality Management Program business and Vincent W.
Wong and Mark C. Wade with respect to its health plan business. The Company has
entered into employment agreements with all four of these key employees. The
loss, incapacity, or unavailability of any of these individuals could adversely
affect the Company's operations. In addition, it may be necessary for the
Company to attract and retain additional individuals to support the growth of
its business or to replace key personnel in the event of the termination of
their employment with the Company. See "Management -- Employment Agreements."
FUTURE CAPITAL NEEDS
Implementing the Company's growth strategy will require substantial
additional capital for the development of its health plans and for the marketing
and expansion of its Quality Management Program. To date, the Company has
financed its growth primarily through operating income, a bank term loan, and
the proceeds of private offerings of shares of Common Stock, the most recent
offering being completed in June 1996. The Company believes that its existing
cash resources, together with the net proceeds from this offering, cash flow
from operations, and available lines of credit will be sufficient to meet the
Company's working capital and expansion needs for the next 24 months.
Since the rate of expansion of the Company's business will depend on the
availability of capital, the Company may be required to raise additional capital
in the future. The Company may obtain such capital through additional borrowings
or the issuance of additional equity or debt securities, either of which could
have an adverse effect on the value of the securities offered by this
Prospectus. There can be no assurance that the Company will be able to secure
such financing, if necessary, on favorable terms. If the Company is unable to
secure additional financing in the future, its ability to pursue its growth
strategy may be delayed, perhaps indefinitely, and its results of operations for
future periods could be adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
VOTING CONTROL
Upon completion of this offering, David N. Birman, M.D., the Chairman of
the Board, President, and Chief Executive Officer of the Company, will have sole
beneficial ownership, together with his wife, Sue D. Birman, Executive Vice
President and a director of the Company, of approximately 61.83% of the
outstanding shares of the Common Stock of the Company. Consequently, absent a
further issuance of shares of Common Stock, Dr. Birman will continue to be able
to control the election of the Board of Directors of the Company and thereby
determine the Company's policies and the outcome of corporate actions requiring
stockholder approval.
ABSENCE OF DIVIDENDS
The Company has paid no cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. Any future dividends will depend on the earnings, if
any, of the Company, its financial requirements, and other factors. See
"Dividend Policy."
10
<PAGE> 12
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of Units offered hereby will experience immediate and
substantial dilution of the pro forma net tangible book value of the shares of
Common Stock included in the Units in the amount of $5.06 per share, assuming an
initial public offering price of $6.25 per Unit. In the event that the Warrants
included in the Units, the Representative's Warrants, or other warrants or
options to purchase Common Stock are exercised, or in the event that the Company
issues additional shares of Common Stock in the future, including shares that
may be issued in connection with future acquisitions, purchasers of Units in
this offering may experience further dilution in the pro forma net tangible book
value per share of Common Stock. See "Dilution."
NO PRIOR MARKET FOR COMMON STOCK OR WARRANTS; POSSIBLE VOLATILITY OF MARKET
PRICE
Prior to this offering, there has been no public market for the Units or
the underlying Common Stock or Warrants, and there can be no assurance that an
active public market for such securities will develop or continue after this
offering. The initial public offering price of the Units was determined by
negotiations between the Company and the Representative and may not be
indicative of the market price for the Common Stock or Warrants after this
offering. See "Underwriting" for factors considered in determining the initial
public offering price. From time-to-time after this offering, there may be
significant volatility in the market price for the Common Stock and Warrants.
Quarterly operating results of the Company, the timing of the launch of health
plans, changes in general conditions in the economy or the health care industry,
legislative and regulatory actions, or other developments affecting the Company
or its competitors could cause the market price of the Common Stock and Warrants
to fluctuate substantially. On occasion, the equity markets have experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities, at times for reasons unrelated to the operating
performance of those companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Common Stock and Warrants following this offering. Any such
fluctuations that occur following this offering may adversely affect the market
price of the Common Stock and Warrants.
Commencing 90 days after the date of this Prospectus, the Warrants will be
subject to redemption by the Company, in whole but not in part, at $0.01 per
Warrant on 30 days' notice mailed within 15 days after the closing bid price of
the Common Stock as reported on Nasdaq has equalled or exceeded $ per share
(110% of the exercise price of the Warrants) for any 20 consecutive trading
days. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock after this
offering, or the perception that such a sale could occur, could adversely affect
prevailing market prices for the Common Stock and Warrants. In addition, any
such sales or perception of such sales could make it more difficult for the
Company to sell equity securities or equity-related securities in the future at
a time and price that the Company deems appropriate. After giving effect to the
sale of Units offered hereby, the Company will have 8,481,082 shares of Common
Stock outstanding. Of these shares, 1,550,000 shares of Common Stock are
included in the Units. The remaining 6,931,082 shares are "restricted
securities" within the meaning of Rule 144 ("Rule 144") adopted under the
Securities Act of 1933, as amended (the "Securities Act"). The restricted shares
may be sold in the future in compliance with Rule 144. Rule 144 generally
provides that beneficial owners of Common Stock who have held such common stock
for two years may sell, within any three-month period, a number of shares not
exceeding the greater of 1% of the total outstanding shares or the average
weekly trading volume of the shares during the four calendar weeks preceding
such sale. The Company has agreed not to sell any shares of its Common Stock,
and its directors, officers, and certain stockholders, holding in the aggregate
substantially all of the Company's currently outstanding shares of Common Stock,
have agreed not to offer, sell, or otherwise dispose of any of their shares, in
each case for a period of 24 months after the date of this Prospectus except as
otherwise permitted by the Representative.
11
<PAGE> 13
The Securities and Exchange Commission (the "Commission") has recently
proposed reducing the initial Rule 144 holding period to one year. It is unclear
whether or when such rule change will be enacted. If enacted, such modification
will reduce the time when certain shares of the Common Stock become eligible for
resale.
STOCK ISSUABLE PURSUANT TO REPRESENTATIVE'S WARRANTS, OPTIONS, AND OTHER
WARRANTS
The Company has agreed to issue to the Representative the Representative's
Warrants to purchase 155,000 Units, which include the option to acquire
additional shares of Common Stock upon exercise of the Warrants included
therein. The holders of the Representative's Warrants will have the right to
require the Company to register under the Securities Act both the
Representative's Warrants and the underlying securities. The Representative's
Warrants will be exercisable at a price equal to 120% of the initial public
offering price of the Units, or $ , during the four-year period commencing
one year after the date of this Prospectus. The Company has also reserved
1,558,780 shares of Common Stock for issuance under the Company's stock option
plans (the "Stock Option Plans") and 57,805 shares of Common Stock for issuance
under warrants previously issued by the Company. The exercise price of the
previously granted options is $1.37 per share ($6.25 per share for options
granted to non-employee directors) and the weighted average exercise price of
the previously issued warrants is $1.39 per share. With the exception of one
option that is vested as to 20,058 shares, the previously granted options may be
exercised beginning February 1, 1997. The previously issued warrants are
exercisable at any time on or after January 1, 1997 and before December 31,
2001.
The holders of the Representative's Warrants, options granted or that may
be granted under the Company's Stock Option Plans, and outstanding warrants may
profit from a rise in the market price of the Common Stock. The existence of the
Representative's Warrants, options, and warrants may adversely affect the terms
on which the Company may obtain additional equity financing. Moreover, such
holders are likely to exercise their rights at a time when the Company would
otherwise be able to obtain capital on terms more favorable than could be
obtained through the exercise of such warrants and options.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and of the
Delaware General Corporation Law (the "Delaware GCL") could, together or
separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company, and limit the price that certain investors
might be willing to pay in the future for shares of the Common Stock. Certain of
these provisions (i) permit the issuance, without further stockholder approval,
of preferred stock with rights and privileges that could be senior to the Common
Stock, and (ii) require a super-majority vote requirement in connection with the
adoption of certain corporate transactions not unanimously recommended to the
stockholders by the Board of Directors. Following this offering, the Company
will also be subject to Section 203 of the Delaware GCL which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any of a
broad range of business combinations with any "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder. See "Description of Securities."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information contained under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" concerning future, proposed, and intended activities
of the Company and the health care industry, and other statements contained
herein regarding matters that are not historical facts are forward-looking
statements (as such term is defined in the Securities Act). Forward-looking
statements, by their very nature, include risks and uncertainties. Accordingly,
actual results may differ, perhaps materially, from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include those discussed under "Risk Factors."
12
<PAGE> 14
THE COMPANY
The Company was incorporated in 1994 in Tennessee under the name BA Forum,
Inc. Its name was changed to Birman Managed Care, Inc. in October 1995. The
Company was reincorporated in Delaware in September 1996. The Company serves as
the holding company for Birman & Associates, Inc. and BMC Health Plans, Inc.
Birman & Associates, Inc. has been engaged in the business of providing the
Quality Management Program since 1991. As of June 30, 1995, Birman & Associates,
Inc. distributed all of the shares of capital stock of Birman Farms, Inc., a
livestock breeding operation, as a dividend to its then sole shareholder, David
N. Birman, M.D. In July 1995, Dr. Birman contributed all of the outstanding
common stock of Birman & Associates, Inc. to the Company. BMC Health Plans, Inc.
was formed in November 1994 to pursue the development of the Company's health
plan business with Dr. Birman as its sole shareholder. In January 1995, Dr.
Birman contributed all of the outstanding common stock of BMC Health Plans, Inc.
to the Company.
In furtherance of its health plan business, in June 1996 the Company
acquired substantially all of the assets of Hughes & Associates, Inc., a
Jackson, Mississippi-based provider of utilization review services to insurance
companies and health care plans.
On September 6, 1996, the Company entered into a definitive agreement to
acquire substantially all of the issued and outstanding shares of capital stock
of Canton, an inactive holder of a certificate of authority to operate a HMO in
Mississippi. Upon closing of the acquisition, Canton will be renamed Care3, Inc.
and will become a partially owned subsidiary of the Company. Other persons,
particularly the founders of Canton and selected physicians, will be minority
shareholders of Care3, Inc.. The Company anticipates that it will own not less
than 60% of Care3, Inc.
Through another newly formed subsidiary, MMMC, Inc., the Company is
embarking into the management services organization ("MSO") business by entering
into an administrative services agreement with a network of private medical
practitioners in the Gulfport, Mississippi area, MedSouth, Inc. ("MedSouth").
The Company anticipates that it will hold a 90% interest in the MSO, with
MedSouth owning the balance of the capital stock.
The Company's executive offices are located at 502 Gould Drive, Cookeville,
Tennessee 38506; its telephone number is (615) 432-6532.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,550,000 Units
offered hereby, at an assumed initial public offering price of $6.25 per Unit,
are estimated to be approximately $8,128,125 (approximately $9,372,344 if the
Underwriters' over-allotment option is exercised in full), after deducting
estimated offering expenses of approximately $590,625 ($634,219 if the
Underwriters' over-allotment option is exercised in full) and underwriting
discounts and commissions. The Company currently intends to use the net proceeds
of this offering for the following purposes:
<TABLE>
<CAPTION>
ESTIMATED
PURPOSE AMOUNT
------------------------------------------------------------------------- ----------
<S> <C>
HMO restricted cash reserves(1).......................................... $3,000,000
Development and implementation of health plans(2)........................ $2,500,000
Acquisition of Canton(3)................................................. $1,000,000
Expansion of Quality Management Program business(4)...................... $ 500,000
Working capital for general corporate purposes........................... $1,128,125
</TABLE>
- ---------------
(1) This amount represents the estimated sums required to be deposited in
restricted accounts to evidence the Company's solvency under the HMO
licensing regulations of the states of Tennessee and Kentucky and other
states.
(2) This amount includes the estimated cost of developing and implementing a
health plan in Tennessee and the possible development and implementation of
similar plans in Kentucky and approximately two other states.
(3) This amount includes the estimated cost of completing the acquisition of
Canton, the holder of a certificate of authority to operate a HMO in
Mississippi, including the cash portion of the purchase price to be paid to
the shareholders of Canton and the start-up operation of the health plan in
Mississippi.
(4) This amount includes the estimated costs of developing computer software and
databases to enhance the Quality Management Program; the recruitment,
employment, and training of professional staff members, including
physicians; and Quality Management Program marketing and promotional costs
and expenses to be incurred through July 31, 1997.
Until applied as set forth above, the net proceeds will be invested in
short-term, investment-grade instruments or bank certificates of deposit.
Investment of the net proceeds in short-term securities rather than operations
could adversely affect the Company's overall return on its capital.
The foregoing represents the Company's current intentions with respect to
the allocation of the net proceeds of this offering based upon its present plans
and business conditions. There can be no assurance that unforeseen events or
changes in business conditions or federal or state or government regulations
will not result in the application of the proceeds of this offering in a manner
other than as described in this Prospectus. See "Risk Factors."
Any funds received by the Company upon exercise of the Warrants, the
Underwriters' over-allotment option, and the Representative's Warrant will be
added to working capital.
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common Stock.
The payment of dividends in the future will be within the discretion of the
Board of Directors and will depend on the Company's earnings, capital
requirements, financial condition, and other relevant factors. The Board of
Directors does not intend to declare any cash dividends in the foreseeable
future, but instead intends to retain earnings for use in the Company's business
operations. See "Risk Factors -- Absence of Dividends" and "Description of
Securities."
14
<PAGE> 16
DILUTION
The difference between the public offering price per share of Common Stock
(assuming no value is attributed to the Warrants) and the as adjusted pro forma
net tangible book value per share of Common Stock after this offering and giving
effect to the acquisition of Canton constitutes the dilution to investors in
this offering. Pro forma net tangible book value per share is determined by
dividing the pro forma net tangible book value (total pro forma assets less
intangible assets and total liabilities) by the number of outstanding shares of
Common Stock.
At June 30, 1996, the pro forma net tangible book value of the Company was
$1,931,019, or $0.28 per share of Common Stock. At June 30, 1996, after giving
effect to the sale of the Units offered hereby at an assumed initial offering
price of $6.25 (less underwriting discounts and commissions and estimated
expenses of this offering), and assuming no exercise of the Underwriters'
over-allotment option, the as adjusted pro forma net tangible book value at that
date would be $10,059,144, or $1.19 per share. This represents an immediate
increase in the adjusted pro forma net tangible book value of $.91 per share to
existing stockholders and an immediate dilution of $5.06 per share to new
investors, or 80% of the assumed offering price of $6.25 per share.
The following table illustrates the per share dilution to new investors
without giving effect to the results of operations of the Company subsequent to
June 30, 1996:
<TABLE>
<S> <C> <C>
Assumed public offering price............................... $6.25
Pro forma net tangible book value at June 30, 1996........ $.28
Increase attributable to new investors.................... $.91
Net tangible book value after offering...................... $1.19
-----
Dilution to new investors................................... $5.06
=====
</TABLE>
In the event the Underwriters exercise the over-allotment option in full,
the as adjusted pro forma net tangible book value per share would be $1.30,
which would result in dilution to the public investors of $4.95.
The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company (assuming no value is attributed to the
Warrants and not including any shares of Common Stock issuable upon exercise of
the Warrants), the amount and percentage of consideration paid, and the average
price per share paid by existing stockholders and by new investors in this
offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 6,931,082 81.72% $ 2,010,000 17.18% $ .29
Public investors................. 1,550,000 18.28% $ 9,687,500 82.82% $6.25
--------- ------ ----------- ------
Total.................. 8,481,082 100.00% $11,697,500 100.00%
========= ====== =========== ======
</TABLE>
The above table assumes no exercise of (i) the Underwriters' over-allotment
option, (ii) the Representative's Warrants, (iii) other outstanding warrants to
purchase 57,805 shares of Common Stock at a weighted average exercise price of
$1.39 per share, (iv) options to purchase 1,006,566 shares of Common Stock
granted to key employees at an exercise price of $1.37 per share, and (v)
options to purchase 12,000 shares of Common Stock granted to non-employee
directors at an exercise price of $6.25 per share. See "Risk
Factors -- Immediate and Substantial Dilution," "Management -- Compensation of
Directors," "Management -- Fiscal 1996 Option Grants," "Principal Stockholders,"
"Underwriting," and "Description of Securities."
15
<PAGE> 17
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
June 30, 1996, (ii) the pro forma capitalization as of June 30, 1996, giving
effect to the acquisition of Canton, as if such acquisition had occurred on such
date, and (iii) the pro forma capitalization as of June 30, 1996, as adjusted to
give effect to the sale of the Units offered hereby (at an assumed public
offering price of $6.25 per Unit, without giving effect to the Underwriters'
over-allotment option) and the application of the net proceeds therefrom as
described under "Use of Proceeds," as if all such events had occurred on June
30, 1996.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
---------- ------------ --------------
<S> <C> <C> <C>
Long-term debt(1)(2)................................ $ 7,037 $ 607,037 $ 607,037
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding... 0 0 0
Common Stock, $.001 par value, 25,000,000 shares
authorized; 6,931,082 shares issued and
outstanding actual and 8,481,082 shares issued
and outstanding pro forma as adjusted(3)....... 6,931 6,931 8,481
---------- ---------- ----------
Additional paid-in capital.......................... 1,780,612 1,780,612 9,907,187
---------- ---------- ----------
Retained earnings................................... 1,401,436 1,401,436 1,401,436
---------- ---------- ----------
Total stockholders' equity................ $3,188,979 $3,188,979 $ 11,317,104
========== ========== ==========
Total capitalization...................... $3,196,016 $3,796,016 $ 11,924,141
========== ========== ==========
</TABLE>
- ---------------
(1) The purchase price for Canton is $1,500,000, payable $700,000 in cash at the
closing and $800,000 payable in four equal annual installments of $200,000
of principal plus interest at 2% per annum on the unpaid principal balance
commencing on the first anniversary of the closing.
(2) The Company has a $1,000,000 maximum principal amount working capital
revolving line of credit facility with American National Bank and Trust
Company of Chicago. The facility has an initial maturity date of October
31, 1997. The facility provides for the accrual of interest on the unpaid
balance at a floating annual rate equal to the lender's prime rate. The
facility is secured by the accounts receivable of the Quality Management
Program and of Hughes & Associates, Inc.
(3) Excludes (a) 1,006,566 shares of Common Stock subject to options pursuant to
the Company's 1995 Option Plan at an exercise price of $1.37 per share; (b)
12,000 shares of Common Stock subject to options pursuant to the Company's
1996 Directors' Plan at an exercise price of $6.25 per share, (c) 57,805
shares of Common Stock issuable upon exercise of outstanding Common Stock
purchase warrants at a weighted average exercise price of $1.39 per share,
(d) 1,550,000 shares of Common Stock issuable upon exercise of the Warrants
included in the Units, and (v) 310,000 shares of Common Stock subject to
the Representative's Warrants (including shares issuable upon exercise of
the Warrants underlying the Representative's Warrants.) See
"Management -- Stock Option Plans" and "Description of Securities."
16
<PAGE> 18
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary historical financial data have been derived from the
audited consolidated financial statements of the Company. The historical
consolidated statement of operations data set forth below with respect to the
fiscal years ended June 30, 1995 and June 30, 1996 and the consolidated balance
sheet data at June 30, 1996 are derived from, and are qualified by reference to,
the audited Consolidated Financial Statements included elsewhere in this
Prospectus and should be read in conjunction with those financial statements and
notes thereto.
<TABLE>
<CAPTION>
HISTORICAL
------------------------- PRO FORMA(1)
--------------
FISCAL YEAR ENDED JUNE 12 MONTHS
30, ENDED
------------------------- JUNE 30,
1995 1996 1996
---------- ---------- --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenue.......................................... $ 4,818 $ 8,417 $ 8,417
Costs and expenses:
Cost of revenue............................... 2,381 2,279 2,279
Selling, general and administrative........... 3,114 4,237 4,309
---------- ---------- ----------
Income (loss) from operations................. (677) 1,901 1,829
---------- ---------- ----------
Income (loss) from continuing operations......... (483) 1,172 1,130
---------- ---------- ----------
Net income (loss)................................ $ (699) $ 1,172 $ 1,130
========== ========== ==========
Net income (loss) per share(2)................... $ (.09) $ .15 $ .12
========== ========== ==========
Weighted average common shares outstanding......... 7,725,434 7,725,434 9,275,434
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
PRO FORMA,
ACTUAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................. $2,916,807 $ 10,136,883
Total assets.................................................... $4,009,891 $ 13,185,613
Total liabilities............................................... $ 820,912 $ 1,868,509
Stockholders' equity............................................ $3,188,979 $ 11,317,104
</TABLE>
- ---------------
(1) Gives effect on a pro forma basis to the pending acquisition of the capital
stock of Canton, as to which the Company has entered into a definitive
acquisition agreement. The pro forma combined statement of operations data
for fiscal 1996 does not purport to represent what the Company's results of
operations would have been if such acquisition had been consummated on July
1, 1995. Although the Company anticipates that the acquisition will close
prior to the completion of this offering, there can be no assurance that
such transaction will close by such time, or at all. Proforma condensed
consolidated financial statements (unaudited) of the Company are included in
the "Financial Statements" section of this Prospectus.
(2) Net income per share is calculated on the basis of the weighted average
shares outstanding of Common Stock for each year presented. See Note 1 of
Notes to Consolidated Financial Statements.
(3) Gives effect on a pro forma, as adjusted basis to (a) the acquisition of
Canton, and (b) the sale by the Company of the Units offered hereby at an
assumed initial public offering price of $6.25 per Unit and the application
of the estimated net proceeds therefrom. See "Use of Proceeds."
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS AND ORGANIZATION
The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost, and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. The Company commenced
operations in 1991 as Birman & Associates, Inc. to provide its proprietary
Quality Management Program to hospitals to educate their medical staffs on
patient management. As an expansion of its business, the Company, through BMC
Health Plans, Inc., is developing and will operate various health plans in
association with physician networks and other health care providers based upon
its belief that it can apply its Quality Management Program experience to
improve the management and delivery of health care services in managed care
systems. As part of its health plan business, the Company will organize
physicians into independent practice associations, or networks, that will
provide services to health plans, including those operated by the Company. The
Company concentrates its efforts on rural communities, particularly in the
south-central, southeast, and central United States, with an initial focus for
its health plans in Mississippi and Tennessee, where the development of managed
care programs has lagged behind other areas of the country.
The Company has historically rendered its consulting services under
contracts with hospital-clients that typically provide for results oriented
compensation to the Company based upon increases in the hospital-clients'
revenue attributable to the Quality Management Program. The Company also has
fixed rate and combined fixed rate and results oriented engagements with certain
hospital-clients. Substantially all of the Company's revenue in its 1995 and
1996 fiscal years was derived from consulting fees from its Quality Management
Program.
The Company intends to leverage the expertise and professional
relationships it has gained from providing its Quality Management Program and to
capitalize on the evolution from traditional fee-for-service to capitated
systems in rural communities. The Company currently is developing and will
operate a variety of community-based, physician-driven, comprehensive health
plans. To accelerate entry into the health plan business in Mississippi, the
Company has entered into a definitive agreement to acquire Canton Management
Group, Inc., an inactive holder of a certificate of authority to operate an HMO
in Mississippi, and has arranged for MedSouth Inc. to provide health care
services through its provider network consisting of approximately 350
physicians, four hospitals, and several ancillary health service providers in
the Gulfport, Mississippi area. The Company currently anticipates that the
Mississippi HMO will commence operations in the fourth quarter of calendar 1996.
In addition, the Company plans to apply to the State of Tennessee for an HMO
license to utilize a physician network the Company is developing in that state.
To position itself for future expansion, in 1994 the Company was
incorporated as Birman Managed Care, Inc. in Tennessee to be the holding company
for Birman & Associates, BMC Health Plans Inc., and any other future
subsidiaries. In connection with the formation of the Company as a holding
company for its subsidiaries, in June 1995 Birman & Associates, Inc. distributed
to its then sole shareholder, David N. Birman, M.D., all of the shares of
capital stock of Birman Farms, Inc., a livestock breeding operation. In
September 1996, the Company was reincorporated as a Delaware corporation.
The following discussion of the results of the operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. Historical results and percentage relationships among accounts are
not necessarily an indication of trends in operating results for any future
period. The consolidated financial statements present the accounts of Birman
Managed Care, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company changed its fiscal year end for financial reporting purposes from
December 31 to June 30 beginning with the 1995 fiscal year.
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue represented by
certain items reflected in the Company's consolidated Statement of Operations
for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR
JUNE 30
---------------
1995 1996
----- -----
<S> <C> <C>
Revenue.............................................................. 100.0% 100.0%
Cost of revenue...................................................... 49.4% 27.1%
Gross margin......................................................... 50.6% 72.9%
Selling, general and administrative expenses......................... 64.7% 50.3%
Income (loss) from operations........................................ (14.1)% 22.6%
Other income (expense):
Interest expense................................................... (1.2)% (.5)%
Interest income.................................................... .6% .5%
Loss on sale of assets............................................. -- (.1)%
Income (loss) before provision for income taxes...................... (14.7)% 22.5%
Provision for income tax (expense) benefit........................... 4.7% (8.6)%
Income (loss) from continuing operations............................. (10.0)% 13.9%
Loss from discontinued operations.................................... (4.5)% --
Net income (loss).................................................... (14.5)% 13.9%
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 1995
Revenue. For the fiscal year ended June 30, 1996, revenue from the Quality
Management Program increased by $3.6 million to $8.4 million, or 75%, over the
revenue for fiscal 1995. This increase was attributable to the initiation of
engagements by new hospital-clients and an overall improvement in the Company's
results from the Quality Management Program as measured by increases in the
hospital-clients' Medicare related revenue. Period to period changes in the
volume of the Quality Management Program business of the Company is measured in
aggregate annual Medicare discharges of the Company's hospital-clients.
Aggregate Medicare discharges is a factor of the size and number of
hospital-clients. The aggregate Medicare discharges of the hospital-clients
increased from 31,000 in fiscal 1995 to 50,000 in fiscal 1996.
Cost of Revenue. The cost of revenue includes all costs directly
associated with the operations of the Quality Management Program, including
compensation of physicians and allied medical specialists, consulting staff
travel and lodging, and other direct costs of the Quality Management Program. In
fiscal 1996, the Company changed the compensation program for its physicians and
allied medical specialists from fixed per diem rates to a combination of salary
and performance-based arrangements and implemented a geographically focused
marketing plan that was effective in improving the utilization of existing
consulting personnel and resources. These changes reduced the cost of revenue by
approximately $100,000 in fiscal 1996. This cost decrease, combined with
increased revenue, resulted in a 22% improvement in the gross margin from fiscal
1995 to fiscal 1996.
Selling, General and Administrative Expenses. For fiscal 1996, selling,
general and administrative expenses increased to $4.2 million from $3.1 million
in fiscal 1995 as a result of a full year of costs of executive and
administrative personnel hired during fiscal 1994 to position the Company to
develop its health plan business, the expenditure of funds to develop the health
plan business, and the exploration of acquisition opportunities. In addition,
the Company increased its Quality Management Program marketing efforts. As a
percentage of revenue, selling, general and administrative expense decreased
from 64.7% to 50.3% in fiscal 1996, a 14% improvement, as a result of an
enhanced marketing plan that increased revenues significantly.
Interest Income and Expense. Interest income increased almost $20,000, or
64%, in fiscal 1996 over fiscal 1995 as a result of the accrual of interest on
loans made by the Company to Dr. Birman in connection with the farm operations
distributed to him in fiscal 1995. See "Discontinued Operations" below. Interest
19
<PAGE> 21
expense decreased approximately $13,000, an improvement of 23% in fiscal 1996
over fiscal 1995, as a result of the Company repaying the $483,896 outstanding
principal balance of its term loan.
Discontinued Operations. The losses from discontinued operations for
fiscal 1995 related to a farm operated by the Company during the period that Dr.
Birman was the sole shareholder of Birman & Associates, Inc. All assets and
liabilities related to the farm operation were distributed by the Company to Dr.
Birman as of the close of fiscal 1995. During fiscal 1996, no expenses were
incurred by the Company in connection with this discontinued operation. However,
the Company lent Dr. Birman approximately $28,000 per month throughout fiscal
1996 to fund negative cash flow experienced by the farm. See "Certain
Transactions."
SEASONALITY
Historically, revenue and operating results can vary significantly from
period to period based upon seasonality. The Company typically realizes a
substantial portion of its revenue during the calendar quarters ending December
31, March 31, and June 30, with significantly lower revenue realization during
the calendar quarter ended September 30. Additionally, revenue fluctuates from
month-to-month based on the total number of Medicare discharges experienced by
hospital-clients and hospital-clients' average case mix index reflecting
severity of illness. The Company anticipates that this seasonality will diminish
with the introduction of health plan revenue.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to market its Quality Management Program and
to develop and launch its health plan business including, among other costs, the
organization of the requisite management infrastructure necessary to implement
the Company's health plan business plan. During fiscal 1995, the Company
financed its operating and business development activities primarily through
operating revenue, a $500,000 principal amount term loan made available to the
Company by First American National Bank of Tennessee, the private placement of
shares of Common Stock, net collections on notes receivable from Dr. Birman, and
short-term borrowings from a director and unrelated third parties.
During fiscal 1996, the Company financed its operations and business
development activities primarily through operating revenue and the net proceeds
of a $1,605,043 private placement of Common Stock. In fiscal 1996, the Company
repaid the entire principal balance of its term loan using proceeds from the
private placement of Common Stock. In addition, the Company repaid $175,000 of
short-term borrowings through the exchange of 127,645 shares of Common Stock.
The Company is committed to acquire all of the outstanding capital stock of
Canton for $1,500,000, payable $700,000 in cash plus $800,000 by promissory
notes payable in four equal annual installments of $200,000 each plus interest
at the rate of 2% per annum on the unpaid principal balance. Additional capital
will be required to establish the reserves required under Mississippi and
Tennessee HMO regulations and to further develop and market the Company's health
plans.
The Company has recently arranged a $1,000,000 maximum principal amount
working capital line of credit facility with American National Bank and Trust
Company of Chicago. The credit facility is secured by a pledge of the Company's
Quality Management Program and quality assurance/utilization review accounts
receivable.
The Company believes that the net proceeds of this offering, together with
its existing cash resources and available credit facilities, will be sufficient
to meet the Company's anticipated acquisitions, expansion, and working capital
needs for the next 24 months. The Company, however, may raise capital through
the issuance of long-term or short-term debt or the issuance of securities in
private or public transactions to fund future expansion of its business either
before or after the end of the 24-month period. There can be no assurance that
acceptable financing for future transactions can be obtained.
20
<PAGE> 22
IMPACT OF NEW ACCOUNTING STANDARDS
Recent Pronouncements
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," which requires the Company
to review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. In
certain situations, an impairment loss would be recognized. SFAS 121 will become
effective for the Company's fiscal year ending June 30, 1997. The Company has
studied the implications of SFAS 121 and, based on its initial evaluation, does
not expect it to have a material impact on the Company's financial condition or
results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," which
establishes a fair value-based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies that elect not to
adopt the new method of accounting. The Company will continue to account for
employee purchase rights and stock options under APB Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123 disclosures will be effective for
fiscal years beginning after December 31, 1995.
21
<PAGE> 23
BUSINESS
OVERVIEW
The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost, and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. In pursuing these goals,
the Company currently provides its proprietary Quality Management Program to
hospitals to educate their medical staffs on patient management. As an expansion
of its business, the Company is developing and will operate various health plans
in association with physician networks, hospitals, and other health care
providers based upon its belief that it can apply its Quality Management Program
experience to improve the management and delivery of health care services in
managed care systems. As part of its health plan business, the Company will
organize physicians into independent practice associations, or networks, that
will provide services to the Company's health plans as well as to independent
health plans. The Company concentrates its efforts on rural communities,
particularly in the south-central, southeast, and central United States, with an
initial focus for its health plans on Mississippi and Tennessee, where the
development of health care management systems and managed care programs has
lagged behind other areas of the country.
Under its Quality Management Program, physicians employed by the Company
consult directly with attending physicians at hospital-clients regarding their
overall patient management program, as systematized in the medical record. The
Quality Management Program is designed to (i) improve patient care by
encouraging the use of the Company's proprietary methodology to assist
physicians in the identification of symptoms and conditions, to determine
appropriate treatment, and to prioritize the goals and objectives of the
treatment plan, (ii) reduce the cost to its hospital-clients of patient care as
a result of the early intervention in identified health problem, and (iii) more
accurately describe in the medical record the severity and complexity of the
patient's illness and the resources utilized to treat the patient. The benefits
of the Quality Management Program typically result in increased Medicare
reimbursements for the Company's hospital-clients.
To leverage the expertise and professional relationships it has gained from
providing its Quality Management Program and to capitalize on the evolution from
traditional fee-for-service to capitated systems in rural communities, the
Company currently is developing and will operate a variety of community-based,
physician-driven, comprehensive health plans. The Company's health plans are
being designed to provide high-quality and cost-efficient health care by
aligning the interests of physicians and their patients by involving selected
community physicians in the development and implementation of treatment
standards, by including selected leaders in the physician community as owners of
the local health plans, and by providing participating physicians with the
opportunity to share in savings realized from their own practice management
through the return of a portion of the risk pools established to protect against
cost overruns. The Company's health plans will offer a number of programs,
including a point-of-service option that will enable patients to control their
health care costs while maintaining access to a broad range of providers. Under
the point-of-service option, patients will have the flexibility to select
physicians participating in the Company's HMO, PPO, or indemnity plan at the
time service is sought in order to control their health care costs while
maintaining access to a broad range of providers.
INDUSTRY BACKGROUND
General
In response to escalating health care costs over the past 20 years, federal
and state governmental authorities have increasingly emphasized stringent
cost-containment measures and employers, consumers, and other purchasers of
health care have sought cost-effective alternatives to traditional indemnity
insurance, under which providers generally receive payment on a fee-for-service
basis.
Although traditional health insurance plans permit enrollees to select any
physician or hospital, enrollees are often responsible for significant
deductibles and provider charges in excess of reimbursement allowances.
Developed primarily as an alternative to traditional indemnity insurance, HMOs
arrange for the delivery of health care to enrollees through participating
health care providers for a fixed monthly premium with little or no deductibles
or copayments regardless of the frequency, value, or type of health care
services utilized.
22
<PAGE> 24
HMOs generally are able to arrange for health care delivery at lower costs than
those associated with traditional indemnity insurance plans by managing the
utilization of health care services, by imposing case management procedures, by
negotiating with providers for discounts from standard health care provider
rates, and through risk-sharing arrangements with the providers.
Since the mid-1980s, increased employer focus on health care costs,
employee choice, and flexibility in obtaining health care has led to the
development of additional managed health care options, some of which are
self-funded. These alternatives include PPOs and point-of-service options. In a
PPO, the enrollee obtains care from a network of preferred providers who provide
services on a discounted fee-for-service basis. A point-of-service option offers
a combination of HMO, PPO, and indemnity insurance. Option plans have gained
favor with some large employer groups because they allow consolidation of health
benefit programs and often permit the enrollee to choose providers within the
HMO or to select a PPO or unaffiliated provider at a higher out-of-pocket cost.
While increasingly popular as a means of expanding employee choice, these
alternatives also result in increased health care costs to employers to the
extent that employees select health care options without the managed care
features of HMOs.
Medicare and Medicaid
In 1965, Congress enacted the Medicare and Medicaid programs as a part of
the Social Security Amendments. Medicare is a national health insurance program
for disabled and aged Americans that separates coverage for inpatient hospital
services and physician services, compensates physicians on a "usual and
customary" charge basis, and pays hospitals on a reasonable cost basis. In
general, most Americans who either (i) are age 65 or older, (ii) receive
disability payments under Social Security, or (iii) need a kidney transplant or
renal dialysis are entitled to inpatient hospital services, commonly known as
Medicare Part A benefits. By paying a monthly fee, any person entitled to Part A
benefits also may choose to receive additional coverage for physician and
outpatient ambulatory service coverage, commonly known as Medicare Part B. The
Medicare program is administered by HCFA, a division of the Department of Health
and Human Services, although HCFA has assigned most of the day-to-day
administration of the Medicare program to private enterprises, such as insurance
companies, appointed as fiscal intermediaries.
In response to spiralling increases in Medicare expenditures, significant
amendments were made to the Medicare program in 1983, including a conversion of
the Part A program to the prospective payment system. Under Part A of the
Medicare program, the Medicare program currently pays a hospital a preset amount
on a per-case basis based upon a prospectively assigned reimbursement value. A
prospective payment is established by classifying each Medicare patient admitted
by the hospital into one of 495 diagnosis-related groups ("DRGs"). Each DRG is
cost-weighted based on an index of average costs set by HCFA. To determine the
reimbursement rate for the hospital, the relative cost weight for an assigned
DRG is then multiplied by a blended rate assigned to the hospital that takes
into account various factors, such as location, Medicare utilization, and
community economics.
The average value of all DRGs assigned to cases within a given time frame
is referred to as the case mix index ("CMI"). The CMI represents the average
severity of the cases treated by a hospital. The greater the severity of
illness, the higher the CMI; the greater the CMI, the higher the Medicare
reimbursement. A hospital must efficiently provide high-quality care and
accurately report its severity of illness through appropriate DRGs in order to
realize fair compensation under the Medicare system.
Medicaid is a federal/state program that provides medical assistance for
low income individuals who are aged, blind, disabled, or eligible for Aid to
Families with Dependent Children assistance. In general, each state administers
its own Medicaid program. The amount of federal payments contributed to each
state's Medicaid program is based upon the state's per-capita income level. To
qualify for federal Medicaid funds, a state Medicaid program must meet minimum
requirements regarding coverage and services. States also may elect to extend
coverage to larger populations or offer a broader range of services. Under
Medicaid, hospitals are generally paid based on their reasonable costs or
variations on prospective payment systems and physicians are paid using a
charge-based system, fee schedules, or relative value scales.
23
<PAGE> 25
Managed Care
Managed care encompasses various arrangements among health care providers,
payors, and enrollees that apply utilization review, utilization of
authorization systems, case management, and allocation of risks and rewards to
increase the efficiency of delivery of health care services. Managed care
delivery systems may include coalitions of independent medical practices,
alliances between hospitals and individual medical practices or physician
networks, PPOs, and HMOs. The primary tools used to manage the allocation of
health care services are capitation and other prepayment arrangements that
transfer a portion of the financial risk of providing health care services to
the providers. Under capitation programs, health care providers receive payment
in advance in a fixed monthly amount per member per month or a fixed amount upon
the occurrence of a specific defined health problem. As a result, the provider
bears the economic risk that the actual cost of caring for plan enrollees
exceeds the capitation rate. Through contributions to and participation in risk
pool reserves, the health plans create economic incentives designed to encourage
providers to monitor enrollees, eliminate inefficiencies, and reduce unnecessary
utilization of services while maintaining and improving the quality of patient
care.
Managed care systems generally assign responsibility for a patient's
medical care to a primary care physician who monitors case history, coordinates
medical services, and typically authorizes, in advance, all specialty and
non-primary care services other than emergency care. Prepaid health plans are
designed to obligate providers to plan and coordinate the services administered
to enrollees, assure the continuity and appropriateness of care, and control the
use of medical resources through (i) utilization management, (ii) case
management, and (iii) associated quality assurance verifications (collectively,
"Treatment Standards"). Utilization management is a process occurring before
authorization of treatment that evaluates the need for and extent of treatment.
Case management is the process occurring after authorization of treatment to
monitor the actual administration of treatment. Quality assurance is the ongoing
evaluation of the level of care being provided to the patients. In many large
managed care organizations, Treatment Standards are set on a company-wide or
national basis by a panel of physicians, allied health professionals, and
business personnel employed by the health care company. The Company believes
that health plans that require local physicians to adhere strictly to
company-wide or national Treatment Standards often limit the physicians'
autonomy and thereby weaken the traditional physician-patient relationship.
Payors, including governmental entities and employers, increasingly expect
health care plans and providers to develop and maintain quality results through
utilization review and quality assurance programs and to accept an allocable
share of the risk of providing medical care. This focus on cost-containment and
financial risk sharing has placed independent providers and small and mid-sized
provider groups at a significant competitive disadvantage because of their
typically higher operating costs, limited purchasing power, and limited risk
management experience. Accordingly, many providers have sought to affiliate with
experienced organizations that manage the non-medical aspects of their
practices, such as office management and billing.
Company Position
Based upon its Quality Management Program experience, the Company believes
that providers in rural areas prefer management organizations that are local in
nature and permit physician ownership and involvement in setting Treatment
Standards. In both its Quality Management Program and its health plan business,
the Company recognizes the importance of the physician as the director of the
consumption of medical services for patients. In the Quality Management Program,
physicians employed by the Company work directly with a hospital-client's
attending physicians to improve their identification of symptoms and conditions,
diagnosis, utilization management, and case management. The Company's health
plan business will feature networks of community-based physicians who will
establish Treatment Standards at a local level and who will have a financial
interest in the efficient delivery of appropriate health care. Through the
unique involvement by physicians, the Company believes that its Quality
Management Program and health care systems address industry concerns and create
attractive and distinctive products.
24
<PAGE> 26
GROWTH STRATEGY
The Company's strategy is to build on the strong reputation, health care
and management experience, and market position of its Quality Management Program
to further expand that consulting business and to penetrate rapidly the managed
care segment of the industry. The Company plans to employ the following
strategies to reach these objectives:
- Focus on Rural Markets. The Company plans to focus its Quality
Management Program and health plan operations predominantly in rural areas
in order to take advantage of the lack of market penetration, less
competitive market conditions, and the local reputation and relationships
it has developed through its Quality Management Program. Large,
urban-based medical consulting and managed care providers historically
have not concentrated their efforts on rural areas. As a result, rural
areas are served by fewer health care organizations than larger
metropolitan areas and competitive factors are less intense. In addition,
the Company's experience in serving rural areas through its Quality
Management Program has resulted in the Company gaining a reputation and
relationships in these areas and enhancing its understanding of the
special characteristics of health care in these areas.
- Focus on the Role of the Physician. The Company focuses on the role of
the physician as the most important factor in the delivery of health care
services. The Company's health plans will be organized to align the
interests of the participating physicians with those of the patients, to
enhance the physician-patient relationship, and to reduce the influence of
third parties in the delivery of health care services in local
communities. Local physicians will participate in establishing Treatment
Standards, have an ownership interest in the Company's health plans
serving the physicians' community, and share in risk pools savings. The
Company believes that these factors will enable it to attract and retain
local physicians for its health plans and to utilize the reputation of
these local providers to attract payors and enrollees.
- Develop New Quality Management Program Clients and Services. The Company
plans to increase the number of its clients for its Quality Management
Program by expanding its marketing efforts in its existing market areas,
entering new market areas, and offering new services to existing and new
clients. The Company intends to develop and offer to its Quality
Management Program clients a comprehensive line of additional services
that will ultimately include utilization review of patient care services,
medical information management, access to proprietary computer database
information to evaluate trends in patient treatment, and development of
billing procedures for third-party payors under traditional indemnity,
managed care, and governmental plans.
- Launch Health Plans Applying the Quality Management Experience. The
Company plans to utilize the experience it has gained in its Quality
Management Program in the areas of patient case management, efficient
utilization of health care resources, and proper substantiation of
treatment to assist community physicians in participating in the
establishment of Treatment Standards for the Company's health plans. The
Company believes that this expertise will enable it to transition
providers in rural areas successfully from traditional fee-for-service
reimbursement to capitated health care plans.
QUALITY MANAGEMENT PROGRAM
Concept
Under its Quality Management Program, the Company's specially trained
physicians provide consultation to attending physicians regarding the overall
treatment of patients and the documentation of such treatment with a view
towards improving patient care, containing the cost of patient care, optimizing
the receipt of appropriate Medicare reimbursements, working to reduce
malpractice claims, and improving patient satisfaction. The central premises of
the Quality Management Program are (i) recognizing the physician as the primary
director of medical services for the patient and (ii) assisting the physician to
develop a problem-oriented format that produces a complete, consistent, and
legible medical record that is essential to quickly and accurately identify and
prioritize disease conditions and treatment plans in order to improve patient
care and patient satisfaction, reduce the cost of health care by controlling
resource consumption, ensure receipt of appropriate Medicare reimbursement, and
reduce malpractice claims.
25
<PAGE> 27
The attending physician is responsible for the initial patient contact, the
initial evaluation of symptoms and conditions, preliminary diagnosis, hospital
admissions, referrals to specialists, ordering of laboratory services, and
prescribing medication. This places the attending physician in the unique
position of influencing the hospital's reimbursement revenue, costs, and
liability. Since the writing of orders is the responsibility of the attending
physician, the attending physician in essence controls the process and usage of
almost all health care. As a result, a significant aspect of the Quality
Management Program involves consultation and training of the attending physician
at the hospital in facilitating efficient delivery of high-quality health care.
The medical record is the primary tool used by physicians to direct the
medical treatment of a patient, communicate instructions to other health care
service providers, evaluate the progress of the patient, support reimbursements
from third-party payors, including Medicare, and evidence compliance with
Treatment Standards and professional responsibilities. The Company believes that
complete, systemized, and legible medical records enable physicians to design
and record appropriate treatment plans, similar to a business plan, to address
symptoms and conditions that affect the patient from admission to discharge, and
to prioritize, in writing, goals and objectives for appropriate management.
Through the formulation of treatment plans and improved documentation, the
physician focuses on proper diagnosis and thereby becomes more effective in
measuring the patient's severity of illness and progress. The Quality Management
Program also typically results in a more accurate reporting of the hospital's
DRG elections, which results in increased Medicare reimbursement to the
hospital.
The treatment plans and documentation may be applied to clinical guidelines
and quality assessment procedures to increase the total quality of care and
evidence compliance with Treatment Standards. Recognition of the severity of
illness and well-documented records of treatment reduces the likelihood of
errors and omissions, thereby decreasing the liability exposure to the physician
and the hospital.
Operations
Following engagement, the Company assigns a team consisting of a physician
and an allied health specialist to each hospital-client. The team profiles the
client's Medicare patient medical records and identifies problem areas (such as
legibility, proper documentation of patients' histories and physical condition,
discharge summaries, and patient education) in order to identify the specific
hospital-client's needs. After an extended program introduction, the team
interacts on a weekly basis with attending physicians and allied health
professionals in the hospital, on a peer-to-peer level, to assist them in
adopting in their daily routines the practice management methods underlying the
Quality Management Program. A Company executive informs the hospital's chief
executive officer or chief financial officer of the status of the engagement
through a monthly report that summarizes net revenue to the client, changes in
CMI, and other operating information.
The Quality Management Program emphasizes a problem-solving approach.
Working with the hospital-client's medical records, the Company's physicians
conduct concurrent and retrospective reviews to train attending physicians to
present their findings of symptoms and conditions more thoroughly; to specify
clinical care; to prioritize treatment goals and objectives; to document
properly the process of patient management; and to work to use hospital-client
resources effectively. The Company's allied health specialists educate the
hospital-client's allied health staff regarding the reimbursement process,
encourage coding decisions recognizing legitimate resource expenditures, and
assure proper preparation and maintenance of supporting documentation. As a
result, this program supports the implementation of quality health care
services, while creating a medical record that supports the selection of coding
options that provide optimal and appropriate reimbursement.
The Company knows of no principal competitor that features peer-to-peer
training of physicians. The Company believes that the use of physicians on its
consulting staff heightens the Company's professionalism and expertise, provides
greater flexibility in addressing client needs, and maximizes the Company's
impact and value for its clients. These factors distinguish the Company from
other firms offering competing services.
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Fee Structures
A key feature of the Quality Management Program is the Company's fee
arrangements. The Company offers fee arrangements that are (i) results oriented,
(ii) fixed for the term of the contract, or (iii) a combination of fixed fee and
results oriented arrangements. Results oriented fees are measured by increases
in the hospital-client's revenue attributable to the Quality Management Program.
While the Company's revenue from each client varies depending on client size,
the Company receives an average monthly fee of approximately $30,000 per client.
The Company generally enters into two-year agreements with each hospital-client,
which are often renewed.
Client Benefits
The Company believes that its Quality Management Program provides
hospital-clients with improved quality of care and cost effectiveness, increased
patient satisfaction, better utilization of hospital resources, increased
compliance with Medicare coding and reimbursement requirements, increased net
revenue and realization of appropriate payment for services rendered, and
decreased liability exposure. While considerable variation in reimbursement
gains occur on a per-hospital basis as a result of factors such as hospital size
and patient population mix, Quality Management Program hospital-clients
typically experience increased Medicare reimbursements of between 10% and 25%
within the first year of the Company's engagement.
HEALTH PLANS
Concept
To leverage the expertise and professional relationships it has developed
through its Quality Management Program, the Company currently is developing a
variety of community-based, physician-driven, comprehensive health plans. To
align the interests of the participating physicians with those of the enrollees,
local physicians will participate in establishing Treatment Standards and will
share in cost savings in patient care through the return of a portion of risk
pools established to protect against cost overruns. In addition, selected
physicians will have an ownership interest in the local health plans and
management service organizations to be organized by the Company. The Company
anticipates that the Treatment Standards will encourage participating physicians
to apply the Company's Quality Management Program in their practices in order to
improve the efficiency of the delivery of health care services and thereby
maximize their returns from the risk pools.
Through health-care providers, the Company's health plans will offer
enrollees a comprehensive range of health care services, including ambulatory
and outpatient physician care, hospital care, and ancillary diagnostic and
therapeutic services. The Company also intends to provide vision, prescription
drug, and dental services on an indemnity basis.
The Company's health plans will include HMO, PPO, and point-of-service
options. The point-of-service option will allow enrollees to choose from among
participating and non-participating providers each time medical attention is
desired. The point-of-service option will be available for all types of
enrollees, including Medicare and Medicaid enrollees, if applicable. See "Risk
Factors -- Risk of Limited Health Plans." In order to provide the PPO and
point-of-service options, the Company has entered into an alliance with NBR
under which NBR will arrange licensing, product development, indemnity insurance
coverage, reinsurance coverage, provider excess insurance coverage,
underwriting, and insurance compliance services. The Company will pay NBR a fee
equal to 4.5% of the gross premium revenues derived from the health plans. The
Company and NBR are addressing a more comprehensive alliance agreement that
will, among other things, permit NBR to designate a representative to the
Company's Board of Directors at a later date.
Because of the Company's presence in the rural south-central, southeast,
and central United States health care market, the initial market area for the
Company's health plans will be in Mississippi and Tennessee. Currently, the
Company is establishing provider networks for its health plan business and
initiating the licensure process to operate health plans in these states. The
Company currently anticipates that its first health plan will be operational in
Mississippi in the fourth quarter of calendar 1996.
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Plan Management
The Company plans to organize separate community-based management service
organizations ("MSOs") to provide administrative services to each community
health plan and physician network. The Company will centralize each MSO's
management and administrative services. Each MSO will be owned by the Company
and selected participating physicians. These MSOs will afford providers with
access to the experience of the Company in the health care business and in the
Quality Management Program. The economies of scale inherent in a MSO will enable
the Company to reduce operating costs by centralizing certain clerical
functions, group purchasing, claims processing, and negotiation of health plan
contracts.
Once physician networks are established in a market, the Company will
administer capitated contracts by profiling costs of care based on patient
populations, analyzing physician treatment patterns, and monitoring specific
health plan contract requirements. The Company believes that its Quality
Management Program experience in the areas of information systems, utilization
management, physician relationships, reimbursement, and case management will
provide it with an advantage in providing these aspects of its health plan
business.
Unlike many large national organizations, each MSO will have its own
committee in which local physicians will participate. The committee will
implement a quality assurance program for the health plan, conduct peer reviews
to assure compliance with MSO rules and other Treatment Standards, and implement
and review other Treatment Standards. The Company will encourage providers to
apply the Quality Management Program methodology in their delivery of
cost-effective, quality care.
After formation of the MSOs, the Company intends to represent the physician
networks in arranging access by other health plans operating in the local
communities and to market the physician networks and MSO administrative services
to large, self-funded employer groups. Under self-funded plans, employers self-
insure their health care expenses and pay for health care claims as such claims
are incurred. The Company will offer utilization review, case management,
provider network discounts, and claims processing for these self-insured plans.
To provide utilization review and case management services to the health plans,
in June 1996 the Company acquired Hughes & Associates, Inc. ("Hughes"), a
Jackson, Mississippi-based company. Hughes acts as the health care authorization
service for a number of indemnity insurance companies and health plans and is
certified to provide utilization review services in Tennessee, Mississippi, and
Louisiana.
Anticipated Sources of Revenue
The Company expects to generate health plan revenue from (i) premium
charges to employers and enrollees, (ii) Medicare and state welfare system
payments, and (iii) network access fees charged to self-funded employers and
other health care plans. The Company intends to structure its premium rates
primarily through community rating, based upon the aggregate costs of basic
benefit plans for the Company's entire membership population calculated on a
per-member/per-month basis and converted into premium rates based on coverage.
The Company intends to adjust the premium rates for various groups based upon
the average age, sex, claims experience, utilization experience, incurred but
not reported claims, inflationary factors, credibility, and reinsurance pooling
levels. The enrollees will pay copayments, coinsurance, or deductibles at the
time certain services are provided in order to encourage appropriate utilization
of health care services by enrollees.
The Company envisions that it will contract with Medicare and state welfare
systems to provide its health care services. Mississippi has recently enacted
legislation that encourages state welfare participation in managed care
programs. Tennessee provides state welfare system access to HMOs and PPOs
through TennCare(TM).
The Company's MSOs will receive a percentage of the premiums paid to the
Company's health plans as fees for its management services. Each of the
Company's health plans will contract with its applicable MSO for the provision
of management services.
The Company intends to represent its provider networks in negotiating with
self-insured employers and other health care systems for access to the provider
network. Access fees will vary depending upon the number
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of providers in the network. The Company also may provide administrative,
utilization review, case management services, provider network discounts, and
claims processing to self-insured employers for a fee.
Provider Fees
The Company's health plans will compensate physicians, hospitals, and other
health care providers through capitation or discounted fee-for-service payments.
The Company intends to compensate its capitated providers at a flat
per-member/per-month rate, utilizing financial participation in risk pools to
encourage physicians to provide high-quality medical care through the
application of the Company's Quality Management Program. The PPO providers will
be compensated on a discounted fee-for-service basis, and the indemnity
providers will be paid on pre-established fee schedule rates, less deductibles
and coinsurance amounts paid by enrollees. Providers generally will be required
to obtain pre-authorization for certain treatments and will be obligated to
deliver health care according to the health plan's Treatment Standards in order
to assure proper treatment and prevent inappropriate charges. The Company will
obtain reinsurance of catastrophic and excess claims through NBR. Thus, the
health plans will allocate financial risk among the Company, participating
providers, insurers, and enrollees.
Recent Developments
Mississippi. The Company plans to launch its first health plan in
Mississippi during the fourth quarter of calendar 1996. To accelerate entry into
the health plan business in Mississippi, the Company has entered into a
definitive agreement to acquire Canton, an inactive holder of a certificate of
authority to operate an HMO in Mississippi, and has arranged for MedSouth to
provide health care services through its provider network consisting of
approximately 350 physicians, four hospitals, and several ancillary health
service providers in the Gulfport, Mississippi area. The Company has also
established a MSO to provide administrative and management services to MedSouth.
Upon closing of the acquisition of Canton, the Company will be in a position to
provide HMO health care services to enrollees in six counties in southern
Mississippi. The Company then intends to enlist other service providers,
primarily in the northern and the Delta regions of Mississippi, and to apply for
qualification to provide services to Medicaid beneficiaries in Mississippi. The
sellers of Canton and MedSouth will be minority owners of the Mississippi health
plan, and MedSouth will have an ownership interest in the MSO that will provide
administrative services to MedSouth. The Company anticipates that it will be in
a position to offer PPO and point-of-service options to enrollees in Mississippi
approximately six months after the introduction of the HMO.
Tennessee. The Company, together with 35 local primary care
physician-shareholders, has organized a provider network for a health plan to
serve 16 counties in the Cumberland Valley region of Tennessee. The physician
network has contracted with over 285 primary care physicians and 650 specialty
physicians to provide services on a capitated fee and discounted fee for service
basis. The Company is in the process of contracting with hospitals and other
providers to complete this network. The Company plans to apply to the state of
Tennessee for an HMO license utilizing this network in the fourth quarter of
calendar 1996. The Company also has organized a MSO to provide administrative
services to the network and the health plan.
Kentucky. The Company has identified Kentucky as a natural extension of
its health plan business because of its proximity to Tennessee, a favorable
regulatory environment, and the Company's experience in Kentucky with its
Quality Management Program. The Company recently has begun discussions with
representatives of four independent practice associations that are possible
candidates for the basis of a physician network in central Kentucky.
SALES AND MARKETING
The Company markets its Quality Management Program through a direct sales
force consisting of three full-time sales professionals. The sales force employs
a team marketing approach utilizing Company physicians. The Company participates
in hospital trade shows and utilizes a proprietary database to identify
prospective hospital-clients on the basis of CMI and demographic information.
The Company has found that its most successful engagements have evolved from
acceptance of its Quality Management Program by each
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of the hospital-prospect's administrative, attending physician, and medical
records staff groups. Once the Company has identified a prospective
hospital-client, it provides introductory information designed to demonstrate
the effectiveness and potential benefits of the program to the prospect's senior
administrative and financial officers. Thereafter, the Company follows a
coordinated effort to include the hospital's attending physicians and medical
records specialists in the engagement decision making process.
The Company currently plans to market its health plans through a small
direct full-time sales force that will include members of the Company's senior
management and local and national third-party brokers and agents. The Company
will market its health plans to local commercial employers, individuals, and
self-funded employers. In addition, the Company will contract with sponsors of
government programs such as state welfare agencies. Once a payor has selected
the Company to provide health plan services, the Company will shift its
marketing focus to prospective enrollees through newsletters, brochures,
enrollee education programs, seminars, direct mail advertising, and responses to
satisfaction surveys. The Company intends to develop print advertising directed
at payors and direct advertising to prospective enrollees through consumer media
campaigns. The Company's marketing programs will emphasize the local physician
ownership of the health plan, commitment to preventative care, access to quality
providers and services, understanding of the particular local market, variety of
products, and price stability. The Company believes that the local physician
ownership of its health plans will be advantageous to its marketing effort in
the Gulfport, Mississippi area where it will offer its first health plan.
The Company intends to apply for Medicaid approval of its health plans in
Mississippi and Tennessee. Once its plans are so approved, the welfare agency in
each state will assign Medicaid-qualified residents to the Company's health plan
after giving consideration to the patient's choice of physician and choice of
available health plans. The Company's physician network will provide services to
Medicaid recipients in return for capitated payments. The Company believes that
its name recognition and reputation as a locally owned health plan will be
significant factors in encouraging Medicaid recipients to select the Company's
health plan over competing plans. The Company intends to apply for Medicare risk
contracts after each health plan reaches minimum commercial membership
requirements.
CUSTOMERS
Since 1991, the Company has provided its Quality Management Program in
approximately 80 hospitals located in 13 states. Currently, the Company is
providing its Quality Management Program at approximately 31 hospitals in 10
states. The Company's clients are located principally in rural markets where
health care facilities frequently lack the resources to develop internal quality
training programs. The Company seeks two-year agreements with each Quality
Management Program client. The Company's engagement is often continued beyond
the initial two-year term on a fixed fee basis. Out of approximately 80
engagements, only three have been terminated prior to the end of the two-year
term.
Services provided to hospitals operated by Quorum resulted in approximately
42% of the Company's revenue in fiscal 1996. Quorum operates 249 acute care
facilities in 41 states. Over the past five years, the Company has provided its
Quality Management Program at 33 Quorum-operated facilities. Currently, the
Company is providing Quality Management Program services at 12 Quorum-operated
facilities. Historically, the on-site management of each Quorum hospital has
made its own decision regarding the engagement of the Company and the Company
has entered into a separate contract with each engaging Quorum facility. The
Company has no long-term contractual or other relationships with Quorum.
The Company anticipates that the customers of its health plan business will
include employees and individuals located in its health plan market areas and
state welfare agencies servicing Medicaid recipients located in those areas.
Large employers offering self-funded health plans will be sought as customers of
the Company's MSOs. See "Business -- Sales and Marketing."
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COMPETITION
Although its Quality Management Program services are significantly
different from those offered by other hospital consulting services, the Company
competes for consulting business primarily with revenue-optimization service
companies. Approximately 500 to 700 companies of varying size offer
revenue-optimization services that may be considered competitive with the
Company. Competitors include the health care consulting practice groups of
Andersen Consulting, the Gailer Review Group, Health Care Management Advisors,
Inc., Iameter, MC Strategies, Inc., National Coding Service, Inc., Quality
Medical Consultants, Inc., and J. A. Thomas & Associates, Inc., an Ernst & Young
preferred provider. Most of these firms have substantially greater financial,
technical, marketing, and management resources than the Company. The Company
does not believe that any single company commands significant market share.
Larger, more established consulting firms have an enhanced competitive position
due, in part, to established name recognition and direct access to
hospital-clients through the provision of other services. Smaller firms,
although not necessarily offering services comparable to those of the Company,
compete on the basis of price. There can be no assurance that the Company will
continue to be able to compete successfully. The Company competes for its
Quality Management Program clients by distinguishing its services from those
provided by revenue optimization service companies, which generally do not use a
physician-dominated consulting staff comparable to that of the Company or
embrace a peer-to-peer teaching approach.
The managed care industry is highly competitive. The Company's health plans
will compete with other providers of health care services, including regional
hospitals and physician practice groups. Competitors include large indemnity
insurers with established managed care operations, such as Aetna, Blue Cross &
Blue Shield, CIGNA, and Prudential; HMOs, such as U.S. Health Care, Humana,
Kaiser Permanente, and Quorum; physician management companies, such as
MedPartners/Mulliken; and physician sponsored organizations. Many competitors
offer a broader range of health care services than the Company's health plans
will offer, have extensive relationships with group specialty practices, and
have financial, managerial, marketing, and technical resources that are much
greater than those of the Company.
The managed health care industry has experienced significant changes in
recent years, primarily as a result of rising health care costs. Employer groups
have demanded a variety of health care options, such as traditional indemnity
insurance, HMOs, PPOs, and point-of-service options. The Company's proposed
operations ultimately will compete with providers of all of these products. The
Company will be required to respond to various competitive factors affecting the
health care industry generally, including new medical technologies that may be
introduced, general trends relating to demand for health care services,
regulatory, economic, and political factors, changes in patient demographics,
and competitive pricing strategies by HMOs and other health care plans. The
Company will be subject to competition in any new geographic area it may enter,
with respect to any products it may offer, and with respect to any commercial
and governmental health care programs developed. There can be no assurance that
the Company will be able to compete successfully.
The Company believes that health plans are in demand in rural communities
where the transition from traditional fee-for-service to capitation has lagged
other areas of the country. The Company believes that the principal competitive
factors in the health plan market include price, participation by practicing
physicians, reputation in the community and other rural markets, documented
performance, profitability, and quality. Based upon these competitive factors,
the Company believes that it will be able to compete successfully in the rural
markets by adhering to its business strategy.
GOVERNMENT REGULATION
The Company is subject to various state and federal laws that regulate the
relationship between providers of health care services and payors as well as
laws and regulations relating to business corporations in general. Although many
aspects of the Company's Quality Management Program have not been the subject of
state or federal regulatory interpretation, the Company believes its current
operations are, and its proposed operations will be, in material compliance with
applicable laws. There can be no assurance, however, that a review of the
Company's current or proposed businesses by courts or regulatory authorities
will not result in a determination
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that could adversely affect the operations of the Company or that the health
care regulatory environment will not change so as to restrict the Company's
existing operations or their expansion.
In recent years, numerous legislative proposals have been introduced or
proposed in the United States Congress and in some state legislatures that would
effect major changes in the United States health care system at both the
national and state level. It is not clear at this time which proposals, if any,
will be adopted or, if adopted, what effect such proposals would have on the
Company's business. There can be no assurance that currently proposed or future
health care legislation or other changes in the administration or interpretation
of governmental health care programs will not have a material adverse effect on
the Company.
Licensure
All states impose licensing requirements on individual physicians and on
certain types of providers of health care services. While the performance of
consulting services to hospitals and management services on behalf of medical
practices does not currently require any regulatory approval on the part of the
Company, there can be no assurance that such activities will not be subject to
licensure in the future.
Corporate Practice of Medicine
Many states, including Mississippi, Tennessee, and Kentucky, maintain
prohibitions against physicians practicing medicine as a business corporation.
These laws vary from state to state and are enforced by the state courts and
regulatory authorities with broad discretion. The Company could incur liability
in the event it fails to enter into appropriate contractual arrangements with
physicians or other health care professionals in conjunction with its consulting
activities or health plans. The Company will not employ physicians to practice
medicine, will not represent to the public that it offers medical services, and
will not control or interfere with the practice of medicine by physicians.
Accordingly, the Company does not believe that its operations will violate
applicable state laws regulating the practice of medicine by a business
corporation. However, because the laws governing the corporate practice of
medicine vary from state to state, any expansion of the operations of the
Company to a state with strict corporate practice of medicine laws may require
the Company to modify its operations, resulting in increased financial risk to
the Company. In addition, there can be no assurance that the Company's
arrangements with health care providers will not be successfully challenged as
constituting the unauthorized practice of medicine.
State Fee-Splitting and Referral Prohibitions
A number of states have enacted laws that prohibit the payment for
referrals and other types of kickback arrangements and prohibit physicians from
splitting professional fees. These statutes are sometimes quite broad and, as a
result, prohibit otherwise legitimate business arrangements. A number of states,
for example, prohibit compensation arrangements that provide for the payment of
rent for furnishing space, facilities, equipment, or personnel services used by
a licensed physician based on a percentage of income from such physician's
practice. Penalties for violating these statutes may include revocation,
suspension, or probation of the physician's license or other disciplinary
action, as well as monetary penalties. Alleged violations also have been used to
declare a contract to be void as against public policy.
As described below, many states have enacted laws that prohibit physicians
and, in some cases, all health care workers, from splitting fees or referring
patients to entities with which such physician or health care worker has a
financial relationship, regardless of the patient's source of payment. Most
states provide exceptions that permit health care workers to provide health
services personally and as part of a group practice.
Tennessee prohibits a physician from referring patients to an entity in
which the physician has an investment interest. The definition of an investment
interest does not include an investment in a publicly traded entity. Penalties
for violation of this prohibition include licensing sanctions and civil
penalties up to $5,000 for each prohibited referral.
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Kentucky prohibits a health care provider from knowingly soliciting,
receiving, or offering any remuneration in return for purchasing, leasing,
ordering, or arranging for any goods, service, or items for which payment may be
received, regardless of the source of payment. In addition, no provider may
knowingly make, offer, or receive a payment for referring a patient to another
provider for the furnishing of benefits regardless of the source of payment. The
penalties for a violation of this provision may be a fine, prohibition on
billing or collecting from patients or third-party payors, or repayment of
reimbursement for the services related to the referral. In addition, Kentucky
prohibits a physician from giving or receiving, directly or indirectly, any
compensation for referring a person to communicate with a licensed physician in
such physician's professional capacity or for any professional services not
actually and personally rendered. The penalties for a violation of this
provision may be a five-year probation or suspension or revocation of such
physician's license.
Pursuant to the terms of the Quality Management Program agreements and the
proposed management services agreements for the Company's health plans, the
Company will receive fees based upon receivables and a percentage of premiums.
The Company believes that its fee structures comply in all material respects
with the fee splitting laws of the states in which it currently operates or
proposes to operate in the future. However, there can be no assurance that such
laws will not be interpreted broadly or amended to be more expansive. Further,
expansion of the operations of the Company to certain jurisdictions may require
it to comply with such jurisdictions' regulations, which could require
structural and organizational modifications of the Company's business. Such
changes, if any, could have a material adverse effect on the Company. However,
since the Company believes that it meets many of the states' exceptions and
intends to structure its health plans to comply with such statutes, the Company
believes that the risk of state action taken against the Company or any of the
Company's contracted health care providers pursuant to the above-referenced
provisions is minimal.
State Regulation of Insurance Business and HMOs
Laws in all states regulate the business of insurance and the operation of
HMOs. Many states also regulate the establishment and operation of networks of
health care providers. Many state insurance commissioners have interpreted their
insurance statutes to prohibit entities from entering into risk-based managed
care contracts unless there is an entity licensed to engage in the business of
insurance in the chain of contracts. An entity not licensed to provide insurance
that contracts directly with a self-insured employer in such a state may be
deemed to be engaged in the unlicensed business of insurance. The Company
intends to obtain all required or appropriate licenses for its health plan
business operations as an HMO or as a provider network. NBR has agreed to
arrange licensed insurers to provide indemnity coverage to enrollees in the
Company's health plans. The Company believes that it is and will be in
compliance with the laws that regulate the business of insurance in the states
in which it does business, but there can be no assurance that future
interpretations of insurance and health care network laws by regulatory
authorities in these states, or in the states into which the Company may expand,
will not require licensure or a restructuring of some or all of the Company's
operations.
Many states also require managed care organizations to contract with any
willing qualified provider that desires to contract with the organization. The
Company could incur liability in the event a managed care organization under the
Company's control fails so to contract.
Federal Medicare and Medicaid Related Regulation
Since the Company's Quality Management Business focuses on Medicare
reimbursement and the Company's health plans will provide services to Medicare
and Medicaid patients, the Company is and will be subject to a number of federal
laws prohibiting certain activities and arrangements relating to services or
items, that are reimbursable by Medicare or Medicaid or other state-funded
programs.
The False Claims Act. The False Claims Act imposes civil liability on
persons or corporations that make false or fraudulent claims to the government
for payment. A violation of the False Claims Act may result in liability for
monetary penalties and exclusion from the Medicare and Medicaid programs. The
Company takes measures to ensure that hospital-clients of its Quality Management
Program do not submit false or fraudulent claims to the government, and the
Company intends to take similar protective measures with respect to its health
plan business. Because the Company's current revenue relates to Medicare
payments
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and the Company anticipates that the health plan business could, in the future,
receive significant revenue from Medicare and Medicaid, an exclusion from the
Medicaid and Medicare programs as a result of a violation of the False Claims
Act could have a material adverse effect on the Company.
Prohibition on Assignment. The Medicare and Medicaid laws prohibit the
assignment of Medicare and Medicaid receivables. As a result, the Company could
not obtain a pledge of Medicare and Medicaid receivables as security for payment
of remuneration owed to the Company by a health care provider if it so desired.
Similarly, the Company could not pledge or assign its Medicare and Medicaid
receivables as security for bank lines of credit or other lending arrangements.
Anti-kickback Statute. Certain provisions of the Social Security Act
prohibit the offer, payment, solicitation, or receipt of any form of
remuneration either (i) in return for the referral of Medicare or state health
program patients or patient care opportunities, or (ii) in return for the
recommendation, arrangement, purchase, lease, or order of items or services that
are covered by Medicare or state health programs (the "Anti-kickback Statute").
The Anti-kickback Statute is broad in scope and has been broadly interpreted by
courts in many jurisdictions, potentially subjecting such arrangements to
lengthy expensive investigations and prosecutions initiated by federal and state
governmental officials. In particular, HCFA has expressed concern that physician
ownership in entities in a position to receive referrals from such physicians
may violate the Anti-kickback Statute.
In part to address concerns regarding the Anti-kickback Statute, since July
1991 the Department of Health and Human Services has promulgated regulations
that provide exceptions, or "safe harbors," for certain transactions that are
deemed not to violate the Anti-kickback Statute. The safe harbors include
protection for waivers or coinsurance and deductible amounts, negotiated
discounts by providers, management and personal services agreements, and
investment interests. Since the Company intends to offer physicians an ownership
interest in its health plans, the Company plans to structure such ownership so
that payments made to physician-investors in its health plans in the form of a
return on an investment interest, such as a dividend or interest income, meet
the investment interest safe harbor and therefore are not deemed to be
prohibited "remuneration" under the Anti-kickback Statute. Accordingly, the
Company intends to structure its health plan ownership so that (i) no more than
40% of the investment interests will be held by investors who are in a position
or make or influence referrals to the health plan; (iii) no more than 40% of the
gross revenue of the health plan will come from referrals, items or services
furnished or business otherwise generated from investors; and (iii) the terms of
the investment interests offered to investors who are in a position to make or
influence referrals to the health plan will be the same as the terms offered to
investors who are not in such position. There can be no assurance, however, that
more than 40% of the gross revenue of any of the Company's health plans will
consistently come from referrals, items or services furnished or business
otherwise generated from persons or entities other than physician-investors.
Violation of the Anti-kickback Statute is a felony, punishable by fines up
to $25,000 per violation and imprisonment for up to five years. In addition, the
Department of Health and Human Services may impose civil penalties excluding
violators from participation in Medicare or state health programs. Although the
Company does not believe that its current operations violate or that its
proposed operations will violate the Anti-kickback Statute, there can be no
assurance that in the future regulatory authorities will not determine that the
Company's operations violate the Anti-kickback Statute. Because the Company
anticipates that its health plans will receive significant revenue as a result
of health care services provided to Medicaid and Medicare enrollees, an
exclusion from the Medicaid and Medicare programs as a result of a violation of
the Anti-kickback Statute could have a material adverse effect on the Company.
Federal Self-Referral Prohibitions. Significant prohibitions against
physician self-referrals for services covered by Medicare and Medicaid programs,
commonly known as "Stark II," were enacted by Congress in the Omnibus Budget
Reconciliation Act of 1993. These prohibitions amended prior physician
self-referral legislation known as "Stark I," which applied only to clinical
laboratory referrals, by dramatically enlarging the list of services and
investment interests to which the referral prohibitions apply. Subject to
certain exemptions, Stark II prohibits a physician or a member of such
physician's immediate family from referring Medicare or Medicaid patients to any
entity providing "designated health services" in which the physician has an
ownership or investment interest or with which the physician has entered into a
compensation arrangement,
34
<PAGE> 36
including the physician's own group practice, unless such practice satisfies the
"group practice" exception. The designated health services include the provision
of clinical laboratory services, radiology, and other diagnostic services,
including ultrasound services; radiation therapy services; physical and
occupational therapy services; durable medical equipment; parenteral and enteral
nutrients, equipment, and supplies; prosthetics; orthotics; outpatient
prescription drugs; home health services; and inpatient and outpatient hospital
services.
Although the definitions of ownership interests and compensation
arrangements are extremely broad, certain ownership interests and compensation
arrangements will not trigger the proscriptions of Stark II. In particular,
exceptions exist for prepaid health plans and personal services agreements. The
prepaid health plan exception covers a physician's ownership interest and
compensation arrangement in the case of services furnished by a prepaid health
plan. The personal services agreement exception covers compensation pursuant to
certain written agreements, such as management or independent contractor
agreements. Because the Company will use reasonable efforts to ensure that its
health plans meet the exceptions described above, the Company believes that the
risk that referrals of patients by physicians who have an interest in the health
plans or an agreement with the Company will be limited.
Interpretative regulations clarifying the provisions of Stark I were issued
on August 14, 1995, and Stark II regulations are scheduled to be proposed in
January 1997. Although the Company believes its proposed health plan operations
will be in compliance with the Stark legislation, future regulations could
require the Company to modify its health plan business. In addition, the
penalties for violating Stark II include a prohibition on Medicaid and Medicare
reimbursement and civil penalties of as much as $15,000 for each violative
referral and $100,000 for participation in a "circumvention scheme" and
exclusion from the Medicare and Medicaid programs. Because the Company
anticipates that its health plans will receive significant revenue as a result
of health care services provided to Medicaid and Medicare enrollees, an
exclusion from the Medicaid and Medicare programs as a result of a violation of
the self-referral prohibitions could have a material adverse effect on the
Company.
POTENTIAL LIABILITY AND INSURANCE
The Company may be exposed to potential professional liability claims by
patients of hospital-clients and patients of providers that participate in the
Company's health plans as a result of the negligence or other acts of
physicians. The physicians employed by the Company as part of the Quality
Management Program do not treat patients, attend patient encounters, make any
treatment or diagnosis decisions, or provide any medical services in connection
with that program. However, any claims based on allegations that the Company's
physicians are engaged in the practice of medicine that ultimately are
successful could result in substantial damage awards to claimants, which may
exceed the limits of any applicable insurance coverage. The Company's health
plans will involve the delivery of health care services to the public.
Consequently, the health plans will be exposed to the risk of professional
liability claims and may become subject to claims, suits, or complaints relating
to services and products provided by such plans, and there can be no assurance
that such claims will not be asserted against the Company. In connection with
its Quality Management Program business, the Company currently maintains special
errors and omissions insurance of $1,000,000 per occurrence with a deductible of
$10,000 and general liability insurance of $2,000,000 in the aggregate and
$1,000,000 per occurrence. In its health plan business, the Company will
maintain an occurrence malpractice liability insurance policy with limits of
$5,000,000 in the aggregate and $1,000,000 per occurrence and will require
physicians to maintain malpractice liability insurance in amounts which it deems
adequate for the types of medical services provided. There can be no assurance,
however, that such insurance will be sufficient to cover potential claims or
that adequate levels of coverage will be available in the future at a reasonable
cost. In the event of a successful claim against the Company that is partially
or completely uninsured, the Company's financial condition and reputation could
be materially and adversely affected.
New forms of managed care organizations have increasingly been subject to
liability for reasons such as failure to credential providers properly or
contributing to physician malpractice. In response, many managed care
organizations and other health care entities are not only obtaining general
liability insurance but also managed care and professional liability insurance
coverage. Medical directors also have also faced professional liability claims
and state licensure challenges. The Health Care Quality Improvement Act of 1986,
however,
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<PAGE> 37
provides immunity from damages for professional review actions taken by
professional review bodies, including health plans, in good faith, provided that
certain procedural standards are met. The Company intends to comply with such
procedures in its professional review actions. However, no assurances can be
given that the insurance coverages obtained by the Company, tort reform, or
immunity provisions will be adequate to insure against all claims that may be
asserted against the Company or that insurance coverage will continue to be
available at acceptable costs.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, AND LICENSES
The Company regards certain features of its services and documentation as
proprietary and relies on a combination of contract, copyright, and trade secret
laws and other measures to protect its proprietary information. As part of its
confidentiality procedures, the Company generally obtains nondisclosure
agreements from its employees and hospital-clients and limits access to and
distribution of its software, documentation, and other proprietary information.
The Company believes that trade secret and copyright protection are less
significant than factors such as the knowledge, ability, and experience of the
Company's employees and the timeliness and quality of the services it provides.
The Company has recently filed applications with the U.S. Patent and Trademark
Office to register the tradenames and marks Birman(TM), Care3(TM), and
WellFirst(TM) for use in the Company's businesses. Care3 will be the brand name
of the Company's health plans.
FACILITIES
The Company is headquartered in Cookeville, Tennessee, where it occupies
approximately 4,000 square feet of space on a month-to-month basis. In addition,
the Company rents offices on a month-to-month basis in Scottsdale, Arizona and
Gulfport, Mississippi. All office space occupied by the Company is leased from
unaffiliated third parties. The Company is seeking substitute office space on a
build-to-suit basis in Cookeville, Tennessee and on a long-term lease basis in
Phoenix, Arizona. Cookeville is approximately 80 miles east of Nashville,
Tennessee.
EMPLOYEES
At August 31, 1996, the Company employed 59 persons and has contractual
arrangements with 21 physicians and other health care professionals. A total of
26 employees are responsible for the administrative affairs of the Company; 20
employees are directly involved in the Quality Management Program business; and
nine employees are directly involved in developing the health plans. The Company
is not subject to any collective bargaining agreements, and it considers its
relations with employees to be good.
With respect to its Quality Management Program, the Company has a staff of
seven full-time employee-physicians and 15 part-time physician-consultants, all
of whom have at least six years of medical practice experience, specializing in
areas that include internal medicine, surgery, obstetrics, gynecology,
pediatrics, oncology, family practice, and emergency room medicine. The Company
also employs 12 full-time and six part-time allied health specialist employees.
LEGAL PROCEEDINGS
On November 2, 1995, Dallas Riley, Jr., a former employee of Birman &
Associates, Inc., filed a lawsuit against Birman & Associates, Inc., David N.
Birman, M.D., and Liberty Mutual Insurance Company seeking permanent disability
benefits under the Tennessee Worker's Compensation statute or, alternatively,
$500,000 in damages for personal injury sustained through the alleged negligence
of Birman & Associates, Inc. The Company's workers' compensation insurance
carrier has recently advised the Company that it intends to deny coverage of the
claim on the basis that the plaintiff is an independent contractor and not an
employee. The Company's general liability insurance carrier has agreed to defend
the Company in the action under reservation of rights to contest the timeliness
of the Company's notice. The Company believes Mr. Riley's claims are without
merit and intends to defend this action vigorously. There are no other material
legal proceedings pending against the Company.
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<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
member of the Board of Directors and each executive officer of the Company.
Directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been elected and qualified. Officers
are appointed by and serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
David N. Birman, M.D. .................... 44 Chairman of the Board, President, and Chief
Executive Officer
Sue D. Birman............................. 38 Executive Vice President and Director
Robert D. Arkin........................... 42 Executive Vice President, Chief Operating
Officer, Secretary, General Counsel, and
Director
Douglas A. Lessard........................ 35 Vice President, Treasurer, and Chief
Financial Officer
Vincent W. Wong........................... 38 President and Chief Executive Officer - BMC
Health Plans, Inc.
Mark C. Wade.............................. 40 Executive Vice President-Sales and
Marketing - BMC Health Plans, Inc.
D. Bradley Seitzinger, M.D. .............. 41 Executive Vice President -- Physician
Services - Birman & Associates, Inc.
William F. Barenkamp, II.................. 41 Vice President and Chief Operating Officer -
Birman & Associates, Inc.
James J. Rhodes........................... 39 Director
Diedrich Von Soosten...................... 56 Director
</TABLE>
David N. Birman, M.D. has served as Chairman of the Board of Directors,
President, and Chief Executive Officer of the Company and its predecessor
corporations since May 1991. From February 1990 to mid-1991, Dr. Birman served
as Chairman of the Board of Birman, Mathes & Associates, Inc., a consulting
company providing quality management and Medicare reimbursement review services
to rural hospitals. From April 1989 until January 1990, Dr. Birman served as a
consultant, providing quality management and Medicare reimbursement review
services to five rural hospitals. Previously, Dr. Birman was employed by
Whitwell Medical Center, Whitwell, Tennessee where, as a physician assistant, he
performed certain clinical duties and developed patient care management
techniques and reporting strategies that formed the basis for development of the
Quality Management Program. Dr. Birman received his M.D. from the Universidad
Tecnologica de Santiago, his B.A., with honors in Biology from Occidental
College, and certification as a physician assistant in primary care and surgery
from the University of Southern California School of Medicine.
Sue D. Birman has served as Executive Vice President and director of the
Company and its predecessor corporations since May 1991 and served as their
Chief Financial Officer from May 1991 until June 1996. From February 1990 to
mid-1991, Ms. Birman advised Dr. Birman informally respecting the finances and
business development of Birman, Mathes & Associates, Inc. From April 1989 until
January 1990, Ms. Birman assisted Dr. Birman in the operation of his consulting
firm. Ms. Birman is the spouse of David N. Birman, M.D.
Robert D. Arkin has served as Chief Operating Officer of the Company since
June 1996, as a director since April 1996, and as Secretary and a General
Counsel since March 1996. Prior to joining the Company, Mr. Arkin was engaged
for 16 years in the private practice of law, concentrating in the areas of
securities, health, and intellectual property law, including from 1980 to 1984
as an associate and from 1985 to 1986 as a partner with the Minneapolis,
Minnesota law firm of Leonard, Street and Deinard. Mr. Arkin is licensed to
practice law in the states of Minnesota and Georgia.
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<PAGE> 39
Douglas A. Lessard has served as Chief Financial Officer of the Company
since June 1996 and as Controller since January 1996. Mr. Lessard provided
accounting and consulting services to the Company from April 1995 through
December 1995. From March 1993 through March 1995, Mr. Lessard served as the
Chief Executive Officer and from September 1991 through March 1993, as Chief
Financial Officer of the American Institute of Professional Careers, Inc., a
private college in Phoenix, Arizona, which provides post-secondary education in
legal and other specialized career fields. From March 1989 through September
1991, Mr. Lessard was employed as the Controller for Arizona Building and
Development, Inc., a real estate development and management company. Mr. Lessard
is a Certified Public Accountant in the State of Arizona.
Vincent W. Wong has served as President, Chief Executive Officer, and as a
director of BMC Health Plans, Inc. since January 1996. For approximately five
years before joining BMC Health Plans, Inc., Mr. Wong was employed by Foundation
Health Corporation, a New York Stock Exchange listed managed care organization.
During such time, Mr. Wong served in positions of increasing responsibility
culminating in his service as Vice President of Operations. From 1984 to 1991,
Mr. Wong was employed in marketing by Blue Cross Blue Shield of Ohio.
Mark C. Wade has served as Executive Vice President -- Sales and Marketing
of BMC Health Plans, Inc. since July 1995 and has been employed by BMC Health
Plans, Inc. since March 1995. From November 1993 to March 1995, Mr. Wade served
as the founding director and president of Forum Health Care, Inc., a consulting
firm specializing in the development and management of integrated health care
delivery networks for both the private and public sectors. From February 1988 to
November 1993, Mr. Wade served in several positions at Health Management
Associates, Inc., an Arizona company that, commencing in 1982, developed and
managed four prepaid Medicaid plans that operated in 11 of Arizona's 15
counties, a prepaid Medicaid plan in Las Vegas, Nevada, and other managed care
programs. Mr. Wade's last position with Health Management Associates, Inc. was
as vice president for all private sector commercial sales and marketing activity
with particular emphasis on commercial provider networks, including marketing to
large insurance companies and self-funded payors, integrated delivery systems,
pharmacy networks, managed care benefit designs, and utilization management and
third-party administration services.
D. Bradley Seitzinger, M.D. currently serves as Executive Vice
President -- Physician Services of Birman & Associates, Inc. Since September
1991, Dr. Seitzinger has served in several other capacities at Birman &
Associates, Inc., including Regional Physician Manager, Vice President of
Quality Management, Vice President of Physician Operations, and Senior Vice
President of Physician Operations. From September 1989 to September 1991, Dr.
Seitzinger was assistant vice president of medical affairs for Peer Review
Systems, Inc., a private company that contracted with HCFA to perform Medicare
physician peer review for the State of Ohio. Prior to 1993, Dr. Seitzinger
worked in concurrent capacities, including, from 1986 to 1992, assistant
professor of internal medicine at The Ohio State University College of Medicine,
and from 1987 to 1992, private practice as an internal medicine specialist at
Medical Evaluation Services, Inc., Columbus, Ohio. He is certified by the
American Board of Internal Medicine. Dr. Seitzinger received his M.D. from The
Ohio State University. He is licensed to practice medicine in Arizona, Indiana,
Ohio, and Tennessee.
William F. Barenkamp, II has been employed by Birman & Associates, Inc.
since November 1993, currently as Vice President and Chief Operating Officer.
From January 1991 to November 1993, Mr. Barenkamp attended Dallas Theological
Seminary, receiving an M.A. in Theology in 1993. During such period, Mr.
Barenkamp served as associate pastor at East Grand Baptist Church, Dallas,
Texas.
Diedrich Von Soosten became a director of the Company in September 1996.
Since 1990, Mr. Von Soosten has been Managing Partner of Coloney Von Soosten &
Associates, Inc., a management consulting and financial advisory services firm
specializing in business turnarounds. Prior to 1990, Mr. Von Soosten was an
independent consultant providing restructuring and turnaround assistance to
underperforming businesses. Mr. Von Soosten is a former director and officer of
the Association of Certified Turnaround Professionals.
James J. Rhodes became a director of the Company in September 1996. Since
1986, Mr. Rhodes has served as a Regional Manager in the pension division of
ManuLife Financial (The Manufacturer's Life Insurance Company (USA)), a global
financial services company offering annuities, insurance, and investment
products.
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<PAGE> 40
BOARD COMMITTEES
There are two committees of the Board of Directors: the Compensation
Committee and the Audit Committee. The Compensation Committee determines the
Company's executive compensation policies and practices and changes in
compensation and benefits for senior management. The Compensation Committee also
administers the Company's 1995 Stock Option Plan. The Audit Committee reviews
the internal accounting procedures of the Company, consults with the Company's
independent accountants, and reviews the services provided by such accountants.
Messrs. Rhodes and Von Soosten currently serve as the members of the
Compensation Committee and Audit Committee.
COMPENSATION OF DIRECTORS
All directors receive reimbursement for reasonable expenses incurred in
connection with their attendance at Board of Directors and committee meetings.
In addition, all non-employee directors receive $2,000 for each Board meeting
that they attend. All non-employee directors are also entitled to receive awards
and options to purchase shares of Common Stock under the 1996 Non-Employee
Directors' Non-Qualified Stock Option Plan. See "Management -- Stock Option
Plans -- 1996 Directors' Option Plan."
EXECUTIVE COMPENSATION
The following table provides certain information concerning the
compensation earned by the Company's Chief Executive Officer and the four next
highly compensated executive officers who received compensation in excess of
$100,000 for services rendered in all capacities to the Company for fiscal 1996
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
OTHER -----------------------------
ANNUAL ALL OTHER
SALARY BONUS COMPENSATION AWARDS/OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------------- ---- ------- ------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
David N. Birman, M.D. ........... 1996 350,000 60,000 69,025 -- --
Chairman of the Board, 1995 275,000 -- 52,922 -- --
President, and Chief Executive 1994 262,500 -- 48,223 -- --
Officer(1)
D. Bradley Seitzinger, M.D. ..... 1996 203,301 15,000 14,272 145,879 --
Executive Vice President -- 1995 174,325 -- 13,731 -- --
Physician Services(2) 1994 158,290 -- 13,344 -- --
Sue D. Birman.................... 1996 150,000 40,000 11,834 -- --
Executive Vice President, Chief 1995 118,617 -- 11,968 -- --
Financial Officer, and 1994 63,643 -- 11,279 -- --
Director(3)
Richard M. Ross.................. 1996 202,500 -- 17,588 -- --
Vice Chairman(4) 1995 15,000 -- 47,674 -- --
1994 -- -- 27,095 -- --
Robert D. Arkin.................. 1996 41,250 -- 247,885 291,758 --
Chief Operating Officer and 1995 -- -- -- -- --
Secretary(5) 1994 -- -- -- -- --
</TABLE>
- ---------------
(1) Other Annual Compensation for David N. Birman, M.D. for fiscal 1996 was
$5,484 in medical insurance premiums, $40,903 in officer's life insurance
premiums, $19,638 in auto allowance, and $3,000 in 401(k) matching
contributions; for fiscal 1995, $4,900 in medical insurance premiums,
$29,550 in officer's life insurance premiums, $16,000 in auto allowance,
and $2,472 in 401(k) matching contributions; and for fiscal 1994, $6,156 in
medical insurance premiums, $26,472 in officer's life insurance premiums,
and $15,595 in auto allowance.
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<PAGE> 41
(2) Other Annual Compensation for D. Bradley Seitzinger, M.D. for fiscal 1996
was $5,484 in medical insurance premiums, $6,708 in auto allowance, and
$2,080 in 401(k) matching contributions; for fiscal 1995, $4,900 in medical
insurance premiums, $7,188 in auto allowance, and $1,643 in 401(k) matching
contributions; and for fiscal 1994, $6,156 in medical insurance premiums and
$7,188 in auto allowance.
(3) Other Annual Compensation for Sue D. Birman for fiscal 1996 was $9,834 in
auto allowance and $2,000 in 401(k) matching contributions; for fiscal 1995,
$11,000 in auto allowance and $968 in 401(k) matching contributions; and for
fiscal 1994, $11,279 in auto allowance.
(4) During fiscal year 1996, Mr. Ross, currently a consultant to the Company,
served as Vice-Chairman and a director of the Company. See "Certain
Transactions." Other Annual Compensation for Richard M. Ross for fiscal 1996
was $4,783 in medical insurance, and $12,805 in officer's life insurance
premiums; for fiscal 1995, $2,039 in medical insurance and $47,674 in
consulting fees paid to Mr. Ross prior to being employed by the Company; and
for fiscal 1994, $27,095 in consulting fees paid to Mr. Ross prior to being
employed by the Company.
(5) Other Annual Compensation for Robert D. Arkin for fiscal 1996 was $985 in
medical insurance premiums and $246,900 in legal fees paid to Mr. Arkin
prior to being employed by the Company.
EXECUTIVE BONUS PLAN
The Company has adopted an Executive Bonus Plan (the "Executive Bonus
Plan") pursuant to which officers of the Company are eligible to receive cash
bonuses after the close of each fiscal year of the Company. The Executive Bonus
Plan is administered by the Compensation Committee of the Board of Directors.
Bonuses are determined on the basis of (i) the operating profit of the Company,
(ii) net revenue growth of the Company achieved as a percentage of the goal
established by the Company at the beginning of the fiscal year, and (iii) the
officer's individual performance and contribution to the Company. An officer's
bonus for any fiscal year may not exceed such officer's annual base salary
multiplied by the Target Bonus Percentage as defined in the Executive Bonus Plan
in such fiscal year.
STOCK OPTION PLANS
1995 Stock Option Plan
The Company has adopted the 1995 Stock Option Plan (the "1995 Option Plan")
pursuant to which officers, including officers who are directors, key employees,
and consultants of the Company are eligible to receive qualified as well as
non-qualified stock options and stock appreciation rights ("SARs"). The Plan,
which expires in October 2005, is administered by the Compensation Committee of
the Board of Directors. Incentive stock options granted under the Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Common Stock on the
date of the grant, except that the term of an incentive stock option granted
under the Plan to a stockholder owning more than 10% of the outstanding Common
Stock may not exceed five years and the exercise price of an incentive stock
option granted to such a stockholder may not be less than 110% of the fair
market value of the Common Stock on the date of the grant. Non-qualified stock
options may be granted on terms determined by the Compensation Committee of the
Board of Directors. SARs, which give the holder the privilege of surrendering
such rights for an amount of cash equal to the appreciation in the Common Stock
between the time of grant and the surrender, may be granted on any terms
determined by the Compensation Committee of the Board of Directors. As of June
30, 1996, options for the exercise of 1,006,566 shares have been granted under
the 1995 Option Plan at the exercise price of $1.37 per share. A total of
1,458,780 shares of Common Stock are reserved for issuance under the 1995 Option
Plan.
1996 Directors' Option Plan
On September 9, 1996, the Company adopted the 1996 Non-Employee Directors'
Non-Qualified Stock Option Plan (the "1996 Directors' Plan"). A total of 100,000
shares of Common Stock are reserved for issuance under the 1996 Directors' Plan.
Under this plan, upon initial election to the Board of Directors, non-employee
directors are awarded options to purchase 6,000 shares of Common Stock. Upon
each subsequent
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<PAGE> 42
election to the Board of Directors, non-employee directors receive option awards
to purchase 3,000 shares of Common Stock. These options, which have an exercise
price equal to the fair market value of the shares of Common Stock as of the
date of grant, vest at the rate of 33.33% per year. All options awarded under
the 1996 Directors' Plan expire on the first to occur of (i) 10 years after the
date of grant, or (ii) 90 days after the date the director is no longer serving
in such capacity for reasons other than death or disability. On September 9,
1996, each of Messrs. Rhodes and Von Soosten were granted options to purchase
6,000 shares of Common Stock under this plan at an exercise price of $6.25 per
share.
FISCAL 1996 OPTION GRANTS
The following table sets forth certain information concerning individual
grants of stock options during the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
SHARES TOTAL
UNDERLYING TYPE OF OPTIONS EXERCISE
OPTIONS OPTION GRANTED PRICE PER
NAME OF DIRECTOR OR OFFICER GRANTED GRANTED UNDER PLAN SHARE
----------------------------------------- --------- ------- ------------- ---------
<S> <C> <C> <C> <C>
D. Bradley Seitzinger, M.D............... 145,879 ISO 14.5% $1.37
William F. Barenkamp, II................. 72,940 ISO 7.2% $1.37
Paul Dickson, M.D........................ 18,235 ISO 1.8% $1.37
Douglas A. Lessard....................... 72,940 ISO 7.2% $1.37
Vincent W. Wong.......................... 218,819 ISO 21.7% $1.37
Mark C. Wade............................. 145,879 ISO 14.5% $1.37
Jamie R. Hughes, R.N..................... 40,117 ISO 4.0% $1.37
Robert D. Arkin.......................... 291,757 ISO 29.0% $1.37
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of the current executive
officers identified in the Summary Compensation Table. The employment agreements
provide for annual salaries that generally are subject to annual adjustments for
increases in the Consumer Price Index; participation in employee deferred
compensation plans, stock options and retirement and insurance plans; and
include customary noncompetition, nondisclosure, and severance provisions. Set
forth below is a summary of other principal provisions of those employment
agreements:
In March 1996, the Company entered into an employment agreement with David
N. Birman, M.D. for a term expiring June 30, 2001, pursuant to which Dr. Birman
serves as Chief Executive Officer of the Company. The employment agreement
provides for an initial base salary of $350,000 per annum, participation in the
Executive Bonus Plan, and other compensation not to exceed $65,000 per annum.
In March 1996, the Company entered into an employment agreement with Sue D.
Birman for a term expiring June 30, 2001, pursuant to which Ms. Birman serves as
Executive Vice President of the Company. The employment agreement provides for
an initial base salary of $150,000 per annum, participation in the Executive
Bonus Plan, and other compensation not to exceed $15,000 per annum.
In March 1996, the Company entered into an employment agreement with Robert
D. Arkin for a term expiring June 30, 2001, pursuant to which Mr. Arkin serves
as Chief Operating Officer, Secretary, and General Counsel of the Company. The
employment agreement provides for an initial base salary of $206,250 per annum,
participation in the Executive Bonus Plan, and other compensation not to exceed
$12,000 per annum.
In March 1996, the Company entered into an employment agreement with
Douglas A. Lessard for a term expiring June 30, 2001, pursuant to which Mr.
Lessard serves as Chief Financial Officer of the Company. The employment
agreement provides for an initial base salary of $120,000 per annum,
participation in the Executive Bonus Plan, and other compensation not to exceed
$12,000 per annum.
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<PAGE> 43
In March 1996, the Company entered into an employment agreement with
Vincent W. Wong for a term expiring on January 31, 1999, pursuant to which Mr.
Wong serves as President and Chief Executive Officer of BMC Health Plans, Inc.
The employment agreement provides for an initial base salary to Mr. Wong of
$180,000 per annum. The employment agreement also provides Mr. Wong with the
opportunity to earn up to an additional $180,000 per annum based upon the number
of enrollees in health plans developed, managed, or operated by the Company and
health plan net earnings.
In September 1996, the Company entered into an employment agreement with
Mark C. Wade for a term expiring on September 1, 1998, pursuant to which Mr.
Wade serves as Executive Vice President -- Sales and Marketing of BMC Health
Plans, Inc. The employment agreement provides for a base salary of $165,000 per
annum with the opportunity for Mr. Wade to earn up to an additional $85,000 per
annum based upon the number of enrollees in health plans developed, managed, or
operated by the Company.
The Company has entered into an employment agreement with D. Bradley
Seitzinger, M.D. pursuant to which Dr. Seitzinger provides supervisory and other
services to the Company on a full-time basis. The employment agreement is
terminable by either party upon 14 days' prior written notice. The employment
agreement provides for the review of Dr. Seitzinger's salary from time to time
and authorizes the payment of additional compensation, by way of salary, bonus,
or otherwise, at the discretion of the Company. Dr. Seitzinger currently
receives a base salary of $208,000 per annum.
In November 1993, the Company entered into an employment agreement with
William F. Barenkamp, II pursuant to which Mr. Barenkamp provides supervisory
and other services to the Company on a full-time basis. The employment agreement
is terminable by either party without prior notice upon a material breach of the
terms thereof. The employment agreement provides for the review of Mr.
Barenkamp's salary from time to time and authorizes the payment of additional
compensation, by way of salary, bonus, or otherwise, at the discretion of the
Company. Pursuant to the employment agreement, Mr. Barenkamp currently receives
a base salary of $100,000 per annum.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by the Delaware GCL, the personal liability of directors for monetary
damages for breach of their fiduciary duties as directors other than for
liabilities arising from acts or omissions that involve intentional misconduct,
fraud or knowing violations of law or the payment of distributions in violation
of the Delaware Business Corporation Act. The Company's Bylaws require the
Company to indemnify directors and officers for all costs reasonably incurred in
connection with any action, suit, or proceeding in which such director or
officer is made a party by virtue of his being a director or officer of the
Company except where such director or officer is finally adjudged to have been
derelict in the performance of his duties as such director or officer.
The Company has entered into indemnification agreements with its directors
and executive officers, which contain provisions which are in some respects
broader than the specific indemnification provisions contained in the Company's
Certificate of Incorporation and Bylaws. The indemnification agreements require
the Company, among other things, to indemnify such directors and officers
against certain liabilities that may arise by reason of their status as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to carry directors' and
officers' insurance, if available on reasonable terms. The Company believes
these indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. It is the opinion of the staff of the
Securities and Exchange Commission that indemnification provisions such as those
that will be contained in these indemnification agreements have no effect on a
director's or officer's liability under the federal securities laws.
Except for the legal action described under "Business -- Legal
Proceedings," there is no pending litigation or proceeding involving any
director, officer, employee, or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or other proceeding, which may result in a claim for such indemnification.
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<PAGE> 44
CERTAIN TRANSACTIONS
Prior to June 30, 1995, the Company operated, as a division, a livestock
breeding farm on property owned by David N. Birman, M.D. and Sue D. Birman, his
spouse. At that time, Dr. Birman was the sole stockholder, President, and a
director of the Company, and Mrs. Birman was an Executive Vice President, the
Chief Financial Officer, and a director of the Company. Prior to June 30, 1994,
the Company lent to Dr. and Mrs. Birman, approximately $482,000, which was used
primarily to improve their farm property and residence. During fiscal 1995, Dr.
and Mrs. Birman repaid $442,000 of such loan and also received additional
advances of approximately $270,000, resulting in an outstanding principal
balance of $310,000 at June 30, 1995. As of June 30, 1995, the Company
contributed all of its farm assets, subject to the related liabilities, to a new
corporation, Birman Farms, Inc., and distributed all of the outstanding shares
of capital stock of Birman Farms, Inc. to Dr. Birman. This dividend distribution
of property was valued by the Company at $230,000. Subsequent to the
distribution, the Company authorized additional advances to Dr. Birman through
September 1996 of approximately $465,000 to defray the operating and ownership
costs of the farm. Accordingly, as of September 9, 1996, Dr. Birman owed a total
of $775,000 to the Company. All amounts owed to the Company by Dr. Birman
accrued interest at a rate of 7% per annum through August 31, 1996 and will
accrue interest at the prime rate of American National Bank and Trust Company of
Chicago from and after September 1, 1996. Interest is payable annually, in
arrears. The outstanding principal balance of the loan plus all unpaid accrued
interest is due and payable in full on August 31, 1999. Dr. Birman has the
option to tender shares of Common Stock owned by him in repayment of the loan at
any time prior to January 31, 1997 at a per share price equal to the initial
offering price of the Units or after January 31, 1997 at a price per share equal
to 92% of the average closing bid price of the Common Stock as reported over the
previous 20 consecutive trading days. No additional loans will be made by the
Company to any member of management without the approval of the non-employee
members of the Board of Directors of the Company. Dr. Birman may sell shares of
Common Stock in private transactions to provide the funds necessary to retire
his indebtedness and to satisfy income tax obligations associated with the
satisfaction of indebtedness transactions.
Richard M. Ross served as Vice-Chairman and as a director of the Company
from February 1994 to August 1996. Effective September 1, 1996, Mr. Ross retired
as Vice-Chairman and a newly formed company controlled by Mr. Ross was engaged
as a consultant to the Company pursuant to a Consulting Agreement. The
Consulting Agreement provides for Mr. Ross to serve as the provider of
consulting services thereunder, provides for a fee to be paid to the consultant
firm of $186,000 per annum payable in equal monthly installments over the
12-month term of the agreement, and provides for termination of the Consulting
Agreement upon the occurrence of an uncured material breach, the death of Mr.
Ross, or 10 days after receipt of notice of termination from the consultant.
Except as otherwise provided or as otherwise agreed to by the parties, the
Consulting Agreement will be renewed annually by the Company for up to six
consecutive years. The Company also paid Mr. Ross a $26,000 severance fee and
has transferred to Mr. Ross personal computer equipment used by Mr. Ross in
rendering services to the Company. In addition, Dr. Birman has agreed to sell
Mr. Ross 175,000 shares of Company Common Stock in consideration for a $175,000
principal amount promissory note.
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<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of August 31, 1996 and as
adjusted to reflect the sale of Units offered hereby, based on information
obtained from the persons named below, with respect to the beneficial ownership
of shares of Common Stock by (i) each person (or group of affiliated persons)
who is known by the Company to own beneficially more than 5% of the Common
Stock; (ii) each of the Named Executive Officers; (iii) each of the directors;
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------- ------------ ------- ---------- -------
<S> <C> <C> <C> <C>
David N. Birman, M.D.(1)(4).................... 5,256,408(2) 75.62% 5,256,408 61.83%
Sue D. Birman(1)............................... 5,256,408(2) 75.62% 5,256,408 61.83%
D. Bradley Seitzinger, M.D.(3)................. 36,470 * 36,470 *
Robert D. Arkin(3)............................. 0 0 0 0
Richard M. Ross(4)............................. 0 0 0 0
James J. Rhodes(3)............................. 0 0 0 0
Diedrich Von Soosten(3)........................ 0 0 0 0
Directors and officers as a group(7 persons)... 5,292,878 76.2% 5,292,878 62.3%
</TABLE>
- ---------------
* Less than 1%
(1) The address of Dr. and Mrs. Birman is c/o the Company at 502 Gould Drive,
Cookesville, Tennessee 38506.
(2) David N. Birman, M.D. disclaims beneficial ownership as to 547,047 shares
beneficially owned by Sue D. Birman individually. Sue D. Birman disclaims
beneficial ownership as to 4,344,663 shares beneficially owned by David N.
Birman, M.D. individually.
(3) Does not include options to purchase shares of Common Stock scheduled to
first become exercisable more than 60 days after the date of this
Prospectus. See "Management -- Stock Option Plans" and "Management -- Fiscal
1996 Option Grants."
(4) Does not give effect to an anticipated sale of 175,000 shares of Common
Stock by Dr. Birman to Mr. Ross.
DESCRIPTION OF SECURITIES
GENERAL
The Company is incorporated in the State of Delaware. The Company is
authorized to issue 25,000,000 shares of Common Stock, $.001 par value per
share, and 5,000,000 shares of Preferred Stock, $.001 par value per share.
UNITS
Each Unit being offered hereby consists of one share of Common Stock, $.001
par value per share, and one redeemable Warrant to purchase one share of Common
Stock. The Common Stock and Warrants comprising each Unit will be separately
transferable upon issuance.
PREFERRED STOCK
There are no shares of Preferred Stock issued and outstanding. The Board of
Directors is authorized, subject to any limitations prescribed by law, without
further action of the stockholders of the Company, to
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<PAGE> 46
issue from time to time such shares of Preferred Stock in one or more classes or
series, to establish the number of shares to be included in each such class or
series, to fix or alter the designations, preferences, limitations and relative,
participating, optional or other special rights and qualifications or
restrictions of the shares of each such class or series, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences, and the number of shares constituting any class or series or the
designations of such class or series. The issuance of Preferred Stock could
adversely affect, among other things, the rights of existing stockholders or
could delay or prevent a change in control of the Company without further action
by the stockholders. The issuance of Preferred Stock could decrease the amount
of earnings and assets available for distribution to holders of Common Stock. In
addition, any such issuance could have the effect of delaying, deferring, or
preventing a change in control of the Company and could make the removal of the
present management of the Company more difficult.
COMMON STOCK
As of September 9, 1996, there were 6,931,082 shares of Common Stock issued
and outstanding, held of record by 38 stockholders. Holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders and are entitled to receive such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the dividend preferences of the Preferred Stock,
if any. Upon the liquidation, dissolution, or winding up of the affairs of the
Company, whether voluntary or involuntary, the holders of Common Stock are
entitled to share ratably in all assets of the Company available for
distribution after payment of all liabilities and liquidation preferences of the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights, no
cumulative voting rights, and no rights to convert their Common Stock into any
other securities.
WARRANTS
General. The following is a brief summary of certain provisions of the
Warrants included in the Units offered hereby. The summary does not purport to
be complete and is qualified in all respects by reference to the actual text of
the Warrant Agreement between the Company and American Stock Transfer and Trust
Company (the "Transfer and Warrant Agent"). A copy of the Warrant Agreement is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. See "Additional Information."
Exercise Price and Terms. Each Warrant entitles the holder thereof to
purchase one share of Common Stock at a price of $ (130% of the initial
public offering price of the Units), subject to adjustment in accordance with
the anti-dilution and other provisions referred to below, at any time until 36
months from the date of this Prospectus. The holder of any Warrant may exercise
such Warrant by surrendering the certificate representing the Warrant to the
Transfer and Warrant Agent, with the subscription form on the reverse side of
such certificate properly completed and executed, together with payment of the
exercise price. The Warrants may be exercised at any time in whole or in part at
the applicable exercise price until expiration of the Warrants. No fractional
shares will be issued upon exercise of the Warrants.
The exercise price of the Warrants bear no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the Common Stock.
Adjustments. The exercise price and number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations and reclassification of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock at
a price below the then applicable exercise price of the Warrants. Additionally,
an adjustment would be made in the case of a reclassification or exchange of the
Common Stock, consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation) or sale of all or substantially all of the assets of the
Company in order to enable warrantholders to acquire the kind and number of
shares of stock or other securities or property receivable in such event by the
holder of the number of shares of Common Stock that might otherwise have been
purchased upon the exercise of the Warrant. No adjustment will be made until the
cumulative adjustments in the exercise price per share amount to $.05 or
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<PAGE> 47
more. No adjustment to the number of shares and exercise price of the shares
subject to the Warrants will be made for dividends (other than stock dividends),
if any, paid on the Common Stock or for securities issued pursuant to the 1995
Option Plan, the 1996 Directors' Plan, or other employee benefit plans of the
Company, or upon exercise of the Warrants, the Representative's Warrants, or any
other option or warrant outstanding as of the date of this Prospectus.
Redemption Provisions. Commencing 90 days from the date of this
Prospectus, the Warrants will be subject to redemption at $.01 per Warrant on 30
days' prior notice mailed to the warrantholders within 15 days after the closing
bid price of the Common Stock as reported by Nasdaq equals or exceeds $
(110% of the exercise price) for a period of 20 consecutive trading days. In the
event that the Company exercises the right to redeem the Warrants, such Warrants
will be exercisable until the close of business on the date for redemption fixed
in such notice. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and its holder will be entitled only to
the redemption price. Since it is the Company's present intention to exercise
such right, warrantholders should presume that the Company would call the
Warrants for redemption if such criteria are met.
Transfer, Exchange, and Exercise. The Warrants are in registered form and
may be presented to the Transfer and Warrant Agent for transfer, exchange, or
exercise at any time on or prior to their expiration date three years from the
date of this Prospectus, at which time the Warrants become wholly void and of no
value. If a market for the Warrants develops, the holder may sell the Warrants
instead of exercising them. There can be no assurance, however, that a market
for the Warrants will develop or continue.
Warrantholder not a Stockholder. The Warrants, as such, do not confer upon
holders any voting, dividend, or other rights as stockholders of the Company.
Modification of Warrant. The Company and the Transfer and Warrant Agent
may make such modifications to the Warrants as they deem necessary and desirable
that do not adversely affect the interests of the warrantholders. No other
modifications may be made to the Warrants without the consent of the majority of
the warrantholders. Modification of the number of securities purchasable upon
the exercise of any Warrant, the exercise price and the expiration date with
respect to any Warrant requires the consent of the holder of such Warrant.
Certain Federal Income Tax Considerations. No gain or loss will be
recognized by a holder upon the exercise of a Warrant. The sale of a Warrant by
a holder or the redemption of a Warrant from a holder will result in the
recognition of gain or loss in an amount equal to the difference between the
amount realized by the holder and the Warrant's adjusted basis in the hands of
the holder. Provided that the holder is not a dealer in the Warrants and that
the Common Stock would have been a capital asset in the hands of the holder had
the Warrant been exercised, gain or loss from the sale or redemption of the
Warrant will be a long-term or short-term capital gain or loss to the holder
depending on whether the Warrant had been held for more than a year. Upon the
expiration of a Warrant, loss equal to the Warrant's adjusted basis in the hands
of the holder will be a long-term or short-term capital loss, depending on
whether the Warrant has been held for more than a year.
Previously Issued Warrants. The Company has previously issued warrants to
purchase shares of Common Stock to two persons who have helped the Company with
their consulting services. The warrants are exercisable at any time after
January 1, 1997 and on or before December 31, 2001 at a weighted average
exercise price of $1.39 per share.
See "Underwriting" for a description of the Representative's Warrants to be
issued pursuant to the terms of the Underwriting Agreement.
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to the date
of the business combination, the transaction is approved by the board of
directors of the corporation; (ii) upon consummation
46
<PAGE> 48
of the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock, or (iii) on or after such date, the business combination is
approved by the board of directors and by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales, and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation and By-Laws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "antitakeover"
effect in that such provisions may delay, defer, or prevent a change of control
of the Company. These provisions include (a) the requirement that certain
business combinations with a control person be approved by the affirmative vote
of not less than 66 2/3% of the votes entitled to be cast generally by the
outstanding Common Stock or be unanimously approved by the Company's Board of
Directors, and (b) the authority of the Board of Directors to issue series of
Preferred Stock with such voting rights and other powers as the Board of
Directors may determine.
REGISTRATION RIGHTS
If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other holders
of Company securities, NBR, as the holder of 291,756 shares of Common Stock, and
its permitted transferees are entitled to notice of such registration and are
entitled to include their shares of Common Stock therein, provided, among other
conditions, that the underwriters of such offering will have the right to limit
the number of such shares of Common Stock included in the registration. The
foregoing piggy back registration rights do not apply to the registration of
securities for issuance in merger or acquisition transactions or pursuant to
employee compensation programs. The piggy back registration rights expire at the
time as NBR may resell its shares of Common Stock pursuant to Rule 144(k) under
the Securities Act.
TRANSFER AND WARRANT AGENT
The Company's Transfer and Warrant Agent is American Stock Transfer and
Trust Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
8,381,082 shares of Common Stock assuming no exercise of (i) the Underwriters'
over-allotment option; (ii) the Warrants included in the Units; (iii) the
Representative's Warrants; or (iv) other outstanding options and warrants. All
shares acquired in this offering, other than shares that may be acquired by
"affiliates" of the Company as defined by Rule 144 under the Securities Act,
will be freely transferable without restriction or further registration under
the Securities Act.
All 6,931,082 shares of Common Stock issued by the Company prior to this
offering are deemed "restricted securities," as that term is defined under Rule
144 promulgated under the Securities Act, in that such shares were issued and
sold by the Company in private transactions not involving a public offering. Of
the total outstanding 6,931,082 shares of Common Stock, approximately 292,000
shares are eligible for sale pursuant to Rule 144 commencing 90 days from the
date of this Prospectus. NBR, as the holder of 291,756 shares of Common Stock,
and its permitted transferees are entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights."
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<PAGE> 49
In general, under Rule 144 as currently in effect, subject to satisfaction
of certain other conditions, a person (or persons whose shares are required to
be aggregated), including any affiliate of the Company, who beneficially owns
"restricted shares" for a period of at least two years, is entitled to sell
within any three-month period, a number of shares that does not exceed the
greater of 1% (approximately 84,811 shares after this offering) of the
then-outstanding shares of Common Stock, or if the Common Stock is quoted on
Nasdaq, the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the filing of the required notice of sale with the
Securities and Exchange Commission. The seller also must comply with the notice
and manner of sale requirements of Rule 144, and there must be current public
information available about the Company. In addition, any person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least three years and is not an affiliate of the Company can sell such shares
under Rule 144 without regard to any of the limitations described above.
The Company intends to file a registration statement under the Securities
Act to register 1,558,780 shares of Common Stock reserved for issuance upon the
exercise of options which have been or may be granted pursuant to the 1995
Option Plan and the 1996 Directors' Plan. Such registration statement is
expected to be filed not earlier than 180 days after the date of this Prospectus
and is anticipated to become effective upon its filing. See "Management -- Stock
Option Plans." After the effective date of such registration statement, shares
acquired upon the exercise of such options may generally be sold without
restriction in the public market, subject to Rule 144 notice requirements and
volume limitations for stockholders who are affiliates of the Company.
Each holder of Common Stock who is an officer, director, or key employee of
the Company has entered into a "lock-up" agreement providing that such persons
will not offer, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of the Company's Common
Stock for a period of 24 months after the date of this Prospectus without the
prior written consent of the Representative.
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no predictions can be made of the effect, if any, that
future sales of restricted shares or the availability of restricted shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the restricted shares of Common Stock in the
public market could adversely affect the then prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities.
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<PAGE> 50
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through the Representative, W.B. McKee Securities,
Inc., have severally agreed to purchase from the Company the numbers of Units
set forth opposite their names at the initial public offering price less the
underwriting discount and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
-------------------------------------------------------------------------- ---------
<S> <C>
W.B. McKee Securities, Inc................................................
Total...........................................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all Units offered hereby, if any of the Units hereby
are purchased. The Company has been advised by the Representative that the
Underwriters propose to offer the Units purchased directly to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at a price that represents a concession not in excess of $ per
Unit, or % per Unit. After the initial public offering of the Units, the
offering price and the selling terms may be changed by the Representative.
The Company has granted the Underwriters the option to purchase up to
232,500 Units solely for the purpose of covering any over-allotments, at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. The over-allotment option is exercisable
for a period of 45 days from the date of this Prospectus. To the extent that the
Underwriters exercise such option, the Underwriters will have a firm commitment
to purchase the number of Units specified in the Underwriters' notice of
exercise, and the Company will be obligated, pursuant to the option, to sell
such Units to the Underwriters. If purchased, the Underwriters will offer for
sale such additional Units on the same terms as those on which the 1,550,000
Units are being offered.
The Company has agreed to pay the Representative a non-accountable expense
allowance in the amount of 3% of the gross proceeds received from the sale of
the Units. Any expenses in excess of such expense allowance will be borne by the
Underwriters. To date, the Company has advanced the Representative $25,000 with
respect to such non-accountable expenses.
At the closing of this offering, the Company will issue to the
Representative, for $1,550, the Representative's Warrants to purchase 155,000
Units (10% of the number of Units sold pursuant to the initial public offering).
The Representative's Warrants will be exercisable for a four-year period
commencing one year from the date of this Prospectus at an exercise price equal
to $ per Unit. The Warrants underlying the Representative's Warrant
will not be redeemable by the Company. The Representative's Warrants will
contain anti-dilution provisions providing for appropriate adjustments in the
event of any recapitalization, reclassification, stock dividend, stock split or
similar transaction by the Company. The Representative's Warrants do not entitle
the Representative to any rights as a stockholder of the Company until such
warrant is exercised. The Representative's Warrants may not be transferred for
one year from the date of this Prospectus except to officers of the
Representative.
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<PAGE> 51
For the period during which the Representative's Warrants are exercisable,
the holders will have the opportunity to profit from a rise in the market value
of the Common Stock, with a resulting dilution in the interests of the other
stockholders of the Company. Any profit realized by the Representative upon the
sale of the Representative's Warrants or the securities issuable thereunder may
be deemed to be additional underwriting compensation. The holders of the
Representative's Warrants can be expected to exercise them at a time when the
Company in all likelihood would be able to obtain any needed capital from an
offering of its unissued Common Stock on terms more favorable to the Company
than those provided for in the Representative's Warrants. Such facts may
adversely affect the terms on which the Company can obtain additional financing.
The Company must file all necessary undertakings required by the Securities
and Exchange Commission in connection with the registration of the shares of
Common Stock and Warrants issuable upon exercise of the Representative's
Warrants. Upon the Representative's demand, the Company will file one
registration statement so as to permit the Representative to sell publicly the
Common Stock and Warrants issued on the exercise of the Representative's
Warrants. In addition, subject to certain limitations, in the event the Company
proposes to register any of its securities under the Securities Act during the
four-year period commencing one year from the date of this Prospectus, the
holders of the Representative's Warrants and the underlying Common Stock and
Warrants will be entitled to notice of such registration and may elect to
include the Common Stock and Warrants underlying the Representative's Warrants
held by them in such registration. Expenses associated with any registration
initiated upon the request of the holders of the Representative's Warrants or
the holders of Common Stock and Warrants issued or issuable upon exercise of the
Underwriters' Warrants will be paid by the Company. The registration of
securities pursuant to the registration rights applicable to the
Representative's Warrants may impede future financing.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain liabilities in connection with the
Registration Statement, including liabilities under the Securities Act.
The Underwriters have advised the Company that the Underwriters do not
intend to confirm sales to any account over which it exercises discretionary
authority.
For a period of five years following the closing of this offering, the
Underwriter will have the right to nominate one member of the Board of
Directors.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the Securities
and Exchange Commission as an exhibit to the Registration Statement of which
this Prospectus is a part. See "Available Information."
Prior to this offering, there has been no public market for any securities
of the Company. Consequently, the initial public offering price for the Units
was determined by negotiation between the Company and the Representative. Among
the factors considered in such negotiations was prevailing market conditions,
the results of operations of the Company in recent periods, the price-earnings
ratios of publicly traded companies that the Company and the Representative
believe to be comparable to the Company, the revenue and earnings of the
Company, estimates of the business potential of the Company, the present state
of the Company's development, and other factors deemed relevant. The offering
price does not necessarily bear any direct relation to asset value or net book
value of the Company.
The Representative has indicated its intention to make a market in the
Company's Common Stock and Warrants after the offering made hereby. In
connection with that activity, the Representative may but shall not be required
to effect transactions which stabilize or maintain the market price of the
Common Stock and Warrants at a level above that which might otherwise prevail in
the open market. Such stabilizing, if commenced, may be discontinued at any
time.
50
<PAGE> 52
LEGAL OPINIONS
The validity of the shares of Common Stock and Warrants will be passed upon
for the Company by Rudnick & Wolfe, 203 North LaSalle Street, Chicago, Illinois.
Certain legal matters will be passed upon for the Underwriters by O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears, a professional association, One
East Camelback Road, Phoenix, Arizona.
EXPERTS
The financial statements of the Company and of Canton for the fiscal year
ended June 30, 1996 included in this Prospectus have been audited by BDO Seidman
LLP, independent certified public accountants. The financial statements of the
Company and Canton for the fiscal year ended June 30, 1995 included in this
Prospectus have been audited by Semple & Cooper, P.L.C., independent certified
public accountants, for the period indicated in their report thereof. Such
financial statements have been included herein in reliance upon the reports of
such firms given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Units, the Common Stock, and the Warrants
offered hereby. This Prospectus constitutes a part of the Registration Statement
and does not contain all of the information set forth therein and in the
exhibits thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company and the Units, the Common Stock, and the Warrants offered
hereby, reference is hereby made to such Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any document are
not necessarily complete and in each instance are qualified in their entirety by
reference to the copy of the appropriate document filed with the Commission. The
Registration Statement, including the exhibits thereto, may be examined without
charge at the Commission's public reference facility at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. In addition, copies of all
or any part of the Registration Statement, including such exhibits thereto, may
be obtained from the Commission at its principal office in Washington, D.C.,
upon payment of the fees prescribed by the Commission.
The Registration Statement and the reports and other information to be
filed by the Company following this offering in accordance with the Securities
and Exchange Act of 1934, as amended, can be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, New York, NY 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Il 60601. Copies of
such material may be obtained from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington D.C.
20549, upon payment of the fees prescribed by the Commission. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding registrants, such as the
Company, that file electronically with the Commission.
The Company intends to provide its stockholders with annual reports
containing financial statements audited by independent auditors and quarterly
reports for the first three fiscal quarters of each year containing unaudited
summary consolidated financial information.
51
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
Reports of Independent Certified Public Accountants............................ F-2 & F-3
Consolidated Balance Sheet as of June 30, 1996................................. F-4
Consolidated Statements of Operations for the years ended June 30, 1995 and
1996......................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended
June 30, 1995 and 1996....................................................... F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1995 and
1996......................................................................... F-7
Notes to Consolidated Financial Statements..................................... F-8
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES PROFORMA FINANCIAL STATEMENTS
Introduction to Proforma Condensed Consolidated Financial Statements
(Unaudited).................................................................. F-17
Proforma Condensed Consolidated Balance Sheet as of June 30, 1996
(Unaudited).................................................................. F-18
Proforma Condensed Statement of Operations for the year ended June 30, 1996
(Unaudited).................................................................. F-19
Notes to Proforma Condensed Consolidated Financial Statements (Unaudited)...... F-20
CANTON MANAGEMENT GROUP, INC., DBA PROGRESSIVE HEALTH MANAGEMENT, INC. (A
DEVELOPMENT STAGE COMPANY)
Reports of Independent Certified Public Accountants............................ F-22 & F-23
Balance Sheet as of June 30, 1996.............................................. F-24
Statements of Operations and Accumulated Deficit for the years ended June 30,
1995 and 1996 and for the period from the date of inception, October 3, 1993
to June 30, 1996............................................................. F-25
Statements of Cash Flows for the years ended June 30, 1995 and 1996 and for the
period from the date of inception, October 3, 1993 to June 30, 1996.......... F-26
Notes to Financial Statements.................................................. F-27
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Birman Managed Care, Inc. and Subsidiaries
Cookeville, Tennessee
We have audited the accompanying consolidated balance sheet of Birman
Managed Care, Inc. and Subsidiaries (the "Company") as of June 30, 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Birman
Managed Care, Inc. and Subsidiaries at June 30, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Los Angeles, California
August 2, 1996, except for
Notes 7 and 16, which are as
of September 9, 1996
F-2
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Birman Managed Care, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity, and cash flows of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations, changes in
stockholders' equity, and cash flows of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1995, in conformity with generally
accepted accounting principles.
SEMPLE & COOPER, P.L.C.
Certified Public Accountants
Phoenix, Arizona
July 19, 1996
F-3
<PAGE> 56
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes 1 and 2).............................. $1,872,343
Accounts receivable, net of allowance for doubtful accounts of $44,159
(Notes 1, 2, and 16)................................................ 1,043,771
Prepaid expenses and other............................................. 9,903
Notes receivable -- related party (Note 3)............................. 653,496
Deferred tax asset (Notes 1 and 8)..................................... 95,549
----------
Total current assets........................................... 3,675,062
----------
Property and equipment, net of accumulated depreciation (Notes 1, 4, 5
and 6)................................................................. 293,684
Deferred offering costs (Note 1)......................................... 25,000
Goodwill (Note 1)........................................................ 16,145
----------
Total assets................................................... $4,009,891
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of note payable (Note 5)............................... $ 2,435
Current portion of capital lease obligations (Note 6).................. 1,540
Accounts payable....................................................... 117,025
Accrued expenses....................................................... 2,050
Income taxes payable (Notes 1 and 8)................................... 635,205
----------
Total current liabilities...................................... 758,255
Note payable, less current portion (Note 5).............................. 5,028
Capital lease obligations, less current portion (Note 6)................. 2,009
Deferred income taxes payable (Notes 1 and 8)............................ 55,620
----------
Total liabilities.............................................. 820,912
----------
Commitments and contingencies (Notes 3 and 7)............................ --
Stockholders' equity: (Note 11)
Preferred stock, $.001 par value, 5,000,000 shares authorized, none
issued or outstanding............................................... --
Common stock, $.001 par value, 25,000,000 shares authorized, 6,931,082
issued and outstanding.............................................. 6,931
Additional paid-in capital............................................. 1,780,612
Retained earnings...................................................... 1,401,436
----------
Total stockholders' equity..................................... 3,188,979
----------
Total liabilities and stockholders' equity..................... $4,009,891
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-4
<PAGE> 57
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revenue............................................................. $4,817,572 $8,416,946
Cost of revenue..................................................... 2,381,023 2,278,932
---------- ----------
Gross margin........................................................ 2,436,549 6,138,014
Selling, general and administrative expenses........................ 3,113,660 4,236,607
---------- ----------
Income (loss) from operations....................................... (677,111) 1,901,407
---------- ----------
Other income (expense):
Interest expense.................................................. (57,857) (44,835)
Interest income................................................... 28,758 47,257
Loss on sale of assets............................................ (1,464) (5,065)
---------- ----------
(30,563) (2,643)
---------- ----------
Income (loss) before provision for income taxes..................... (707,674) 1,898,764
Provision for income tax (expense) benefit (Note 8)................. 224,331 (726,983)
---------- ----------
Income (loss) from continuing operations............................ (483,343) 1,171,781
Discontinued operations: (Note 10)
Loss from discontinued operations (net of income tax benefit of
$143,700 in 1995).............................................. (215,550) --
---------- ----------
Net income (loss)................................................... $ (698,893) $1,171,781
========== ==========
Primary and fully diluted income (loss) per common stock share:
(Note 1)
Income (loss) from continuing operations.......................... $ (.06) $ .15
Loss from discontinued operations................................. (.03) --
---------- ----------
Net income (loss) per share....................................... $ (.09) $ .15
---------- ----------
Weighted average common shares outstanding (Note 1)................. 7,725,434 7,725,434
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-5
<PAGE> 58
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
PREFERRED ------------------ PAID-IN RETAINED STOCKHOLDERS'
STOCK SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994......... $ -- 5,470,467 $5,471 $ 2,029 $1,158,548 $ 1,166,048
Dividend distribution (Note
10)............................ -- -- -- -- (230,000) (230,000)
Net loss......................... -- -- -- -- (698,893) (698,893)
------- --------- ------ ---------- ---------- -----------
Balance at June 30, 1995......... -- 5,470,467 5,471 2,029 229,655 237,155
Stock sales (Note 11)............ -- 1,332,970 1,333 1,603,710 -- 1,605,043
Issuance of stock for debt....... -- 127,645 127 174,873 -- 175,000
Net income....................... -- -- -- -- 1,171,781 1,171,781
------- --------- ------ ---------- ---------- -----------
Balance at June 30, 1996......... $ -- 6,931,082 $6,931 $1,780,612 $1,401,436 $ 3,188,979
======= ========= ====== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-6
<PAGE> 59
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) from continuing operations........................ $ (483,343) $1,171,781
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation...................................................... 83,981 73,814
Loss on sale of assets............................................ 1,464 5,065
Interest income debited to note receivable........................ (28,427) (28,011)
Receivable converted to note receivable........................... (5,500) --
Loss from discontinued operations................................. (215,550) --
Interest expense credited to note payable......................... 1,900 --
Changes in operating assets and liabilities:
Accounts receivable............................................ 241,193 (547,706)
Prepaid expenses and other..................................... -- (9,903)
Deferred tax asset............................................. (308,970) 27,372
Deferred offering costs........................................ -- (25,000)
Goodwill....................................................... -- (16,145)
Accounts payable -- trade...................................... 8,439 (264,953)
Accrued expenses............................................... 8,771 (6,721)
Income taxes payable
-- current................................................... (35,260) 596,138
-- deferred.................................................. (98,128) 213,421
---------- ----------
(346,087) 17,371
---------- ----------
Net cash provided by (used in) operating activities................. (829,430) 1,189,152
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment................................ (65,527) (107,035)
Collection of notes receivable -- related parties................. 441,784 --
Advances for notes receivable -- related party.................... (269,930) (343,579)
Proceeds from sale of assets...................................... 144,299 2,325
---------- ----------
Net cash provided by (used in) investing activities............ 250,626 (448,289)
---------- ----------
Cash flows from financing activities:
Proceeds (payments) from debt..................................... 542,930 (483,896)
Proceeds from sale of stock....................................... -- 1,605,043
---------- ----------
Net cash provided by financing activities...................... 542,930 1,121,147
---------- ----------
Net increase (decrease) in cash and cash equivalents................ (35,874) 1,862,010
Cash and cash equivalents at beginning of year...................... 46,207 10,333
---------- ----------
Cash and cash equivalents at end of year............................ $ 10,333 $1,872,343
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-7
<PAGE> 60
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS SUMMARY:
The Company is a health care consulting and management company dedicated to
improving the quality, controlling the cost and enhancing the efficiency of the
management and delivery of health care services by focusing on the physician as
the most important factor in the health care system. In pursuing these goals,
the Company currently provides its proprietary "Quality Management Program" to
hospitals and their attending physicians. In addition, the Company is developing
and will operate various health plans in association with physician networks,
hospitals, and other health care providers.
The Company was organized in 1994 and reincorporated in Delaware in 1996 to
serve as the holding company of Birman & Associates, Inc., and BMC Health Plans,
Inc. The Company acquired a third subsidiary on June 14, 1996, through an asset
purchase of Hughes & Associates, Inc. The operations of Hughes & Associates,
Inc. are immaterial. This represents a change in the legal entity, but not in
the operations of the Company. As such, the accompanying consolidated financial
statements are presented on a continuing basis. In addition, effective June 30,
1995, the Company adopted a June 30 fiscal year end.
Birman Farms -- Discontinued Operation:
The Company held and operated Birman Farms, a livestock breeding operation,
which utilizes farm land owned personally by David N. Birman, M.D. and Sue
Birman, the principal stockholders and officers and directors of the Company.
Effective June 30, 1995, the Company separately incorporated Birman Farms and
distributed the shares of stock as a dividend to David N. Birman, M.D.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
Birman Managed Care, Inc. and its wholly owned subsidiaries: Birman &
Associates, Inc., BMC Health Plans, Inc. and Hughes & Associates, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents:
Cash and cash equivalents include all highly liquid investments purchased
with an initial maturity of three months or less.
Accounts Receivable:
Accounts receivable represent amounts earned but not collected in
connection with consulting services performed by the Company.
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense as a
percentage of accounts receivable, based on a review of the individual accounts
outstanding and the Company's prior history of uncollectible accounts
receivable.
Property and Equipment:
Property and equipment are stated at cost. Depreciation is provided for on
the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs that neither materially add to the value of the
F-8
<PAGE> 61
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
property nor appreciably prolong its life are charged to expense as incurred.
Betterments or renewals are capitalized when incurred. The estimated useful
lives for asset classifications, are as follows:
<TABLE>
<S> <C>
Computer equipment.................................... 5 years
Office equipment and motor vehicles................... 5 years
Furniture and fixtures................................ 5 years
Leasehold improvements................................ 10 years
</TABLE>
Deferred Offering Costs:
Deferred offering costs represent costs incurred in connection with the
Company's proposed initial public offering of common stock. Deferred offering
costs will be netted against the net proceeds from the proposed public offering,
or expensed should the offering not be completed.
Goodwill:
Goodwill represents the excess of the cost of acquiring the assets of
Hughes & Associates, Inc. over the fair value of their net assets at the date of
acquisition, June 14, 1996, and is being amortized on the straight-line method
over five years. No amortization expense was recorded for the year ended June
30, 1996. The carrying value of goodwill will be periodically reviewed by the
Company and impairments, if any, will be recognized when expected future
operating cash flows derived from goodwill are less than their carrying value.
Income Taxes:
For tax reporting purposes, the Company currently reports revenue and
expenses based on the accrual basis method of accounting for the fiscal year
ended June 30, 1996. Previously, the Company used the cash basis method for the
six-month period ended June 30, 1995.
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes". Under SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis and the utilization of the net operating loss
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Accounting Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share:
Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective years. All weighted average shares
outstanding give retroactive effect to the 1,000 for 1 stock split in October
1995 and the 72.939 for 100 exchange of shares of Common Stock in connection
with the reincorporation of the Company in Delaware in September 1996 (Note 11).
The Company is planning an initial public offering of its Common Stock. Pursuant
to Securities and Exchange Commission rules, Common Stock options and warrants
issued for consideration below the anticipated offering price per share during
the
F-9
<PAGE> 62
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12-month period prior to filing of the registration statement has been included
in the calculation of common share equivalent shares, using the treasury stock
method, as if they had been outstanding for all periods presented. In addition,
shares of Common Stock that are subject to options and warrants having exercise
prices that are below the anticipated offering price per share, whether or not
exercisable, have been included in the earnings per share calculation, using the
treasury stock method.
New Accounting Pronouncements:
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board is effective
for financial statements for fiscal years beginning after December 15, 1995. The
new standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company does not expect adoption to have a material effect on its
financial position or results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board is effective for specific transactions entered into after
December 15, 1995, while the disclosures requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. At the present time, the Company has not determined if it will
change its accounting policy for stock-based compensation or only provide the
required financial statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently unknown. The Company
does not expect adoption to have a material effect on its financial position or
results of operations.
2. CONCENTRATION OF CREDIT RISK:
The Company maintains cash and cash equivalents at three financial
institutions. Deposits not to exceed $100,000 at each financial institution are
insured by the Federal Deposit Insurance Corporation. At June 30, 1996, the
Company has uninsured cash and cash equivalents in the approximate amount of
$1,790,463.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company's accounts receivable primarily result from its consulting services with
rural hospitals in the southeastern, central and south central portion of the
United States. The receivables are primarily billed monthly and are unsecured.
Ongoing credit evaluation and account monitoring procedures are utilized to
minimize the risk of loss.
3. RELATED PARTY TRANSACTIONS:
Notes Receivable:
Included in notes receivable at June 30, 1996 are the following related
party notes and interest receivable:
<TABLE>
<S> <C>
7% notes receivable from David N. Birman, M.D., due on demand..... $556,586
Interest receivable -- David N. Birman, M.D....................... 74,587
--------
$631,173
========
</TABLE>
For the year ended June 30, 1996, the Company advanced approximately
$343,000 to David N. Birman, M.D. In addition, the Company has committed to
advance an additional $143,827 to Dr. Birman through September 30, 1998.
F-10
<PAGE> 63
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
At June 30, 1996, property and equipment consist of the following:
<TABLE>
<S> <C>
Computer and office equipment........................... $303,000
Furniture and fixtures.................................. 125,286
Motor vehicles.......................................... 44,306
Leasehold improvements.................................. 2,544
--------
475,136
Less accumulated depreciation and amortization.......... 181,452
--------
$293,684
========
</TABLE>
For the years ended June 30, 1995 and 1996, depreciation expense was
$83,981 and $73,814, respectively.
5. NOTES PAYABLE:
At June 30, 1995 and 1996, notes payable consist of the following:
<TABLE>
<CAPTION>
JUNE
JUNE 30, 30,
1995 1996
--------- -------
<S> <C> <C>
Line of credit with First American Bank. The line of credit is
due in September 1996, with an interest rate of prime plus
.75%; collateralized by accounts receivable and was repaid in
June 1996.................................................... $ 396,000 $ --
Note payable to First American Bank. The note is due in July
1995, with an interest rate of 9.5%; collateralized by
accounts receivable.......................................... 80,000 --
Notes payable due to unrelated parties, non-interest bearing,
due on demand; unsecured. The notes were repaid through the
issuance of common stock in July 1995........................ 175,000 --
Note payable to Toyota Motor Credit Corp. The note is due and
payable in March 1999, with an interest rate of 12.5%;
collateralized by a vehicle.................................. -- 7,463
--------- -------
651,000 7,463
Less current portion of long-term notes payable................ (651,000) (2,435)
--------- -------
$ -- $ 5,028
========= =======
</TABLE>
6. CAPITAL LEASE OBLIGATIONS:
The Company is the lessee of a telephone system, with an aggregate cost of
$4,410, under a capital lease agreement which expires in April 1998. As of June
30, 1996, minimum future lease payments due under the capital lease agreement
for the next two years, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, AMOUNT
- ------------------------------------------------------------------- -------
<S> <C>
1997............................................................... $ 2,684
1998............................................................... 2,440
-------
Total minimum lease payments....................................... 5,124
Less amount representing interest.................................. (1,575)
-------
Present value of net minimum lease payments........................ 3,549
Less current portion............................................... (1,540)
-------
Long-term maturities of capital lease obligations.................. $ 2,009
=======
</TABLE>
F-11
<PAGE> 64
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The interest rate is imputed based on the lessor's implicit rate of return
at the inception of the lease.
7. COMMITMENTS AND CONTINGENCIES:
Operating Leases:
The Company is currently leasing vehicles under various non-cancellable
operating lease agreements, expiring in April 1998. The terms of the lease
agreements provide for monthly payments ranging from $138 to $940. At June 30,
1996, a schedule of future minimum lease payments due under the non-cancellable
operating lease agreements is as follows:
<TABLE>
<CAPTION>
JUNE 30,
- -------------------------------------------------------------------
<S> <C>
1997.............................................................. $34,604
1998.............................................................. 12,745
-------
$47,349
=======
</TABLE>
Rent expense under the foregoing operating lease agreements for the years
ended June 30, 1995 and 1996 was $56,040 and $62,053, respectively. The Company
occupies office premises in Cookeville, Tennessee and Phoenix, Arizona on a
month-to-month basis. Rent under these facility leases for the years ended June
30, 1995 and 1996 was $49,117 and $63,258, respectively.
Employment Contracts:
The Company has entered into employment contracts with eight key employees,
including David N. Birman, M.D. and Sue D. Birman, through June 2001, which
provide for minimum annual salary, adjusted for cost-of-living changes, and
incentives based on the Company's attainment of specified levels of sales and
earnings. At June 30, 1996, the total commitment, excluding incentives, was $5.1
million over the next five years.
Other Commitments:
Effective September 1, 1996, the Company entered into a consulting
agreement with Richard M. Ross, a former officer and director. Under the terms
of the agreement the Company will pay a fee of $186,000 per annum, payable in
equal monthly installments. The contract is renewable annually for up to six
consecutive years.
8. INCOME TAXES AND DEFERRED INCOME TAXES:
The provision (benefit) for income taxes consists of the following for the
years ended June 30:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Federal (net of benefit of net operating loss
carryforward of $136,000)...................... $(174,531) $565,183
State............................................. (49,800) 161,800
--------- --------
$(224,331) $726,983
========= ========
</TABLE>
The provision (benefit) for income taxes based on income from continuing
operations differs from the amount obtained by applying the statutory federal
income tax rate to income before taxes due to differences between expenses
allowed for income tax purposes and financial purposes.
F-12
<PAGE> 65
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The temporary differences that give rise to the deferred tax asset
(liability) at June 30, 1996, are presented below:
Deferred tax asset -- current:
<TABLE>
<S> <C>
Allowance for doubtful accounts.................................. $ 18,990
Adjustment due to change from the cash method of
reporting income for income taxes to the accrual method........ 76,559
--------
$ 95,549
========
Deferred tax liability -- long-term:
Excess of depreciation for income tax reporting purposes
over depreciation for financial reporting purposes........ $(55,620)
========
</TABLE>
No valuation allowance has been recorded since it is more likely than not
that the net deferred tax asset will be realized.
9. STATEMENTS OF CASH FLOWS:
During the years ended June 30, 1995 and 1996, the Company recognized
investing and financing activities that affected assets and liabilities but did
not result in cash receipts or payments.
For the year ended June 30, 1995, these non-cash activities are as follows:
The Company reclassified $5,500 from accounts receivable to a note
receivable.
The Company accrued and added $28,427 of interest to notes receivable.
The Company declared and distributed as a dividend all of the farm
assets in the net amount of $230,000.
The Company made payments for interest in the amount of $555,957. Payments
were made for income taxes in the amount of $74,327.
For the year ended June 30, 1996, these non-cash activities are as follows:
The Company accrued and added $28,011 of interest to notes receivable
from David N. Birman, M.D.
The Company financed the purchase of an automobile in the amount of
$8,007.
The Company retired debt in the amount of $175,000 through the
issuance of Common Stock.
The Company made payments for interest in the amount of $46,735. A refund
was received for income taxes in the amount of $76,530.
10. DISCONTINUED OPERATIONS:
Birman & Associates, Inc. disposed of Birman Farms as of June 30, 1995. The
assets disposed of were primarily comprised of farm equipment and livestock. The
farm operation had previously been reported as an operating segment of Birman &
Associates, Inc. Birman Farms was placed under a separate corporation and shares
were distributed as a dividend in the amount of $230,000, which approximates
fair market value, to Dr. Birman.
Net revenues of Birman Farms for 1995 were $23,076. This amount is not
included in net sales in the accompanying consolidated statement of operations.
11. STOCKHOLDERS' EQUITY:
On October 31, 1995, the Company declared a 1,000-for-1 stock split of the
Company's Common Stock. On September 9, 1996, the Company was reincorporated in
Delaware by means of a merger in which
F-13
<PAGE> 66
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shareholders received 72.939 shares of Common Stock for each 100 shares of
Common Stock then outstanding. The accompanying consolidated financial
statements give retroactive effect to the aforementioned transactions.
During June of 1996, the Company issued 1,332,970 shares of Common Stock in
a private placement. The shares of Common Stock were sold at $1.37 per share.
The net proceeds of $1,605,043 were net of offering expenses of $222,457.
12. STOCK OPTION PLAN:
On October 31, 1995, the Company approved the 1995 Stock Option Plan (the
"Plan"). The aggregate of Common Stock that may be issued pursuant to the Plan
will not exceed 1,458,780 shares. Pursuant to the Plan, the Company has issued
stock options to various key employees. The table below summarizes the Company's
stock option transactions:
<TABLE>
<CAPTION>
NUMBER EXERCISE AGGREGATE
OF SHARES PRICE VALUE
---------- -------- ----------
<S> <C> <C> <C>
Balance at June 30, 1995........................... -- $ -- $ --
Options granted.................................... 1,006,566 1.37 1,380,000
---------- ----------
Balance at June 30, 1996........................... 1,006,566 $1,380,000
======== =========
</TABLE>
The above options are granted at fair market value at the date of grant,
become exercisable over a three-year period, or as determined by the Board of
Directors, and expire over periods not exceeding five years.
As of June 30, 1996, none of these options have been exercised and there
have been no options forfeited.
13. STOCK WARRANTS:
At June 30, 1996, the Company had outstanding warrants to purchase 21,335
and 36,470 shares of Common Stock at $1.43 and $1.37 per share, respectively.
The warrants become exercisable in January 1997 and expire at various dates
through December 2001.
14. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1994, the Company implemented a profit sharing plan
covering all full-time employees. The plan is designed as a Code Section 401(k)
plan. Employees are permitted to make voluntary contributions to the plan, for
which the Company is required to make a matching contribution up to certain
limitations. For the years ended June 30, 1995 and 1996, the Company made
contributions to the plan in the amounts of $11,766 and $9,482, respectively.
15. SIGNIFICANT CUSTOMER:
The Company has provided Quality Management Program services to various
hospitals owned and managed by Quorum Health Care, Inc. ("Quorum") since 1991.
Hospitals owned and managed by Quorum represented approximately 53% and 42% of
the Company's Quality Management Program revenue in fiscal 1995 and 1996,
respectively.
16. SUBSEQUENT EVENTS:
Pending Acquisition
On July 16, 1996, the Company submitted a letter of intent to acquire most
of the issued and outstanding common stock of Canton Management Group, Inc., a
Mississippi corporation ("Canton").
F-14
<PAGE> 67
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the agreement, the Company will acquire 1,000,000 shares
of newly issued preferred stock of Canton for $1.00 per share, payable $700,000
in cash and $300,000 by a promissory note. The promissory note bears interest at
a rate of 2% per annum and is payable in varying annual installments over two
years. In addition, the Company will acquire approximately 33% of the
outstanding common stock of Canton for a $500,000 promissory note which bears
interest at a rate of 2% per annum and is payable in varying annual installments
over four years.
Canton will purchase and retire approximately 65% of the outstanding common
stock held by persons other than the Company for $1,000,000, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years.
Line of Credit
In August 1996, the Company arranged a $1,000,000 maximum principal amount
working capital revolving line of credit facility ("facility") with American
National Bank and Trust Company of Chicago. The facility has an initial maturity
date of October 31, 1997. The facility provides for the accrual of interest at a
floating annual rate equal to the lender's prime rate on the unpaid principal
balance. The facility is secured by the accounts receivable of the Quality
Management Program and Hughes & Associates, Inc.
Reincorporation
On September 9, 1996, the Company was reincorporated in Delaware by means
of a merger in which shareholders of the Company received 72.939 shares of
Common Stock for each 100 shares of Common Stock then outstanding.
Initial Public Offering
In September 1996, the Company anticipates filing a registration statement
for an initial public offering ("IPO") of 1,550,000 units ("Units"), each Unit
consisting of one share of Common Stock of the Company and one redeemable Common
Stock Purchase Warrant ("Warrant"). Each Warrant constitutes an option to
purchase one share of Common Stock of the Company at a price equal to 130% of
the IPO price of the Units, subject to adjustment in certain circumstances,
exercisable at any time until 36 months from the date of the Prospectus relating
to the IPO. The anticipated IPO price to the public is expected to range between
$5.75 and $6.75 per Unit.
Directors' Option Plan
On September 9, 1996, the Company adopted the 1996 Non-Employee Directors
Non-Qualified Stock Option Plan (the "1996 Directors' Plan"). A total of 100,000
shares of Common Stock are reserved for issuance under the 1996 Directors' Plan.
Under this plan, upon initial election to the Board of Directors, all
non-employee directors are awarded options to purchase 6,000 shares of Common
Stock. Upon each subsequent election to the Board of Directors, non-employee
Directors receive option awards to purchase 3,000 shares of Common Stock. These
options, which have an exercise price equal to the fair market value of the
shares of Common Stock as of the date of grant, vest at the rate of 33.33% per
year. All options awarded under the 1996 Directors' Plan expire on the first to
occur of (i) 10 years after the date of grant or (ii) 90 days after the date the
director is no longer serving in such capacity for reasons other than death or
disability.
Executive Bonus Plan
The Company has adopted an Executive Bonus Plan (the "Executive Bonus
Plan") pursuant to which officers of the Company are eligible to receive cash
bonuses after the close of each fiscal year of the Company.
F-15
<PAGE> 68
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Executive Bonus Plan is administered by the Compensation Committee of the
Board of Directors. Bonuses are determined on the basis of (i) the operating
profit of the Company, (ii) net revenue growth of the Company achieved as a
percentage of the goal established by the Company at the beginning of the fiscal
year, and (iii) the officer's individual performance and contribution to the
Company. An officer's bonus for any fiscal year may not exceed such officer's
annual base salary multiplied by the Target Bonus Percentage as defined by the
Executive Bonus Plan in such fiscal year.
F-16
<PAGE> 69
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
INTRODUCTION TO
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Proforma Condensed Consolidated Balance Sheet as of
June 30, 1996, and the unaudited Proforma Condensed Consolidated Statement of
Operations for the year ended June 30, 1996 give effect to the acquisition by
Birman Managed Care, Inc. of Canton Management Group, Inc. pursuant to the
Acquisition Agreement pending between the parties, and are based on the
estimates and assumptions set forth herein and in the notes to such statements.
This proforma information has been prepared utilizing the historical financial
statements and notes thereto, which are incorporated by reference herein. The
unaudited Proforma Condensed Consolidated Financial Statements do not purport to
be indicative of the results which actually would have been obtained had the
purchase been effected on the dates indicated or of the results which may be
obtained in the future.
The unaudited Proforma Condensed Consolidated Financial Statements is based
on the purchase method of accounting for the acquisition of Canton Management
Group, Inc. The proforma entries are described in the accompanying footnotes to
the unaudited Proforma Condensed Consolidated Financial Statements.
The unaudited Proforma Condensed Consolidated Balance Sheet and the
unaudited Proforma Condensed Consolidated Statement of Operations and the
related notes should be read in conjunction with Birman Managed Care, Inc.'s
audited consolidated financial statements contained elsewhere in this
Prospectus. In management's opinion, all adjustments necessary to reflect the
acquisition have been made.
F-17
<PAGE> 70
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
CANTON
MANAGEMENT
HISTORICAL GROUP, INC.
BIRMAN (A DEVELOPMENT PROFORMA
CONSOLIDATED STAGE COMPANY) PROFORMA ENTRIES CONSOLIDATED
------------ -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Cash................................... $ 1,872,343 $ 2,143 $ (700,000)(1) $ 1,174,486
Accounts receivable.................... 1,043,771 998 1,044,769
Prepaid expenses....................... 9,903 -- 9,903
Notes receivable....................... 653,496 -- 653,496
Deferred tax asset..................... 95,549 -- 95,549
Property, plant and equipment.......... 293,684 2,641 296,325
Deferred taxes, long-term.............. -- 24,000 (24,000)(2) --
License and goodwill................... 16,145 -- 1,109,390(1) 1,125,535
Other assets........................... 25,000 132,425 157,425
Restricted certificates of deposit..... -- 500,000 500,000
----------- -------- -----------
Total Assets................. 4,009,891 662,207 5,057,488
=========== ======== ===========
Current portion -- long-term debt...... 2,435 -- 200,000(1) 202,435
Current portion of capital lease....... 1,540 -- 1,540
Accounts payable....................... 117,025 11,190 128,215
Accrued expenses....................... 2,050 -- 2,050
Income taxes payable................... 635,205 -- 635,205
Long-term debt......................... 7,037 -- 600,000(1) 607,037
Deferred income taxes.................. 55,620 -- (24,000)(2) 31,620
Minority interest...................... -- -- 260,407(1) 260,407
Preferred stock........................ -- -- --
Common stock........................... 6,931 -- 6,931
Additional paid-in capital............. 1,780,612 707,227 (707,227_)(1) 1,780,612
Retained earnings (deficit)............ 1,401,436 (56,210) 56,210(1) 1,401,436
----------- -------- -----------
$ 4,009,891 $662,207 $ 5,057,488
=========== ======== ===========
</TABLE>
- ---------------
(1) To record the purchase of Canton Management Group, Inc. pursuant to the
acquisition agreement between the parties, and record the minority
interest.
(2) To reclassify long-term deferred income taxes.
See accompanying notes to proforma condensed consolidated financial statements
(as adjusted).
F-18
<PAGE> 71
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
CANTON
MANAGEMENT
HISTORICAL GROUP, INC.
BIRMAN (A DEVELOPMENT PROFORMA PROFORMA
CONSOLIDATED STAGE COMPANY) ENTRIES CONSOLIDATED
------------ -------------- -------- ------------
<S> <C> <C> <C> <C>
Revenue......................................... $ 8,416,946 $ -- $ 8,416,946
Cost of revenues................................ 2,278,932 -- 2,278,932
----------- -------- -----------
Gross profit.................................... 6,138,014 -- 6,138,014
General and administrative expenses............. 4,236,607 71,961 (1) 4,308,568
----------- -------- -----------
Income from operations.......................... 1,901,407 (71,961) 1,829,446
Other income (expense).......................... (2,643) 12,211 (2) 9,568
----------- -------- -----------
Income before provision for income taxes........ 1,898,764 (59,750) 1,839,014
Income taxes.................................... (726,983) 17,900 (709,083)
----------- -------- -----------
Net income (loss)............................... $ 1,171,781 $(41,850) $ 1,129,931
=========== ======== ===========
Net income (loss) per share..................... $ .15 $ (.42) $ .12
=========== ======== ===========
Weighted average number of shares outstanding... 7,725,434 100,000 9,275,434
=========== ======== ===========
</TABLE>
- ---------------
(1) Amortization of the licenses recorded in connection with the purchase of
Canton Management Group, Inc. will be reported on a straight-line basis over
35 years, commencing when operations begin.
(2) Does not include the effects of additional interest expense on notes payable
as amount is immaterial.
See accompanying notes to proforma condensed consolidated financial statements
(as adjusted).
F-19
<PAGE> 72
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
NOTES TO PROFORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (AS ADJUSTED)
(UNAUDITED)
1. PENDING ACQUISITION
On July 16, 1996, the Company submitted a letter of intent to acquire most
of the issued and outstanding common stock of Canton Management Group, Inc., a
Mississippi corporation ("Canton").
Under the terms of the agreement, the Company will acquire 1,000,000 shares
of newly issued preferred stock of Canton for $1 per share, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years. In addition, the Company will acquire approximately 33% of the
outstanding Common Stock of Canton for a $500,000 promissory note, which bears
interest at a rate of 2% per annum and is payable in varying annual installments
over four years.
Canton will purchase and retire approximately 65% of the outstanding Common
Stock held by persons other than the Company for $1,000,000, payable $700,000 in
cash and $300,000 by a promissory note. The promissory note bears interest at a
rate of 2% per annum and is payable in varying annual installments over two
years.
2. EFFECT OF PENDING ACQUISITION
The adjustments to the Proforma Condensed Consolidated Balance Sheet as of
June 30, 1996 reflect the pending acquisition as if it occurred on June 30,
1996. The Proforma Condensed Consolidated Statement of Operations for the year
ended June 30, 1996 reflects the pending acquisition as if it occurred on the
first day of the period presented.
F-20
<PAGE> 73
CANTON MANAGEMENT GROUP, INC.,
DBA PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JUNE 30, 1996
F-21
<PAGE> 74
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi
We have audited the accompanying balance sheet of Canton Management, Inc.
DBA Progressive Health Management, Inc. (A Development Stage Company) (the
"Company") as of June 30, 1996, and the related statements of operations and
accumulated deficit and cash flows for the year then ended. We have also audited
the statements of operations and cash flows for the period from October 3, 1993
(Inception) to June 30, 1996, except that we did not audit the financial
statements for the period from October 3, 1993 to June 30, 1995; those
statements were audited by other auditors whose report was dated August 7, 1996.
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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Canton Management Group, Inc. DBA Progressive Health
Management, Inc. (A Development Stage Company) at June 30, 1996, and the results
of their operations and their cash flows for the year then ended, and for the
period from October 3, 1993 (Inception) to June 30, 1996, in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Los Angeles, California
August 7, 1996
F-22
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi
We have audited the accompanying statements of operations and accumulated
deficit, and cash flows for the year ended June 30, 1995 of Canton Management,
Inc. DBA Progressive Health Management, Inc. (A Development Stage Company) (the
"Company"). 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Canton
Management Group, Inc. DBA Progressive Health Management, Inc. (A Development
Stage Company) at June 30, 1995 in conformity with generally accepted accounting
principles.
Semple & Cooper, P.L.C.
Phoenix, Arizona
August 7, 1996
F-23
<PAGE> 76
CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)...................................... $ 2,143
Interest income receivable.............................................. 998
--------
Total current assets............................................ 3,141
--------
Office equipment, Net (Note 4)............................................ 2,641
--------
Other assets:
Restricted certificates of deposit (Notes 1 and 2)...................... 500,000
Organization and license costs (Note 1)................................. 132,425
Deferred tax asset (Notes 1 and 3)...................................... 24,000
--------
Total other assets.............................................. 656,425
--------
Total assets.................................................... $662,207
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................................ $ 11,190
--------
Stockholder's equity: (Note 5)
Preferred stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding................................................ --
Class A voting common stock, no par value, 100,000 shares authorized;
100,000 shares issued and outstanding................................ --
Class B non-voting common stock, no par value, 100,000 shares
authorized; no shares issued or outstanding.......................... --
Paid-in capital......................................................... 100,000
Contributed capital..................................................... 607,227
Accumulated deficit, during development stage........................... (56,210)
--------
Total stockholder's equity...................................... 651,017
--------
Total liabilities and stockholder's equity...................... $662,207
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE> 77
CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
FOR THE PERIOD FROM
OCTOBER 3, 1993 (INCEPTION) TO JUNE 30, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
OCTOBER 3,
YEAR ENDED YEAR ENDED 1993 (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
1995 1996 1996
---------- ---------- ----------------
<S> <C> <C> <C>
Revenue:
Donated services.................................... $ -- $ -- $132,425
Interest income..................................... 9,724 12,211 23,489
-------- -------- --------
Total revenue............................... 9,724 12,211 155,914
-------- -------- --------
Expenses:
Advertising......................................... 788 -- 2,395
Consulting.......................................... 67,800 41,500 148,525
Depreciation........................................ 1,056 1,056 2,641
Donations........................................... -- 1,000 1,000
Dues................................................ 5,000 1,100 11,354
Fees and licenses................................... 25 25 1,450
Legal and accounting................................ 7,659 8,194 10,729
Office.............................................. 3,554 3,021 15,514
Printing............................................ 213 244 1,027
Rent................................................ 12,000 12,000 25,000
Telephone........................................... 4,746 2,527 6,288
Travel and entertainment............................ 5,587 1,294 10,201
-------- -------- --------
Total expenses.............................. 108,428 71,961 236,124
-------- -------- --------
Loss before income tax benefit........................ (98,704) (59,750) (80,210)
Income tax benefit.................................... 29,600 17,900 24,000
-------- -------- --------
Net loss.............................................. (69,104) (41,850) (56,210)
Retained earnings (deficit), beginning of period...... 54,744 (14,360) --
-------- -------- --------
Accumulated deficit, end of period.................... $(14,360) $(56,210) $(56,210)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE> 78
CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
FOR THE PERIOD FROM
OCTOBER 3, 1993 (INCEPTION) TO JUNE 30, 1996
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
OCTOBER 3,
1993
YEAR ENDED YEAR ENDED (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30,
1995 1996 1996
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (69,104) $ (41,850) (56,210)
Reconciliation of net loss to cash used by operating
activities:
Donated services....................................... -- -- (132,425)
Depreciation........................................... 1,056 1,056 2,641
Changes in operating assets and liabilities:
Investment income receivable........................... -- (998) (998)
Deferred income taxes.................................. (29,600) (17,900) (24,000)
Accounts payable....................................... 2,663 4,566 11,190
---------- ---------- ----------
Net cash used by operating activities............... (94,985) (55,126) (199,802)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of office equipment........................... -- -- (5,282)
Purchase of restricted certificate of deposit.......... (250,000) (250,000) (500,000)
---------- ---------- ----------
Net cash used by investing activities............... (250,000) (250,000) (505,282)
---------- ---------- ----------
Cash flows from financing activities:
Paid-in capital........................................ -- 100,000 100,000
Contributed capital.................................... 93,920 190,948 607,227
---------- ---------- ----------
Net cash provided by financing activities........... 93,920 290,948 707,227
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents..... (251,065) (14,178) 2,143
Cash and cash equivalents, beginning of period........... 267,386 16,321 --
---------- ---------- ----------
Cash and cash equivalents, end of period................. $ 16,321 $ 2,143 $ 2,143
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-26
<PAGE> 79
CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Operations:
Progressive Health Management, Inc. was incorporated in Mississippi on
October 3, 1993 for the purpose of providing health care services to Mississippi
Medicaid enrollees on a capitated fee basis contracted with the State of
Mississippi. Progressive Health Management, Inc. was licensed by the State of
Mississippi as a Health Maintenance Organization (HMO) on February 15, 1994.
Progressive Health Management, Inc. was merged with and into Canton
Management Group, Inc. (the "Company") on May 6, 1994.
The Company has been approved by the Mississippi State Department of Health
to provide HMO coverage in the counties of Madison, Attala, Carroll, Grenada,
Holmes, Humphreys, Leaks, Leflore, Montgomery and Yazoo.
As of June 30, 1996, the Company had no contracts in effect with the State
of Mississippi to provide any services for enrollees. The Company expects these
contracts to be negotiated before December 31, 1996, at which time the Company
will officially commence operations as an HMO.
Accounting Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.
Minimum Net Worth Requirements:
The Company was required by the State of Mississippi to provide a minimum
cash insolvency reserve of $500,000 as of June 30, 1996.
Office Equipment:
Office equipment is stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method based on the estimated
useful lives of the assets. The estimated useful lives are five years.
Organization and License Costs:
Costs associated with the organization of the Company and license costs
have been capitalized and will be amortized over a five year period and
thirty-five year period once operations commence.
Donated Services:
The Company has recognized services donated by physicians, attorneys and
consultants in the amount of $132,425. These services have been recorded as
donated services in the period received.
F-27
<PAGE> 80
CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes:
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes". Under SFAS No. 109 deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future, based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period, plus or minus the changes during the period in
deferred tax assets and liabilities.
2. RESTRICTED CERTIFICATES OF DEPOSIT:
As of June 30, 1996, the Company held two $250,000 certificates of deposit
bearing interest rates of 4.8% and 3.8%, respectively, and having a maturity
date of September 20, 1996. The certificates of deposit are restricted for use
as insolvency reserves to meet the minimum net worth requirements of the State
of Mississippi.
3. INCOME TAXES:
Deferred tax assets as of June 30, 1996 consist solely of net operating
loss carryforwards of approximately $24,000.
The Company has unused net operating losses available for carryforward to
offset future taxable income and tax liabilities for income tax reporting
purposes, which expire as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, AMOUNT
----------- -------
<S> <C>
2009............................................................ $46,108
2010............................................................ 44,029
-------
$90,137
=======
</TABLE>
The Tax Reform Act of 1986 contains provisions which limit the federal net
operating loss carryforwards available that can be used in any given year in the
event of certain occurrences, which include significant ownership changes.
4. OFFICE EQUIPMENT:
At June 30, 1996, office equipment consists of the following:
<TABLE>
<S> <C>
Office equipment................................................... $ 5,282
Less accumulated depreciation...................................... (2,641)
-------
Office equipment, net.............................................. $ 2,641
=======
</TABLE>
5. CONTRIBUTED CAPITAL:
The shareholders of the Company have made various unrestricted cash
contributions of $607,227 for the period from October 3, 1993 (inception)
through June 30, 1996.
F-28
<PAGE> 81
CANTON MANAGEMENT GROUP, INC., DBA
PROGRESSIVE HEALTH MANAGEMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. STATEMENTS OF CASH FLOWS:
Non-Cash Investing and Financing Activities:
During the period from the date of inception, October 3, 1993 through June
30, 1996, the Company recognized investing and financing activities that
affected its assets and liabilities, but did not result in cash receipts or
payments. These non-cash activities are as follows:
Organization costs in the amount of $132,425 were donated to the Company.
No payments were made for income taxes or interest.
7. SUBSEQUENT EVENT:
In April 1996, the Mississippi legislature approved a pilot capitation
project for Medicaid recipients. The pilot capitation project was approved in
only three counties in which the Company is approved to provide HMO coverage.
Those counties are Humphreys, Leflore and Yazoo. Although not approved
presently, the Company may apply for approval to provide HMO coverage in other
counties included in the pilot project. The scope of the counties included in
the pilot project is not expected to change until the 1997 session of the
Mississippi legislature convenes. The Company has not negotiated any Medicaid
capitation contracts or enrolled any participants as of June 30, 1996.
F-29
<PAGE> 82
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 13
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
Selected Historical and Pro Forma
Consolidated Financial Data......... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 22
Management............................ 37
Certain Transactions.................. 43
Principal Stockholders................ 44
Description of Securities............. 44
Shares Eligible for Future Sale....... 47
Underwriting.......................... 49
Legal Opinions........................ 51
Experts............................... 51
Additional Information................ 51
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
BIRMAN
MANAGED CARE, INC.
1,550,000 UNITS
EACH UNIT CONSISTING
OF
ONE SHARE OF COMMON STOCK
AND
ONE REDEEMABLE
COMMON STOCK PURCHASE
WARRANT
------------------------
PROSPECTUS
------------------------
W.B. MCKEE
SECURITIES, INC.
, 1996
======================================================
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law provides a statutory framework for indemnification of
directors and officers against liabilities and expenses arising out of legal
proceedings brought against them by reason of their status or service as
directors or officers. Section 145 of the General Corporation Law of Delaware
("Section 145") provides that a director or officer of a corporation (i) shall
be indemnified by the corporation for expenses in defense of any action or
proceeding if the director or officer is sued by reason of his service to the
corporation, to the extent that such person has been successful in defense of
such action or proceeding, or in defense of any claim, issue or matter raised in
such litigation, (ii) may, in actions other than actions by or in the right of
the corporation (such as derivative actions), be indemnified for expenses,
judgments, fines, amounts paid in settlement of such litigation, and other
amounts, even if he is not successful on the merits, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation (and in a criminal proceeding, if he did not have
reasonable cause to believe this conduct was unlawful), and (iii) may be
indemnified by the corporation for expenses (but not judgments or settlements)
of any action by the corporation or of a derivative action (such as a suit by a
stockholder alleging a breach by the director or officer of a duty owed to the
corporation), even if he is not successful, provided that he acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, provided that no indemnification is permitted
without court approval if the director was adjudged liable to the corporation.
Under Section 145, the permissive indemnification described in clauses (ii)
and (iii) of the previous paragraph may be made only upon a determination, by
(a) a majority of a quorum of disinterested directors, (b) the stockholders, or
(c) under certain circumstances, by independent legal counsel in a written
opinion, that indemnification is proper in the circumstances because the
applicable standard of conduct has been met. Under Section 145, the Board may
authorize the advancement of litigation expenses to a director or officer upon
receipt of an undertaking by such director or officer to repay such expenses if
it is ultimately determined that such director or officer is not entitled to
indemnification.
The registrant's By-laws (filed as Exhibit 3.3 to this Registration
Statement) generally provide for indemnification of its officers and directors
to the extent permitted by Section 145 of the Delaware Corporation Law.
Reference is hereby made to the Underwriting Agreement (filed as Exhibit
1.1 to this Registration Statement) which contains provisions indemnifying
officers and directors of the Company for certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended.
II-1
<PAGE> 84
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses incurred in connection with the issuance and distribution of
the securities being registered hereby are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
S.E.C. Registration Fee.................................................. $10,448.33
NASD Filing Fee.......................................................... 46,452.71
Qualification Under State Securities Laws (including legal fees)**.......
Printing**...............................................................
Legal Fees and Expenses**................................................
Accounting Fees**........................................................
Transfer Agent and Registrar Fees and Expenses**.........................
Miscellaneous**..........................................................
----------
Total**........................................................ $
==========
</TABLE>
- ---------------
* All fees and expenses are estimates except the Securities and Exchange
Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee. All fees and expenses of this offering are to be
paid by the Company.
** To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Common Stock share numbers and per share purchase prices presented
below have been adjusted to take into account the exchange of 1.370998138 shares
of Birman Managed Care, Inc., a Tennessee corporation, for one share of the
Company in connection with the merger of the Tennessee corporation into the
Company on September 9, 1996, and a 1000-for-one stock split effected by the
Tennessee corporation on October 31, 1995. No registration was required under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
either the exchange or the stock splits as they did not involve the "sale" of
securities within the meaning of the Securities Act. For purposes hereof, the
Company and the predecessor Tennessee corporation are hereinafter referred to as
the Company.
On January 1, 1995, the Company issued an aggregate of 3,500,000 shares of
Common Stock to its President and Chief Executive Officer in exchange for all of
the issued and outstanding capital stock of BMC Health Plans, Inc. The Common
Stock in this transaction was issued in reliance on the exemption provided by
Section 4(2) of the Securities Act.
On June 30, 1995, the Company issued an aggregate of 4,000,000 shares of
Common Stock to its President and Chief Executive Officer in exchange for all of
the issued and outstanding capital stock of Birman & Associates, Inc. The Common
Stock in this transaction was issued in reliance on the exemption provided by
Section 4(2) of the Securities Act.
Between July 2, 1995 and November 30, 1995, the Company sold a total of
359,227 shares of Common Stock to 14 investors for an aggregate consideration of
$492,500 or $1.37 per share. The Common Stock in this transaction was issued in
reliance on the exemption provided by Section 4(2) of the Securities Act.
Between January 10, 1996 and June 30, 1996, the Company sold 1,101,398
shares of Common Stock to 22 investors for an aggregate consideration of
$1,510,000 or $1.37 per share. The Common Stock in this transaction was issued
in reliance on Regulation D promulgated under the Securities Act ("Regulation
D").
On February 28, 1996, the Company sold 36,470 shares of Common Stock to one
non-resident foreign investor who agreed not to sell the shares into the United
States or to United States residents or citizens for a period of one year
following the date of purchase. The aggregate consideration was $50,000 or $1.37
per share. The jurisdiction of the Securities Act did not extend to the offer
and sale of these shares under the circumstances indicated and, therefore, no
registration under the Securities Act was required.
II-2
<PAGE> 85
During the three years ended June 30, 1996, the Company granted to eight of
its officers and key employees, in reliance upon the exemption provided by
Section 4(2) of the Securities Act, incentive stock options pursuant to the
Company's 1995 Stock Option Plan to purchase a total of 1,006,566 shares of
Common Stock at an exercise price of $1.37 per share.
On January 1, 1996, the Company issued to one person a warrant to purchase
36,470 shares of Common Stock, at an exercise price of $1.37 per share expiring
December 31, 2001. The Company relied upon the exemption provided by Section
4(2) of the Securities Act in issuing this warrant.
On July 1, 1996, the Company issued to one person a warrant to purchase
21,335 shares of Common Stock, at an exercise price of $1.43 per share expiring
June 30, 2001. The Company relied upon the exemption provided by Section 4(2) of
the Securities Act in issuing this warrant.
On September 9, 1996, the Company issued to two non-employee directors
options to purchase a total of 12,000 shares of Common Stock at an exercise
price of $6.25 per share in reliance upon Regulation D. The options were granted
under the Company's 1996 Non-Employee Directors' Non-Qualified Stock Option
Plan.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealer Agreement.
3.1 Certificate of Incorporation of Birman Managed Care, Inc.
3.2 By-laws of Birman Managed Care, Inc.
3.3 Certificate of Merger dated September 9, 1996 by and between Birman Managed Care,
Inc. -- Delaware and Birman Managed Care, Inc.
4.1 Reference is made to Exhibits 3.1 through 3.3.
4.2 Specimen Common Stock Certificate.*
4.3 Form of Warrant Agreement.
4.4 Specimen Warrant Certificate.*
4.5 Form of Representative's Warrant Agreement.
4.6 Form of Representative's Warrant.
5.1 Form of Opinion of Rudnick & Wolfe.*
10.1 Employment Agreement by and between Birman Managed Care, Inc. and David N. Birman,
M.D. entered into on March 1, 1996.
10.2 Employment Agreement by and between Birman Managed Care, Inc. and Sue D. Birman
entered into on March 1, 1996.
10.3 Employment Agreement by and between Birman Managed Care, Inc. and Robert D. Arkin
entered into on March 1, 1996; Amendment No. 1 by and between Birman Managed Care,
Inc. and Robert D. Arkin entered into on March 1, 1996.
10.4 Employment Agreement by and between Birman Managed Care, Inc., BMC Health Plans, Inc.
and Vincent W. Wong entered into on March 1, 1996.
10.5 Employment Agreement by and between Birman Managed Care, Inc. and Douglas A. Lessard
entered into on March 1, 1996; Amendment No. 1 by and between Birman Managed Care,
Inc. and Douglas A. Lessard entered into on March 1, 1996; Amendment No. 2 by and
between Birman Managed Care, Inc. and Douglas A. Lessard entered into on September 1,
1996.
</TABLE>
II-3
<PAGE> 86
<TABLE>
<S> <C>
10.6 Employment Agreement by and between Birman Managed Care, Inc. and Mark C. Wade entered
into on July 1, 1995; Amendment No. 1 by and between Birman Managed Care, Inc., BMC
Health Plans, Inc. and Mark C. Wade entered into on October 30, 1995; Amendment No. 2
by and between Birman Managed Care, Inc. and Mark C. Wade entered into on September 1,
1996.
10.7 Employment Agreement by and between Birman Managed Care, Inc. and Brad Seitzinger,
M.D. entered into on August 26, 1991.
10.8 Employment Agreement by and between Birman Managed Care, Inc. and Bill Barenkamp
entered into on November 9, 1993.
10.9 Consulting Agreement by and between Richard M. Ross, RRCG, L.L.C., and Birman Managed
Care, Inc. entered into as of September 1, 1996.
10.10 1995 Stock Option Plan for Birman Managed Care, Inc. dated October 31, 1995.
10.11 1996 Non-Employee Directors' Non-Qualified Stock Option Plan of Birman Managed Care,
Inc.
10.12 Stock Purchase Agreement by and between Birman Managed Care, Inc., Canton Management
Group, Inc. and Wesley Prater, M.D., Larry Cooper, M.D., Kelvin Ramsey, M.D., L.C.
Tennin, M.D., Louis Saddler, M.D., James Goodman, Ph.D, Vic Caracci, Michael T.
Caracci, Robert T. Teague, M.S.W., Vincent Caracci, Charlie Hills, Harold Wheeler,
M.D., Stephanie Tucker, Winifred Fulgham and Joyce Johnson entered into on September
6, 1996.
10.13 Promissory Note by David N. Birman, M.D. and payable to the Company.
10.14 Loan and Security Agreement dated August 21, 1996 by and between American National
Bank
and Trust Company of Chicago and Birman & Associates, Inc.
10.15 Loan and Security Agreement dated August 21, 1996 by and between Hughes & Associates,
Inc.
10.16 Promissory Note (Secured) dated August 21, 1995 in the stated principal amount of
$1,000,000 payable to American National Bank & Trust Company of Chicago by Birman &
Associates and Hughes & Associates, Inc.
10.17 Form of Indemnification Agreement for Birman Managed Care, Inc.
10.18 Executive Bonus Plan.
10.19 Agreement by and between National Benefit Resources, Inc. and Birman Managed Care,
Inc. entered into on April 16, 1996.
11.1 Calculation of Income (Loss) Per Share.
21.1 List of Subsidiaries.
23.1 Consent of BDO Seidman, LLP. Re: Birman Managed Care, Inc.
23.2 Consent of BDO Seidman, LLP Re: Canton Management Group, Inc.
23.3 Consent of Semple & Cooper, P.L.C. Re: Birman Managed Care, Inc.
23.4 Consent of Semple & Cooper, P.L.C. Re: Canton Management Group, Inc.
23.5 Consent of Rudnick & Wolfe (to be included in the Opinion to be filed as Exhibit 5.1
hereto).*
24.1 Powers of Attorney of Certain Officers and Directors.
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
A. The small business issuer will provide to the Underwriter at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
B. Insofar as indemnification by the registrant for liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act"), may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that
II-4
<PAGE> 87
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person against the registrant
in connection with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
C. The undersigned small business issuer hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
D. The small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) above do not
apply if the registration statement is on Form S-3 or Form S-8 and
the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE> 88
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes the registration
statement to be signed on its behalf by the undersigned, in the City of
Cookeville, State of Tennessee, on September 12, 1996.
BIRMAN MANAGED CARE, INC.
By: /s/ DAVID N. BIRMAN
------------------------------------
David N. Birman, M.D., President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------- -------------------
<C> <S> <C>
/s/ DAVID N. BIRMAN Chairman of the Board, President and September 12, 1996
- ----------------------------------- Chief Executive Officer
David N. Birman
/s/ SUE D. BIRMAN Executive Vice President, Director September 12, 1996
- -----------------------------------
Sue D. Birman
/s/ ROBERT D. ARKIN Executive Vice President, Chief September 12, 1996
- ----------------------------------- Operating Officer, Secretary, and
Robert D. Arkin Director
/s/ DOUGLAS A. LESSARD Vice President, Treasurer and Chief September 12, 1996
- ----------------------------------- Financial Officer
Douglas A. Lessard
Director September 12, 1996
- -----------------------------------
Diedrich Von Soosten
/s/ JAMES J. RHODES* Director September 12, 1996
- -----------------------------------
James J. Rhodes
</TABLE>
* By Power of Attorney
II-6
<PAGE> 89
APPENDIX A
Description of Graphic and Image Material
1. Location: Inside Front Cover Page of Prospectus
Caption: Birman Quality Management Program
Subcaption: 80 Client Hospital Implementations in 13 States
Description: This illustration depicts the implementation of the Company's
Quality Management Program using three pictures. At the top of
the page is a picture of two physicians conferring over a
medical record, captioned "Birman physicians consult with
attending physicians." An arrow leads to a second picture
depicting one of the physicians in the first picture attending
to a patient, captioned "Attending physicians apply Quality
Management Programs." An arrow leads from the second picture to
the third picture that depicts a hand writing on a medical
record, captioned "Client hospitals optimize reimbursements and
utilization." To depict the continuity of the flow of
information, an arrow leads from the third picture back to the
first picture. In the background of the illustration is a map
of the United States running from the east coast to the
Mississippi River depicting by state the locations of past and
present hospital-clients of the Company's Quality Management
Program.
2. Location: Inside Back Cover Page of Prospectus
Caption: Birman Health Plans Target Underserved Rural Markets
Description: This illustration depicts the Company's health plan strategy.
At the top of the page is a picture of a family, captioned
"Point of Service -- Patient Chooses Treatment Option At Each
Visit." An arrow points from the family to an arc having three
points of reference labelled HMO, PPO, and Traditional
Indemnity, respectively. Below the arc is a map of the
Southeastern and Southcentral United States showing, by state,
the penetration of HMOs based upon the 1995 HMO-PPO Digest
published by Hoechst Marion Roussel, Inc., captioned "Current
Penetration of HMO Patients by State." The percentages of the
population of the states that are enrollees in HMOs reflected
in the illustration are as follows:
<TABLE>
<CAPTION>
Southeast Southcentral
- --------------------------- -------------------------------
State Percentage State Percentage
- ----- ---------- ----- ----------
<S> <C> <C> <C>
Delaware 25.6% Kentucky 12.4%
Maryland 29.7% Tennessee 9.0%
West Virginia 3.2% Arkansas 6.4%
Virginia 14.1% Mississippi 0.8%
North Carolina 8.7% Alabama 7.6%
South Carolina 5.4% Louisiana 7.4%
Georgia 10.9%
Florida 18.0%
</TABLE>
<PAGE> 1
EXHIBIT 1.1
1,550,000 UNITS
BIRMAN MANAGED CARE, INC.
1,550,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK WARRANT
UNDERWRITING AGREEMENT
______________, 1996
W.B. McKee Securities, Inc.
As Representative of the Several
Underwriters referred to herein
3003 N. Central Avenue, Suite 100
Phoenix, Arizona 85012
Ladies and Gentlemen:
Birman Managed Care, Inc., a Delaware corporation (the
"Company"), proposes to sell to the several underwriters (the "Underwriters")
named in Schedule I hereto for whom you are acting as representative (the
"Representative") an aggregate of 1,550,000 units (the "Units"), each Unit
consisting of one share of Common Stock (the "Common Stock") and one redeemable
common stock warrant (the "Warrant") (together, the "Firm Securities"). The
respective amounts of the Firm Securities to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. The
Company also proposes to sell, at the Underwriters' option, an aggregate of up
to 232,500 additional units (the "Option Securities") as discussed more fully in
Section 2 below. The Company further agrees to issue, upon the Closing Date as
hereafter defined in Section 2, the Representative's Unit Warrants more fully
discussed in Section 4(n) below (the Representative's Unit Warrants").
The Representative has advised the Company that: (a) it is
authorized to enter into this Agreement on behalf of the several Underwriters;
and (b) the several Underwriters are willing, acting severally and not jointly,
to purchase the numbers of Firm Securities set forth opposite their respective
names in Schedule I, plus their pro rata portion of the Option Securities if the
Representative elects to exercise the over-allotment option in whole or in part
for the accounts of the several Underwriters. The Firm Securities, the Option
Securities (to the extent the aforementioned option is exercised), the shares
into which the Warrants are exercisable and the Representative's Unit Warrants
are herein collectively called the "Securities." In all dealings, however, you
shall act on behalf of each of the Underwriters, and the parties hereto shall be
<PAGE> 2
entitled to act and rely upon any statement, request, notice or agreement on
behalf of any Underwriter made or given by you as Representative.
In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants and agrees as follows:
(i) A registration statement on Form SB-2 (File No._____)
with respect to the Securities, including a preliminary form of
prospectus, has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder and has been filed with the Commission
under the Act. Copies of such registration statement, including
any pre-effective and post-effective amendments thereto, the
preliminary prospectuses (meeting the requirements of Rule 430A
of the Rules and Regulations) contained therein and the exhibits,
financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to the
Representative. Such registration statement, herein referred to
as the "Registration Statement," upon filing of the Prospectus
referred to below with the Commission, shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A of
the Rules and Regulations and contained in the prospectus
referred to below, has been declared effective by the Commission
under the Act, and no post-effective amendment to the
Registration Statement has been filed as of the date of this
Agreement. The term "Prospectus" as used herein means (i) the
prospectus in the form included in the Registration Statement, or
(ii) if the prospectus included in the Registration Statement
omits information in reliance upon Rule 430A of the Rules and
Regulations and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the
Registration Statement after the Registration Statement becomes
effective, the prospectus as so filed, or (iii) if the prospectus
included in the Registration Statement omits information in
reliance upon Rule 430A of the Rules and Regulations and such
information is included in a term sheet (as described in Rule
434(b) of the Rules and Regulations) filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations, the
prospectus included in the Registration Statement and such term
sheet, taken together. Any preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company currently is not engaged in any business
other than acting as a holding company for the capital stock of
the subsidiaries listed on Schedule A hereto (each a "Subsidiary"
and, collectively, the "Subsidiaries"). Other than the
Subsidiaries, the Company does not own any stock or other equity
interest in or control, directly or indirectly, any corporation,
partnership or other entity or other subsidiaries. The Company
has been duly incorporated and is validly existing as a
corporation in good
2
<PAGE> 3
standing under the laws of the State of Delaware, with full
corporate and other power and authority to own or lease its
properties and conduct its business as described in the
Registration Statement and the Prospectus; the Company is duly
qualified to transact business in all jurisdictions in which the
ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to
qualify would not have a material adverse effect upon the
business or property of the Company.
(iii) Each Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the jurisdiction of its organization, with full corporate and
other power and authority to own or lease its properties and
conduct its business as described in the Registration Statement
and the Prospectus; each Subsidiary is duly qualified to transact
business in all jurisdictions in which the ownership of its
properties or the conduct of its business requires such
qualification, except where the failure to qualify would not have
a material adverse effect upon the business or property of such
Subsidiary. Except as disclosed in the Registration Statement and
the Prospectus, the Company or a wholly owned Subsidiary of the
Company owns all of the outstanding capital stock of each
Subsidiary free and clear of any security interest, claim, lien,
charge, encumbrance, or adverse interest of any nature.
(iv) The Company has authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Registration Statement and the Prospectus; the outstanding shares
of Common Stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and have been
issued in compliance with all federal and state securities laws;
all of the Securities to be issued and sold by the Company
pursuant to this Agreement have been duly authorized and, when
issued and paid for as contemplated herein, will be validly
issued, fully paid, and nonassessable; no preemptive rights of
stockholders exist with respect to any of the Securities or the
issue and sale thereof; no stockholder of the Company has any
right pursuant to any agreement, which has not been waived or
honored, to require the Company to register, in the Registration
Statement, any shares owned by such stockholder under the Act in
the public offering contemplated herein except as disclosed in
the Registration Statement; and all necessary and proper
corporate proceedings have been taken to validly authorize the
issuance and sale of the Securities, and no further approval or
authority of the stockholders or the Board of Directors of the
Company is required for the issuance and sale of the Securities
to be sold by the Company as contemplated herein.
(v) The Securities conform in all material respects with the
statements concerning them in the Registration Statement and the
Prospectus. Except as specifically disclosed in the Registration
Statement and the Prospectus and the financial statements of the
Company and the related notes thereto contained therein, neither
the Company nor any Subsidiary has outstanding any options or
warrants to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights,
convertible securities, or obligations. The descriptions of the
Company's stock option and other stock-based plans and of the
options or other
3
<PAGE> 4
rights granted and exercised thereunder, as set forth in the
Registration Statement and the Prospectus, are accurate summaries
and fairly present the information required to be shown with
respect to such plans and rights in all material respects.
Neither the Company nor any Subsidiary has any employee benefit
plans (including, without limitation, pension, profit sharing,
and welfare benefit plans) or deferred compensation arrangements,
except as set forth in the Registration Statement and the
Prospectus. The Company and its affiliates are not currently
offering any securities other than the Securities, nor have they
offered or sold any of the Company's securities, except as
described in the Registration Statement and the Prospectus.
(vi) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the
proposed offering of the Securities nor instituted or, to the
best knowledge of the Company, contemplated instituting
proceedings for that purpose. The Registration Statement and the
Prospectus contain, and any amendments or supplements thereto
will contain, all statements which are required to be stated
therein by and in all respects conform or will conform, as the
case may be, to the requirements of the Act and the Rules and
Regulations. Neither the Registration Statement nor any amendment
thereto, and neither the Prospectus nor any supplement thereto,
contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information
contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to
the Company by or on behalf of any Underwriter through the
Representative, specifically for use in the preparation thereof.
(vii) Semple & Cooper, P.L.C. and BDO Seidman, which have
certified the financial statements filed with the Commission as
part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement,
present fairly in all material respects the financial position
and the results of operations of the Company and the Subsidiaries
on a consolidated basis, at the indicated dates and for the
indicated periods. Such financial statements, schedules and
related notes have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout
the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made. The
summary and selected financial and statistical data and schedules
included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis
consistent with the financial statements presented therein. No
other financial statements or schedules are required to be
included in the Registration Statement. The pro forma financial
statements and other pro forma financial information included in
the Registration Statement, any Preliminary Prospectus, and the
Prospectus have been prepared in accordance with the Act and the
Rules and Regulations with
4
<PAGE> 5
respect to pro forma financial statements, have been properly
compiled on a pro forma basis, and, in the opinion of the
Company, the assumptions used in the preparation thereof were
reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to
therein.
(viii) There is no action, suit or proceeding pending or, to
the best knowledge of the Company, after due inquiry, threatened
against the Company or any Subsidiary before any court or
regulatory, governmental or administrative agency or body, or
arbitral forum, which might result in a material adverse change
in the business or financial condition of the Company or any
Subsidiary, except as set forth in the Registration Statement.
Neither the Company nor any Subsidiary is subject to the
provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency or other
governmental body or arbitral forum, which might result in a
material adverse change in the business, assets, or condition of
the Company or any Subsidiary.
(ix) The Company or one of its Subsidiaries has good and
marketable title to all of the properties and assets reflected in
either the financial statements or as described in the
Registration Statement, and such properties and assets are not
subject to liens, mortgages, security interests, pledge or
encumbrances of any kind, except those reflected in such
financial statements or as described in the Registration
Statement, and except for such encumbrances that, individually or
in the aggregate, would not have a material adverse effect on the
business or financial condition of the Company and the
Subsidiaries taken as a whole. The Company and the Subsidiaries
occupy their leased properties under valid and binding leases
conforming to the descriptions thereof set forth in the
Registration Statement.
(x) Each of the Company and each Subsidiary has filed all
federal, state, local, and foreign income tax returns that have
been required to be filed, and each has paid all taxes indicated
by such returns and has paid all tax assessments received by it.
There is no income, sales, use, transfer, or other tax deficiency
or assessment which has been or might reasonably be expected to
be asserted or threatened against the Company or any Subsidiary
which might result in a material adverse change in the business
or financial condition of the Company and the Subsidiaries taken
as a whole. Each of the Company and each Subsidiary has paid all
sales, use, transfer, and other taxes applicable to it and its
business and operations.
(xi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, as they
may be amended or supplemented, (i) there has not been any
material adverse change or any development involving the
likelihood of a future material adverse change in or affecting
the condition, financial or otherwise, of the Company and the
Subsidiaries taken as a whole or the earnings, business affairs,
management, or business prospects of the Company and the
Subsidiaries taken as a whole, whether or not occurring in the
ordinary course of business; (ii) there has not been any
transaction entered into by the Company or any Subsidiary, other
than
5
<PAGE> 6
transactions in the ordinary course of business or transactions
specifically described in the Registration Statement and the
Prospectus as they may be amended or supplemented; (iii) neither
the Company nor any Subsidiary has sustained any material loss or
interference with its respective business or properties from
fire, flood, windstorm, accident or other calamity; (iv) neither
the Company nor any Subsidiary has paid or declared any dividends
or other distribution with respect to its capital stock, and
neither the Company nor any Subsidiary is in default in the
payment of principal of or interest on any outstanding debt
obligations; and (v) there has not been any change in the capital
stock (other than the sale of the Securities or the exercise of
outstanding stock options or warrants as described in the
Registration Statement and the Prospectus) or material increase
in indebtedness of the Company or any Subsidiary. Neither the
Company nor any Subsidiary has any material contingent obligation
which is not disclosed in the Registration Statement and the
Prospectus (or contained in the financial statements or related
notes thereto), as such may be amended or supplemented.
(xii) Neither the Company nor any Subsidiary is in violation
or default under any provision of its charter or bylaws or any
agreement, lease, license, contract, franchise, mortgage, permit,
deed of trust, indenture or other instrument or obligation to
which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective properties
are bound or may be affected (collectively, "Contracts").
(xiii) The execution and performance of this Agreement and
the consummation of the transactions herein contemplated do not
and will not conflict with, or result in a breach or violation
of, any of the terms or provisions of, or constitute, either by
itself or upon notice or the passage of time or both, a default
under, any Contract to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or any of their
respective properties may be bound or affected, except where such
breach, violation or default would not have a material adverse
effect on the business or financial condition of the Company and
the Subsidiaries taken as a whole, or violate any of the
provisions of the Charter or bylaws of the Company or any
Subsidiary or violate any order, judgment, statute, rule or
regulation applicable to the Company or any Subsidiary of any
court or of any regulatory, administrative or governmental body
or agency or arbitral forum having jurisdiction over the Company
or any Subsidiary or any of their respective properties.
(xiv) The Company has the legal right, corporate power, and
authority to enter into this Agreement and perform the
transactions contemplated hereby. This Agreement has been duly
authorized, executed, and delivered by the Company and is legally
binding upon and enforceable against the Company in accordance
with its terms.
(xv) Each approval, registration, qualification, license,
permit, consent, order, authorization, designation, declaration,
or filing by or with any regulatory, administrative, or other
governmental body or agency necessary in connection with the
execution and delivery by the Company of this Agreement and the
consummation of the
6
<PAGE> 7
transactions herein contemplated (except such additional actions
as may be required by the National Association of Securities
Dealers, Inc. (the "NASD") or may be necessary to qualify the
Securities for public offering under state securities or Blue Sky
laws) has been obtained or made and each is in full force and
effect.
(xvi) Either the Company or a Subsidiary owns or possesses
adequate and sufficient rights by license agreement or otherwise
to use and enjoy the full rights in and to all patents, patent
rights, trade secrets, license or royalty arrangements,
trademarks and trademark rights, service marks, trade names,
copyrights, know how or proprietary techniques or rights thereto
of others, and governmental, regulatory or administrative
authorizations, orders, permits, certificates, and consents
necessary for the conduct of the business of the Company and its
Subsidiaries; the Company is not aware of any pending or
threatened action, suit, proceeding, or claim by others, either
domestically or internationally, that the Company or any
Subsidiary is violating any (A) patents, patent rights,
copyrights, trademarks or trademark rights, inventions, service
marks, trade names, licenses or royalty arrangements, trade
secrets, know how or proprietary techniques or rights thereto of
others, or (B) governmental, regulatory or administrative
authorizations, orders, permits, certificates and consents; the
Company is not aware, after due diligence, of any rights of third
parties to, or any infringement of, any of the Company's or any
Subsidiary's patents, patent rights, trademarks or trademark
rights, copyrights, licenses or royalty arrangements, trade
secrets, know how or proprietary techniques as well as processes
and substances, or rights thereto of others, which could
materially and adversely affect the use thereof by the Company or
any Subsidiary or which would have a material adverse effect on
the Company and the Subsidiaries taken as a whole; the Company is
not aware, after due inquiry, of any pending or threatened
action, suit, proceeding, or claim by others challenging the
validity or scope of any of such patents, patent rights,
trademarks or trademark rights, copyrights, licenses or royalty
arrangements, trade secrets, know how, or proprietary techniques
or rights thereto of others. The Company and its Subsidiaries
possess no patents.
(xvii) There are no Contracts or other documents required to
be described in the Registration Statement or to be filed as
exhibits to the Registration Statement by the Act or by the Rules
and Regulations that have not been described or filed as
required.
(xviii) The Company and each of its Subsidiaries is
conducting business in compliance with all applicable laws, rules
and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local,
state, and federal environmental laws and regulations, except
where the failure to so comply would not have a material adverse
effect on the business or financial condition of the Company and
the Subsidiaries taken as a whole (collectively "Governmental
Laws and Regulations"). Without limiting the foregoing, the
Company's current operations do not, and its proposed operations
will not violate any Governmental Laws and Regulations described
in the Registration Statement and the Prospectus. Except as
described in the Registration Statement and the Prospectus, the
Company and each of its Subsidiaries possesses adequate
certificates or permits issued by the appropriate federal, state
and
7
<PAGE> 8
local regulatory authorities necessary to conduct its respective
business (as currently conducted and proposed to be conducted)
and to retain possession of its respective properties. Neither
the Company nor any Subsidiary has received any notice of any
proceeding relating to the revocation or modification of any of
these certificates or permits.
(xix) All transactions among the Company or any Subsidiary
and the officers, directors, and affiliates of the Company or any
Subsidiary have been accurately disclosed in the Registration
Statement and the Prospectus, to the extent required to be
disclosed in the Registration Statement and the Prospectus in
accordance with the Act and the Rules and Regulations. As used in
this Agreement, the term "affiliate" shall mean a person or
entity controlling, controlled by or under common control with
any specified person or entity, or possessing the ability to
direct, directly or indirectly, the management or policies of the
controlled person or entity, whether through the ownership of
voting securities, by contract, positions of employment, family
relationships, service as an officer, director or partner of the
person or entity, or otherwise.
(xx) Neither the Company nor any of its Subsidiaries has,
directly or indirectly, (A) made any unlawful contribution to any
candidate for public office or failed to disclose fully any
contribution in violation of law, or (B) made any payment to any
federal, state, local, or foreign governmental officer or
official or other person charged with similar public or
quasi-public duties, other than payments required or permitted by
the laws of the United States or any other such jurisdiction.
(xxi) The Company and each Subsidiary maintains insurance of
the types and in the amounts which it deems adequate for its
business and which is customary for companies in its industry,
including, but not limited to, general liability insurance and
insurance covering all real and personal property owned or leased
by the Company or any Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and
effect.
(xxii) The Company has taken all appropriate steps
reasonably necessary or appropriate to assure that no offering,
sale, or other disposition of any Common Stock of the Company
will be made (A) directly or indirectly, by the Company, any of
its affiliates, directors or executive officers, or (B) by the
holder of any stock option of any shares acquired upon the
exercise of such option during a period of two (2) years after
the date of this Agreement, in any such case for a period of
twenty-four (24) months after the date of this Agreement,
otherwise than hereunder or with the prior written consent of the
Representative described in the Registration Statement. For a
period of two (2) years from the effective date of the
Registration Statement, the Company, at its expense, shall
provide the Representatives with copies of the Company's daily
transfer sheets, which shall be mailed to the Representatives no
less frequently than weekly.
(xxiii) The Company is classified as a "C" corporation with
the Internal Revenue Service.
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<PAGE> 9
(xxiv) The Company's board of directors consists of those
persons listed in the Prospectus. Except as disclosed in the
Prospectus, none of such persons is employed by the Company or
any of its Subsidiaries nor is any of them affiliated with the
Company or any of its Subsidiaries, except for service on its
board of directors.
(xxv) Except as provided for herein, no broker's or finder's
fees or commissions are due and payable by the Company or any
Subsidiary, and none will be paid by it.
(xxvi) The Company is eligible to use Form SB-2 for the
registration of the Securities.
(xxvii) Neither the Company, nor to its knowledge, after due
and diligent inquiry, any person other than any Underwriter, has
made any representation, promise or warranty, whether verbal or
in writing, to anyone, whether an existing stockholder or not,
that any of the Securities will be reserved for or directed to
them during the proposed public offering.
(xxviii) The Company has not taken and will not take,
directly or indirectly, any action designed to cause or result,
or might reasonably to cause or result, in the stabilization or
manipulation of the price of any security of the Company or to
facilitate the sale or resale of the Units, the Common Stock, or
the Warrants.
(xxix) The Company has not, since the filing of the
Registration Statement (a) sold, bid for, purchased, attempted to
induce any person to purchase, or paid anyone any compensation
for soliciting purchases of, its capital stock, or (b) paid or
agreed to pay to any person any compensation for soliciting
another person to purchase any securities of the Company, except
for the sale of Securities under this Agreement.
(xxx) The Company conducts its operations in a manner that
does not subject it to registration as an investment company
under the Investment Company Act of 1940, as amended, and the
transactions contemplated by this Agreement will not cause the
Company to become an investment company subject to registration
under the Investment Company Act of 1940, as amended.
(xxxi) Except as disclosed in the Registration Statement and
the Prospectus or as otherwise disclosed to the Representative in
writing prior to the date hereof, no officer, director, or
greater than 5% stockholder of the Company is, directly or
indirectly, associated with an NASD member broker-dealer, and the
Company has no management or financial consulting agreement with
any third party.
(xxxii) The Common Stock and the Warrants have been
registered under Section 12 of the Securities Exchange Act of
1954, as amended, (the "Exchange Act") and have been approved for
quotation on the Nasdaq National Market.
9
<PAGE> 10
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SECURITIES. On the
basis of the representations, warranties, and covenants herein contained, and
subject to the conditions herein set forth, the Company agrees to sell to the
Underwriters and each Underwriter agrees, severally and not jointly, to
purchase, at the gross price per Unit indicated in the Prospectus (the "Initial
Price") less the Underwriters' discount of ten percent (10%) of the Initial
Price, the number of Firm Securities set forth opposite the name of each
Underwriter in Schedule I hereof, subject to adjustments in accordance with
Section 9 hereof.
Payment for the Firm Securities to be sold hereunder is to be
made by certified or bank cashier's check(s) or wire transfer in New York
Clearing House (next day) funds to or upon the order of the Company for the Firm
Securities in such manner as the Representative and the Company shall agree
upon, against delivery of certificates therefor to the Representative for the
several accounts of the Underwriters. Such payment and delivery are to be made
at the offices of O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A.,
One East Camelback Road, Phoenix, Arizona 85012-1656 at 10:00 a.m., Phoenix
time, on the fourth business day after the date of this Agreement or at such
other time and date not later than four business days thereafter as the
Representative and the Company shall agree upon, such time and date being herein
referred to as the "Closing Date." (As used herein, "business day" means a day
on which the New York Stock Exchange, Inc. is open for trading and on which
banks in Arizona are open for business and not permitted by law or executive
order to be closed.) The certificates for the Firm Securities shall be in
definitive form with engraved borders and will be delivered one full business
day prior to the Closing Date to __________________________________________
_______________________________________, in such denominations and in such
registrations as the Representative requests in writing not later than two full
business days prior to the Closing Date, and will be made available for
inspection by the Representative at least one business day prior to the Closing
Date at the offices of O'Connor, Cavanagh, Anderson, Killingsworth, & Beshears,
P.A. noted above.
In addition, on the basis of the representations, warranties, and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the several Underwriters to purchase the
Option Securities at the Initial Price, less the Underwriters' discount, subject
to adjustment as provided in Section 9. The maximum number of Option Securities
to be sold by the Company is equal to fifteen percent (15%) of the number of
Firm Securities. The option granted hereby may be exercised in whole or in part,
but only once, at any time upon written notice given within 45 days after the
Closing Date, by the Representative on behalf of the several Underwriters, to
the Company setting forth the number of Option Securities as to which the
several Underwriters are exercising the option, the names and denominations in
which the Option Securities are to be registered, and the time and date at which
such certificates are to be delivered. The certificates for Option Securities
are to be delivered to a location designated by the Representative no later than
one full business day after the exercise of such option (such time and date
being herein referred to as the "Option Closing Date"). Except as otherwise
agreed by the Underwriters in writing, the number of Option Securities to be
purchased by each Underwriter shall be in the same proportion to the total
number of Option Securities being purchased as the number of Firm Securities
being purchased by such Underwriter bears to the total number of the Firm
Securities, adjusted by the
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<PAGE> 11
Representative in such manner as to avoid fractional shares. The option with
respect to the Option Securities granted hereunder may be exercised to cover
over-allotments in the sale of the Firm Securities by the Underwriters or to
permit purchases by the Underwriters to the extent permitted by law. The
Representative, on behalf of the several Underwriters, may cancel such option at
any time, in whole or in part, prior to its expiration, by giving written notice
of such cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Securities shall be made on the Option Closing
Date by certified or bank cashier's check(s) or wire transfer in New York
Clearing House (next day) funds drawn to or upon the order of the Company for
the Option Securities in such manner as the Representative and the Company shall
agree upon, against delivery of certificates therefor at the offices of
O'Connor, Cavanagh, Anderson, Killingsworth, & Beshears, P.A. noted above.
3. OFFERING BY THE UNDERWRITERS. It is understood that the
several Underwriters are to make a public offering of the Firm Securities as
soon as the Representative deems it advisable to do so. The Firm Securities are
to be initially offered to the public at the Initial Price set forth in the
Prospectus. The Representative from time to time thereafter may change the
public offering price and other selling terms. To the extent, if at all, that
any Option Securities are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms.
It is further understood that the Representative will act on
behalf of the Underwriters in the offering and sale of the Securities, in
accordance with a Master Agreement Among Underwriters entered into by the
Representative and the several other Underwriters on or prior to the date
hereof.
The Representative shall have the right to associate with other
underwriters and dealers as it may determine and shall have the right to grant
to such persons such concessions out of the underwriting discount to be received
by the Underwriters as it may determine, under and pursuant to a Master Selected
Dealers' Agreement in the form filed as an exhibit to the Registration
Statement.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. The Company will (i) prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a prospectus (and, if applicable, a
term sheet as described in Rule 434(b) of the Rules and Regulations) containing
information previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A of the Rules and Regulations, and (ii) not
file any amendment to the Registration Statement or supplement to the Prospectus
of which the Representative shall not previously have been advised and furnished
with a copy or to which the Representative shall have reasonably objected in
writing or which is not in compliance with the Rules and Regulations.
11
<PAGE> 12
(b) The Company will advise the Representative promptly and
will confirm such advice in writing (i) when the Registration Statement has
become effective, (ii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, or (iii) of the issuance by the Commission or any state securities
commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any proceedings
for that purpose, and the Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representative in
endeavoring to qualify the Securities for sale under the securities laws of such
jurisdictions as the Representative may have designated in writing and will make
such applications, file such documents, furnish such information and take such
other actions as may be required by federal or state securities laws or
regulations (including but not limited to complying with any stock escrow
requirements and appointing additional independent directors) whether before,
during or after the offering. The Company, from time to time, will prepare and
file such statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for as long a period as the
Representative may request for distribution of the Securities.
(d) The Company will qualify the Securities, including the
Common Stock and the Warrants, for trading on the Nasdaq National Market
("Nasdaq") and will use its best efforts to maintain such qualification for not
less than five (5) years, unless the Company's Securities are listed on the New
York Stock Exchange or the Company is sold or goes private.
(e) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may reasonably request. The Company will deliver to, or
upon the order of, the Representative during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representative may
reasonably request. The Company will deliver to the Representative at or before
the Closing Date, two (2) signed copies of the Registration Statement and all
amendments thereto, including all exhibits filed therewith, and will deliver to
the Representative such number of copies of the Registration Statement, without
exhibits, but including any information incorporated by reference, and of all
amendments thereto, as the Representative may request.
(f) If during the period in which a Prospectus is required
by law to be delivered by an underwriter or dealer any event shall occur as a
result of which, in the judgment of the Company or in the opinion of counsel for
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein not misleading, or, if it is necessary at
any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Registration Statement, including the Prospectus as so amended or
supplemented, will not be misleading, or so that the Registration Statement,
including the Prospectus, will comply with law.
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<PAGE> 13
(g) The Company will make generally available to its
stockholders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earnings statement in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise the
Representative in writing when such statement has been so made available and
will furnish the Representative with a true and correct copy thereof. The
Company will provide or cause to be provided to the representative on Form SR
filed by the Company from time to time, as required by Rule 463 of the Rules and
Regulations.
(h) The Company will, for a period of five (5) years from
the Closing Date, deliver to the Representative copies of annual reports and
copies of all other documents, reports, and information furnished by the Company
to its stockholders or filed with Nasdaq or any securities exchange pursuant to
the requirements of Nasdaq or such exchange or with the Commission pursuant to
the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company will deliver to the Representative similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements. The Company
will also use its best efforts to cause its officers, directors, and beneficial
owners of 10% or more of any of its registered securities to deliver a copy of
any of the Commission Forms 3, 4, and 5 filed with the Commission to the
Representative, and the Company shall deliver copies of all such Forms received
by it to the Representative.
(i) The Company will apply the net proceeds of the sale of
the Securities sold by it in accordance with the statements under the caption
"Use of Proceeds" in the Prospectus.
(j) The Company will not and has required each of its
directors, executive officers, and affiliates to enter into agreements not to
sell any shares of the Company's Common Stock for two (2) years after the date
of the Prospectus, without the prior written consent of the Representative. In
addition, the Company has required the holders of each outstanding option and
warrant to purchase shares of Common Stock to enter into agreements not to sell
any shares of Common Stock acquired upon the exercise thereof for a period of
two (2) years after the date of the Prospectus. The Company has furnished the
Representative with an executed copy of each such agreement substantially in the
form attached as Schedule II which has been executed by each person or entity
specified in Schedule III.
(k) The Company shall make original documents and other
information relating to the Company's affairs available upon request to the
Underwriters and to their counsel at the Company's office for inspection and
copies of any such documents will be furnished upon request to the Underwriters
and to their counsel. Included within the documents made available have been at
least the Charter and all amendments thereto, the bylaws and all amendments
thereto, minutes of all of the meetings of the incorporators, directors and
stockholders, all financial statements and copies of all Contracts to which the
Company is a party or in which the Company has an interest.
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<PAGE> 14
(l) The Company has appointed American Stock Transfer and
Trust Company as the Company's transfer agent for the Units, the Common Stock,
and the Warrants. Unless the Representative otherwise consents in writing, the
Company will continue to retain a transfer agent reasonably satisfactory to the
Representative for a period of one year following the Closing. The Company will
make arrangements to have available at the office of the transfer agent
sufficient quantities of certificates representing the Securities and issuable
upon the exercise of the Warrants as may be needed for the quick and efficient
transfer of the Securities as contemplated hereunder and for the one-year period
following the Closing Date or Option Closing Date, whichever occurs later.
(m) Except with the Representative's approval, the Company
agrees that the Company will not do any of the following for 180 days after the
Closing Date or the Option Closing Date, whichever occurs later:
(i) Undertake or authorize any change in its capital
structure;
(ii) Authorize, create, issue or sell any funded
obligations, notes or other evidences of indebtedness,
except in the ordinary course of business;
(iii) Consolidate or merge with or into any other
corporation or effect a material corporate reorganization of
the Company; or
(iv) Create any mortgage or any lien upon any of its
properties or assets, except in the ordinary course of its
business.
(n) The Company shall deliver to the Representative warrants
in the form attached hereto as Appendix "A" (the "Representative's Unit
Warrants") to purchase, for $.01 per warrant, in the aggregate 155,000 Units.
The Representative's Unit Warrants will be exercisable for a four-year term,
commencing one year from the effective date of the Registration Statement, at an
exercise price equal to 120% of the Initial Price of the Firm Securities. The
Representative's Unit Warrants shall not be redeemable by the Company.
(o) During the period of the proposed public offering and
for twenty-four (24) months from the effective date of the Registration
Statement, the Company will not, without the Representative's prior written
consent, sell, contract to sell, issue for other purposes or otherwise dispose
of any securities of the Company other than (a) shares of Common Stock issuable
on the exercise of any options, warrants, or other rights which are disclosed in
the Prospectus and (b) shares of Common Stock issuable upon the exercise of
options granted to employees, officers or directors after the date of this
Agreement if such options are reasonable and are granted in good faith and at
prices which are not less than 100% of the fair market value of the Common Stock
on the date of grant of such options.
(p) For a period commencing on the date hereof and ending 12
months after the date of the Prospectus, neither the Company nor any of its
officers or directors will hold discussions with any member of the news media or
issue news releases or other publicity about
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<PAGE> 15
the Company regarding the financial condition or any significant event of the
Company without the approval of the Company's legal counsel named in the
Prospectus under the heading "Legal Opinions" or such other counsel as may be
approved by the Representative. During such period, the Company will deliver to
the Representative copies of such news releases or other publicity about the
Company promptly after distribution thereof.
(q) The Company will, for a period of five (5) years from
the Closing Date, use its best efforts, including but not limited to the
solicitation of proxies, to appoint or elect one (1) designee of the
Representative to the Company's board of directors. Such designee shall be
entitled to receive reimbursement for all reasonable expenses incurred in
attending such meetings, including, but not limited to, expenses for food,
lodging, and transportation.
(r) The Company will, beginning on the Closing Date and for
a period of at least five (5) years from the Closing Date, purchase and maintain
key person life insurance on the life of David N. Birman, M.D. in the amount of
$1,000,000, subject to availability of customary terms for such insurance. The
Company hereby acknowledges and agrees that the Representative reserves the
right to write the above insurance policy, provided that it can do so on
competitive terms.
(s) The Company acknowledges and agrees that for a period of
two (2) years from the Closing Date, the Representative will have the right of
first refusal to participate as underwriter, co-underwriter or placement agent
for any public or private offering of the Company's securities. In the event
that any other person or entity should propose such a transaction to the Company
in writing, the Company shall, within three (3) days of its receipt of such
written proposal, provide a copy of such proposal or a summary of the
significant terms of such proposal to the Representative in writing. The
Representative shall have a period of three (3) weeks from the date of receipt
of such notification from the Company in which to exercise its right to
participate as underwriter, co-underwriter or placement agent in such
transaction.
5. COSTS AND EXPENSES. The Company will pay all costs, expenses
and fees in connection with the offering or incident to the performance of the
obligations of the Company under this Agreement, including, without limiting the
generality of the foregoing, the following: (a) all expenses (including any
transfer taxes) incurred in connection with the delivery to the several
Underwriters of the Securities sold hereunder, (b) all fees and expenses
(including, without limitation, fees and expenses of the Company's accountants
and counsel, but excluding fees and expenses of counsel for the Underwriters) in
connection with the preparation, printing, filing, delivery and shipping of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectuses and the Prospectus as
amended or supplemented, this Agreement and other underwriting documents
including Underwriter's Questionnaires, Underwriter's Power of Attorney, Blue
Sky Memoranda, Master Agreement Among Underwriters, Selected Dealers Agreements,
Invitation Telecopy and any amendments or supplements thereto and any letters
transmitting the offering materials to the Underwriters or selling group members
(including costs of mailing and shipment), (c) all filing fees and fees and
disbursements of counsel to the Company and counsel to the Underwriters
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<PAGE> 16
incurred in connection with the qualification of the Securities and their
components for offer and sale under the applicable state or foreign securities
laws, (d) filing and listing fees of the Commission, NASD, Nasdaq and any other
similar entity in connection with the offering, (e) the cost of printing
certificates representing the Securities comprising the Units and issuable upon
the exercise of the Warrants, (f) the costs and charges of any transfer agent or
registrar, (g) the costs of advertising, including but not limited to the Wall
Street Journal and the Arizona Republic as well as any other advertising
undertaken at the Company's request or as may be mutually agreed upon, (h) the
cost of the Company's executive employees for marketing and public relations
associated with "road shows" and other presentations to NASD approved
broker/dealers, (i) the fees for financial coverage in Standard and Poor's
Corporate Record Service, (j) the costs of preparing, printing and distributing
bound volumes for the Representative and their counsel, and (k) all other costs
and expenses incident to the performance of the Company's obligations under this
Agreement which are not otherwise provided for in this Section . The Company
shall use a printer acceptable to the Representative. Any transfer taxes imposed
on the sale of the Securities to the several Underwriters will be paid by the
Company. The Company shall pay to the Representative a non-accountable expense
allowance of three percent (3%) of the gross amount to be raised hereunder,
payable at the Closing(s). The Company has advanced, on a non-accountable basis,
Twenty-five Thousand Dollars ($25,000) to the Representative on or before the
date hereof, which shall be credited to the allowance noted above. This expense
allowance is in addition to the Underwriters' discount. The Underwriters shall
be responsible for the fees and disbursements of their counsel, except as noted
otherwise in this Section 5. The Company shall not be required to pay for any of
the Underwriters' other expenses, except that if this Agreement shall not be
consummated because the conditions in Section 7 hereof are not satisfied, or
because this Agreement is terminated by the Representative pursuant to Section 6
hereof, or by reason of any failure, refusal or inability on the part of the
Company to perform any undertaking or satisfy any condition of this Agreement or
to comply with any of the terms hereof on its part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due solely to
the default of any Underwriter, then the Company shall pay to the Representative
a "break-up fee" of Fifty Thousand Dollars ($50,000), less the $25,000 advance
noted above, and shall reimburse the several Underwriters for out-of-pocket
expenses, including fees and disbursements of counsel, incurred in connection
with investigating, marketing and proposing to market the Securities or in
contemplation of performing their obligations hereunder, and in any event the
Underwriters may retain amounts theretofore paid to them as set forth above.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Securities on the Closing
Date and the Option Securities, if any, on the Option Closing Date are subject
to the accuracy, as of the Closing Date or the Option Closing Date, as the case
may be, of the representations and warranties of the Company contained herein,
and to the performance by the Company of its covenants and obligations hereunder
and to the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 5:00 p.m., Arizona time, on the date of this Agreement, or such
later date and time as may be consented to in writing by the Representative and
all filings required by Rules 424(b) and 430A
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<PAGE> 17
under the Act shall have been timely made. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the best knowledge of the Company, after due inquiry, shall be contemplated
by the Commission or any state securities commission.
(b) The Representative shall have received on the Closing
Date and the Option Closing Date, as the case may be, the opinion of Rudnick &
Wolfe, counsel for the Company, dated the Closing Date or the Option Closing
Date, as the case may be, addressed to the Underwriters to the effect that:
(i) The Company and each of its Subsidiaries has been
duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its
organization, with full corporate power and authority to own
or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus;
the Company and each of its Subsidiaries is duly qualified
to transact business in all jurisdictions in which ownership
or leasing of its respective properties or the conduct of
its business requires such qualification, except where the
failure to qualify would not have a material adverse effect
upon the business or financial condition of the Company or
such Subsidiary.
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the
Prospectus; the outstanding shares of Common Stock of the
Company have been duly authorized and validly issued, are
fully paid and nonassessable, and have been issued in
compliance with all federal and state securities laws.
(iii) All of the Securities to be issued and sold by
the Company pursuant to this Agreement have been duly
authorized and, when issued and paid for as contemplated
herein, will be validly issued, fully paid, and
nonassessable. Further, to the best of such counsel's
knowledge, no preemptive rights of stockholders exist with
respect to any of the Securities or the issue and sale
thereof; no stockholder of the Company has any right
pursuant to any agreement, which has not been waived or
honored, to require the Company to register any shares owned
by such stockholder under the Act in the public offering
contemplated herein; and no further approval or authority of
the stockholders or the Board of Directors of the Company is
required for the issuance and sale of the Securities to be
sold by the Company as contemplated herein.
(iv) The certificates evidencing the Securities to be
delivered hereunder comply in all material respects with the
requirements of Delaware law, and the Securities conform in
all material respects to the description thereof contained
in the Prospectus.
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<PAGE> 18
(v) Except as specifically disclosed in the
Registration Statement and the financial statements of the
Company and the related notes thereto, to the best of such
counsel's knowledge, after due inquiry, neither the Company
nor any Subsidiary has outstanding any options to purchase,
or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into,
or any contracts or commitments to issue or sell shares of
its capital stock or any such options, rights, convertible
securities or obligations. The descriptions of the Company's
stock option and other stock-based plans, and any other
options or warrants heretofore granted by the Company, as
set forth in the Prospectus are accurate summaries and
fairly present the information required to be shown with
respect to such plans and rights in all material respects.
(vi) The Registration Statement has become effective
under the Act, and no stop order proceedings with respect
thereto have been instituted or are pending or threatened
under the Act or the securities laws of any jurisdiction,
and nothing has come to such counsel's attention to lead
them to believe that such proceedings are contemplated; any
required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required
by such Rule 424(b).
(vii) The Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or
supplement thereto comply as to form in all material
respects with the requirements of the Act and the Rules and
Regulations (except that such counsel need express no
opinion as the financial statements, schedules and other
financial information and statistical data and information
included therein).
(viii) Such counsel does not know of any Contracts or
other documents required to be filed as exhibits to the
Registration Statement or described in the Registration
Statement or the Prospectus, which are required to be filed
or described and which are not so filed or described as
required, and such Contracts and documents as are summarized
in the Registration Statement or the Prospectus are fairly
summarized in all material respects.
(ix) To the best of such counsel's knowledge, after due
inquiry, there is no action or suit pending before any court
in the United States of a character required to be disclosed
in the Prospectus pursuant to the Act and the Rules and
Regulations; there is no action, suit, or proceeding
threatened against the Company or any Subsidiary before any
court or regulatory, governmental or administrative agency
or body or arbitral forum of a character required to be
disclosed in the Prospectus pursuant to the Act and the
Rules and Regulations; to the best of such counsel's
knowledge, after due inquiry, neither the Company nor any
Subsidiary is a party or is subject to the provisions of any
injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental
body or agency or arbitral forum. During the course of
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<PAGE> 19
its ordinary due diligence, which does not include knowledge
of the Company's and its Subsidiaries' day-to-day
operations, nothing has come to the attention of such
counsel that would suggest that the Company or any of its
Subsidiaries is not conducting business in compliance with
all applicable laws, statutes, rules and regulations of any
state and of the United States of America, except where the
failure to so comply would not have a material adverse
effect on the business or financial condition of the Company
and the Subsidiaries taken as a whole.
(x) To the best of such counsel's knowledge, after due
inquiry, the execution and performance of this Agreement and
the consummation of the transactions herein contemplated do
not and will not conflict with or result in the breach of,
or violation of, any of the terms or provisions of, or
constitute, either by itself or upon notice or the passage
of time or both, a default under, any Contract to which the
Company or any Subsidiary is a party or by which the Company
or any Subsidiary or any of their respective properties may
be bound, except where such breach, violation, or default
would not have a material adverse effect on the business or
financial condition of the Company and the Subsidiaries
taken as a whole, or violate any of the provisions of the
Charter or bylaws of the Company or any Subsidiary or, to
the best of such counsel's knowledge, after due inquiry,
violate any statute, judgment, decree, order, rule, or
regulation (including any Governmental Laws or Regulations)
known to such counsel or any court or of any governmental,
regulatory, or administrative body or agency or arbitral
forum having jurisdiction over the Company or any Subsidiary
or any of their respective properties.
(xi) Neither the Company nor any Subsidiary is in
violation or default under any provision of any of its
charter or bylaws, and, to the best of such counsel's
knowledge, after due inquiry, neither the Company nor any
Subsidiary is in violation or default under any Contracts to
which the Company or such Subsidiary is a party or by which
it or any of its properties is bound or may be affected,
except where such violation or default would not have a
material adverse effect on the business or financial
condition of the Company and the Subsidiaries taken as a
whole.
(xii) The Company has the legal right, corporate power
and corporate authority to enter into this Agreement on
behalf of itself and to perform the transactions
contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Company. This
Agreement is the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject
to customary exceptions for bankruptcy, insolvency, and
equitable principles, except to the extent that the
enforceability of the indemnification provisions of this
Agreement may be limited by consideration of public policy
under federal and state securities laws.
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<PAGE> 20
(xiii) To the best of such counsel's knowledge, after
due inquiry, all approvals, consents, orders,
authorizations, designations, registrations, permits,
qualifications, licenses, declarations, or filings by or
with any regulatory, administrative, or governmental body
necessary in connection with the execution and delivery by
the Company of this Agreement and the consummation of the
transactions herein contemplated (other than as may be
required by the NASD as to which such counsel need express
no opinion) have been obtained or made and all are in full
force and effect.
(xiv) To the extent described in the Prospectus, either
the Company or a Subsidiary owns or possesses adequate and
sufficient rights by license agreements or otherwise to use
and enjoy the full rights in and to all patents, patent
rights, trade secrets, licenses or royalty arrangements,
trademarks and trademark rights, service marks, trade names,
copyrights, know how or proprietary techniques, or rights
thereto of others, and governmental, regulatory or
administrative authorizations, orders, permits, certificates
and consents necessary for the conduct of the business of
the Company and its Subsidiaries, except where the failure
to possess the same would not have a material adverse effect
on the business or financial condition of the Company and
its Subsidiaries taken as a whole; to the best of such
counsel's knowledge, either the Company or a Subsidiary
possesses all governmental, regulatory, or administrative
authorizations, orders, permits, certificates and consents
necessary for the conduct of the business of the Company or
its Subsidiaries as currently conducted and proposed to be
conducted as described in the Prospectus, except where the
failure to possess the same would not have a material
adverse effect on the business or financial condition of the
Company and its Subsidiaries taken as a whole; such counsel
is not aware of any pending or threatened action, suit,
proceeding, or claim by others, either domestically or
internationally, that the Company or any Subsidiary is
violating any patents, patent rights, copyrights, trademarks
or trademark rights, service marks, trade names, licenses or
royalty arrangements, trade secrets, know how or proprietary
techniques, or rights thereto of others; such counsel is not
aware of any rights of third parties to, or any infringement
of, any of the Company's or any Subsidiary's patents, patent
rights, trademarks or trademark rights, copyrights, licenses
or royalty arrangements, trade secrets, know how or
proprietary techniques, the existence of which would have a
material adverse affect on the business or financial
condition of the Company and its Subsidiaries; and such
counsel is not aware of any pending or threatened action,
suit, proceeding or claim by others challenging the validity
or scope of any of such patents, patent rights, trademarks
or trademark rights, copyrights, license or royalty
arrangements, trade secrets, know how, or proprietary
techniques or rights thereto of others, the existence of
which would have a material adverse effect on the business
or financial condition of the Company and its Subsidiaries.
The Company and its Subsidiaries have no patents.
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<PAGE> 21
(xv) No transfer taxes are required to be paid under
any applicable state law in connection with the sale and
delivery of the Securities to the Underwriters hereunder.
(xvi) The Company is classified as a "C" corporation
with the Internal Revenue Service.
(xvii) The statements in the Prospectus under the
heading "Business Governmental Regulation," to the extent
that they constitute matters of law or legal conclusions,
have been prepared or reviewed by such counsel and are
correct in all material respects; and the statements in the
Prospectus under the heading "Description of Securities,"
insofar as such statements constitute a summary of the
provisions of the Securities, constitute a fair summary of
such provisions.
In rendering such opinion such counsel may rely as to matters
governed by the laws other than Federal laws of the United States of America on
local counsel in applicable jurisdictions, provided that such counsel shall
state that they believe that they and the Underwriters are justified in relying
on such other counsel and such counsel shall be acceptable to the
Representative. As to factual matters, such counsel may rely on certificates
obtained from directors and officers of the Company, its stockholders, and from
public officials. Matters stated to counsel's knowledge shall be made after due
and diligent inquiry, and the opinion shall so note that requirement. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that the Registration Statement, or any amendment
thereto, at the time the Registration Statement or amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or the Prospectus or any amendment or supplement thereto, at the
time it was filed pursuant to Rule 424(b) or at the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (except that such counsel need express no
view as to financial statements, schedules and other financial information and
statistical data and information included therein). Such counsel shall permit
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. to rely upon such
opinion in rendering its opinion under Section 6(c).
(c) The Representative shall have received from O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears, P.A., counsel for the
Representative, an opinion dated the Closing Date or the Option Closing Date, as
the case may be, substantially to the effect that:
(i) the Company is a validly organized and existing
corporation under the laws of the State of Delaware;
(ii) to the best of such counsel's knowledge, all of
the Securities conform to the description thereof contained
in the Prospectus; the Securities, including the Firm
Securities and Option Securities, if any, to be sold by the
Company pursuant to this Agreement have been duly authorized
and will be validly issued, fully paid and nonassessable
when issued and paid for as contemplated by this Agreement;
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(iii) the Registration Statement has become effective
under the Act and, to the best of such counsel's knowledge,
no stop order proceedings with respect thereto have been
instituted or are pending or threatened under the Act;
(iv) the Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or
supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable
Rules and Regulations thereunder (except that such counsel
need express no opinion as to the financial statements,
schedules and other financial information or statistical
data and information included therein); and
(v) this Agreement has been duly authorized, executed
and delivered by the Company.
In rendering such opinion, O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears, P.A. may rely as to all matters governed other than by
Arizona and Federal laws on the opinion of counsel referred to in paragraph (b)
of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that the Registration
Statement, the Prospectus or any amendment thereto contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or the
Prospectus or any amendment or supplement thereto, at the time it was filed
pursuant to Rule 424(b) or at the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (except that such counsel need express no view as to financial
statements, schedules and other financial information or statistical data and
information included therein). With respect to such statement, O'Connor,
Cavanagh, Anderson, Killingsworth & Beshears, P.A. may state that their belief
is based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representative and the Company shall have received
at or prior to the Closing Date from Rudnick & Wolfe, a memorandum or summary,
in form and substance satisfactory to the Representative, with respect to the
qualification for offering and sale by the Underwriters of the Securities under
the state securities or Blue Sky laws of such jurisdictions as the
Representative may have designated to the Company.
(e) The Representative shall have received on the date
hereof and on the Closing Date and the Option Closing Date, as the case may be,
a signed letter from Semple & Cooper, P.L.C., auditors for the Company, dated
the date hereof, the Closing Date and the Option Closing Date, as the case may
be, which shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter signed by such firm and dated and delivered
to the Representative on each date noted above the following matters:
(i) They are independent public accountants with
respect to the Company within the meaning of the Act.
(ii) The financial statements and schedules included in
the Registration Statement and Prospectus covered by their
reports therein set forth comply as to
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form in all material respects with the applicable accounting
requirements of the Act and the applicable Rules and
Regulations.
(f) The Representative shall have received on the date
hereof and on the Closing Date and the Option Closing Date, as the case may be,
a signed letter from BDO Siedman, auditors for the Company, dated the date
hereof, the Closing Date and the Option Closing Date, as the case may be, which
shall confirm, on the basis of a review in accordance with the procedures set
forth in the letter signed by such firm and dated and delivered to the
Representative on each date noted above the following matters:
(i) They are independent public accountants with
respect to the Company within the meaning of the Act.
(ii) The financial statements and schedules included in
the Registration Statement and Prospectus covered by their
reports therein set forth comply as to form in all material
respects with the applicable accounting requirements of the
Act and the applicable Rules and Regulations.
(iii) On the basis of procedures (but not an
examination in accordance with generally accepted auditing
standards) consisting of a reading of the minutes of
meetings and consents of the stockholders and board of
directors of the Company and the committees of such board
subsequent to June 30, 1996, as set forth in the minute
books of the Company, inquiries of officers and other
employees of the Company who have responsibilities for
financial and accounting matters with respect to
transactions and events subsequent to June 30, 1996, and
such other specified procedures and inquires to a date not
more than five days prior to the date of each such letter,
nothing has come to their attention which in their judgment
would indicate that (A) with respect to the period
subsequent to June 30, 1996, there were, as of the date of
the most recent available monthly consolidated financial
statements of the Company and, as of a specified date not
more than five days prior to the date of such letter, any
changes in the capital stock or long-term indebtedness of
the Company or payment or declaration of any dividend or
other distribution, or decrease in net current assets, total
assets or net stockholder's equity, in each case as compared
with the amounts shown in the most recent audited
consolidated financial statements included in the
Registration Statement and the Prospectus, except for
changes or decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur or which
are set forth in such letter or (B) during the period from
June 30, 1996, to the date of the most recent available
monthly unaudited consolidated financial statements of the
Company and to a specified date not more than five days
prior to the date of such letter, there was any decrease, as
compared with the corresponding period in the prior fiscal
year, in total revenues or total or per share net income,
except for decreases which the Registration Statement and
the Prospectus disclose have occurred or may occur or which
are set forth in such letter.
(iv) Stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings and other financial information pertaining to the
Company set forth in the Registration Statement and the
23
<PAGE> 24
Prospectus, which have been specified by the Representative,
to the extent that such amounts, numbers and percentages and
information may be derived from the general accounting and
financial records of the Company and its subsidiaries or
from schedules furnished by the Company, and excluding any
questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified
reasonings, inquiries and other appropriate procedures
specified by the Representative (which procedures do not
constitute an examination in accordance with generally
accepted auditing standards) set forth in such letter
heretofore delivered, and found them to be in agreement.
(v) Stating that although they are unable to and do not
express an opinion on the unaudited pro forma financial
statements (the "Pro Forma Financial Statements") included
in the Registration Statement, they have (A) read the Pro
Forma Financial Statements, (B) made inquiries of
appropriate officials of the Company who have responsibility
for financial and accounting matters about the bases for
their determination of the pro forma adjustments to the
historical amounts in the Pro Forma Financial Statements and
whether the Pro Forma Financial Statements comply in form in
all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations, and
(C) proved the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the Pro
Forma Financial Statements, and that on the basis of such
procedures and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention
that caused them to believe that the Pro Forma Financial
Statements do not comply in form in all material respects
with the applicable requirements of the Act and the Rules
and Regulations and that the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of such statements.
(vi) Such other matters as may be reasonably requested
by the Underwriters. All such letters shall be in form and
substance satisfactory to the Representative and its
counsel.
(g) The Representative shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them jointly and severally represents as
follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness
of the Registration Statement has been issued, and no
proceedings for such purpose have been taken or are, to the
best of their knowledge, after due inquiry, contemplated or
threatened by the Commission or any state securities
commissions.
(ii) They do not know of any investigation, litigation,
or proceeding instituted or threatened against the Company
or any Subsidiary of a character required to be disclosed in
the Registration Statement which is not so disclosed; they
do not know of any Contract or other document required to be
filed as an exhibit to the Registration Statement which is
not so filed; and the representations
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<PAGE> 25
and warranties of the Company contained in Section 1 hereof
are true and correct in all material respects as of the
Closing Date or the Option Closing Date, as the case may be,
as if such representations and warranties were made as of
such date.
(iii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion, as of
the effective date of the Registration Statement, the
statements contained in the Registration Statement were and
are correct, in all material respects, and such Registration
Statement and Prospectus do not omit to state a material
fact required to be stated therein or necessary in order to
make the statements therein not misleading and, in their
opinion, since the effective date of the Registration
Statement, no event has occurred which should be set forth
in a supplement to or an amendment of the Prospectus which
has not been so set forth in such supplement or amendment.
(h) The Company shall have furnished to the Representative
such further certificates and documents confirming the representations,
warranties and covenants contained herein and related matters as the
Representative may reasonably have requested.
(i) The Representative shall have received from each person
listed on Schedule III hereto an agreement in the form set forth on Schedule II
hereto to the effect that such person will not, directly or indirectly, without
the prior written consent of the Representative, offer for sale, sell, assign,
transfer, grant any option to purchase or otherwise dispose (or announce any
offer, sale, grant of any option to purchase or other disposition) of directly
or indirectly any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of two (2)
years after the date of this Agreement.
(j) The NASD, upon review of the terms of the public
offering of the Firm Securities and the Option Securities, shall not have
objected to the underwriter's participation in such offering.
(k) The Units, the Common Stock, and the Warrants shall be
qualified in such states as the Representative may reasonably request and each
such qualification shall be in effect and not subject to any stop order or other
proceeding on the Closing Date or Option Closing Date, as the case may be.
The opinions and certificates described in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in all
respects satisfactory to the Representative and to O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears, P.A., counsel for the Representative and any other
counsel for the Underwriters.
If any of the conditions herein provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to sell and deliver the Securities required to be delivered as
and when specified in this
25
<PAGE> 26
Agreement are subject to the conditions that at the Closing Date or the Option
Closing Date, as the case may be, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and its respective affiliates, directors, officers, partners,
employees, agents, counsel, and representatives, (collectively, "Underwriter
Parties") against any losses, claims, damages or liabilities to which such
Underwriter Parties or any one or more of them may become subject under the Act,
the Exchange Act, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any failure by the Company or any of its affiliates, directors,
officers, employees, agents, counsel, and representatives (collectively, the
"Company Parties") to perform any obligation hereunder or any other agreement
among any of the Company Parties and any of the Underwriter Parties, (ii) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (iii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made, and will reimburse each Underwriter Party for any legal or other
expenses incurred by such Underwriter Party in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that (X) the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement, or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Underwriters specifically for use in the preparation thereof (which the parties
hereto agree is limited solely to that information contained on the cover page
of the Prospectus or Preliminary Prospectus and in the section thereof entitled
"Underwriting"), and (Y) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter Party from whom the
person asserting any such loss, claim, damage or liability purchased the
Securities which are the subject thereof if such person did not receive a copy
of the Prospectus (or the Prospectus as amended or supplemented at or prior to
the confirmation of the sale of such Securities to such person in any case where
such delivery is required by the Act and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented). This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company Parties against any losses, claims, damages or liabilities
to which the Company Parties or any one or more of them may become subject,
under the Act, the Exchange Act, or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any failure by the Underwriter Parties to perform any
obligations hereunder or any other agreement among any of the Underwriter
Parties and any of the Company Parties, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or (iii) the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not
26
<PAGE> 27
misleading in light of the circumstances under which they were made; and will
reimburse any legal or other expense reasonably incurred by the Company Parties
in connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter will
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through such Underwriter specifically
for use in the preparation thereof (which the parties hereto agree is limited
solely to that information contained on the cover page of the Prospectus or
Preliminary Prospectus and in the section thereof entitled "Underwriting"). This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such notice,
but the failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of the provisions of Section 8(a)
or (b). In case any such proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by the
Representative in the case of parties indemnified pursuant to Sections 8(a) and
by the Company in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such
27
<PAGE> 28
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Securities. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 8(c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting fees and commissions received by the Underwriters, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Securities purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having jurisdiction
over any other contributing party, agrees that process issuing from such court
may be served upon him, her, or it by any other contributing party and consents
to the service of such process and agrees that any other contributing party may
join him, her, or it as an additional defendant in any such proceeding in which
such other contributing party is a party.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and pay
for the portion of the Securities which such Underwriter has agreed to purchase
and pay for on such date (otherwise than by reason of any default on the part of
the Company or the failure to occur of a condition
28
<PAGE> 29
precedent to the closing), the Representative, on behalf of the Underwriters,
shall use its best efforts to procure as soon as possible but not later than
five business days thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Securities or Option Securities, as the
case may be, which the defaulting Underwriter or Underwriters failed to
purchase. If during such period the Representative shall not have procured such
other Underwriters, or any others, to purchase the Firm Securities or Option
Securities, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters then (a) if the aggregate number of shares with
respect to which such default shall occur does not exceed 10% of the Firm
Securities or Option Securities, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, to purchase the full amount of Firm
Securities or Option Securities, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting underwriters, or (b) if the aggregate number
of shares of Firm Securities or Option Securities, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Securities or
Option Securities, as the case may be, covered hereby, the Company or the
Representative on behalf of the Underwriters will have the right, by written
notice given within the next 24-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters of the Company, except to the extent provided in Section 8 and
Section 5 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as the
Representative may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES. All communications hereunder shall be in writing
and, except as otherwise provided herein, will be mailed, delivered, telecopied,
or telegraphed and confirmed as follows: if to the Underwriters, to W.B. McKee
Securities, Inc., 3003 North Central Avenue, Suite 100, Phoenix, Arizona 85012,
Telephone 602-954-0333, Facsimile 602-266-5778, Attention: William B. McKee,
with a copy to O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A., One
East Camelback Rd., Suite 1100, Phoenix, Arizona 85012-1656, Telephone
602-263-2400, Facsimile 602-263-2900, Attention: Robert S. Kant, Esq.; if to the
Company, to Birman Managed Care, Inc., 502 Gould Drive, Cookeville, Tennessee
38506, Telephone 615-432-6532, Facsimile 615-432-6536, Attention: David N.
Birman, M.D., President; with a copy to Rudnick & Wolfe, 203 North LaSalle
Street, Suite 1800, Chicago, Illinois 60601-1293, Telephone 312-368-4014,
Facsimile 312-236-7516, Attention: John H.
Heuberger.
11. TERMINATION. This Agreement may be terminated by the
Representative by notice to the Company as follows:
(a) at any time prior to the earlier of (i) the time the
Securities are released by the Representative for sale by notice to the
Underwriters, or (ii) 11:30 a.m., Phoenix time, on the first business day
following the date of this Agreement.
29
<PAGE> 30
(b) at any time prior to the Closing itself if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company, or the
earnings, business affairs, management or business prospects of the Company,
whether or not arising in the ordinary course of business, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change on the financial markets or economic conditions would, in the
reasonable judgment of the Representative, make the offering or delivery of the
Securities impracticable, (iii) suspension of trading in securities on Nasdaq or
on the New York Stock Exchange, Inc. or the American Stock Exchange or
limitation on prices (other than limitations on hours or numbers of days of
trading) for securities on Nasdaq or on either such exchange, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in the reasonable opinion of the Representative materially and adversely
affects or will materially or adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by either federal or Arizona
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
reasonable opinion of the Representative has a material adverse effect on the
securities markets in the United States or the prospects of the Company; or
(c) as provided in Sections 6 and 9 of this Agreement.
This Agreement also may be terminated by the Representative, by
notice to the Company, as to any obligation of the Underwriters to purchase the
Option Securities, upon the occurrence at any time at or prior to the Option
Closing Date of any of the events described in subparagraph (b) above or as
provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS. This Agreement has been and is made solely for
the benefit of the Underwriters and the Company and their respective successors,
executors, administrators, heirs and assigns, and the Underwriter Parties and
Company Parties referred to herein, and no other person will have any right or
obligation hereunder. The term "successors" shall not include any purchaser of
the Securities merely because of such purchase.
13. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations and
warranties in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter Party, or by or on behalf of any Company Party and (c)
delivery of and payment for the Securities under this Agreement.
This Agreement and any notices delivered hereunder may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This
Agreement and any and all notices may be delivered by telecopy and shall be
effective upon receipt, with the original of such document to be deposited
promptly in the United States mail or overnight delivery service.
This Agreement and all disputes and controversies relating hereto
or in connection with the transactions contemplated hereby shall be governed by,
and construed in accordance with,
30
<PAGE> 31
the laws of the State of Arizona, notwithstanding any Arizona or other
conflict-of-law provision to the contrary.
The statements set forth on the cover page and under the caption
"Underwriting" in the Prospectus or Preliminary Prospectus constitute the only
written information furnished by or on behalf of any Underwriter for inclusion
in the Prospectus or the Registration Statement.
If the foregoing agreement is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Company and the several Underwriters in accordance with its terms as of the date
first written above.
Very truly yours,
BIRMAN MANAGED CARE, INC.
By:____________________________
Name:__________________________
Its:___________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of ________________, 1996.
W. B. McKee Securities, Inc.,
as Representative of the
several Underwriters listed
on Schedule I
W. B. MCKEE SECURITIES, INC.
By:_____________________________
Name:___________________________
Its:____________________________
31
<PAGE> 32
SCHEDULE I
Schedule of Underwriters
Underwriter Number of Firm
Securities to be Purchased
<PAGE> 33
SCHEDULE II
W. B. McKee Securities, Inc.
3003 North Central Avenue, Suite 100
Phoenix, Arizona 85012
Gentlemen:
The undersigned is the holder of the number of shares of capital
stock or has the right to acquire the number of shares of capital stock
(collectively "Securities") of Birman Managed Care, Inc. (the "Company") shown
with my signature hereon. I acknowledge and understand that you are acting as
the Representative of the several Underwriters in the proposed public offering
of 1,550,000 Units of the Company as set forth in a Prospectus which the
undersigned has reviewed. In connection with your agreeing to so act, or for
your benefit and the benefit of the several Underwriters, the Undersigned hereby
undertakes and agrees with you that during the period of two (2) years from the
completion of the offering of the Units, the Undersigned will not offer for
sale, sell, assign, transfer, grant any option to purchase or otherwise dispose
(or announce any offer, sale, grant of any option to purchase or other
disposition) of, directly or indirectly, any Securities or any securities
convertible into or exchangeable or exercisable for any Securities, in any
manner whatsoever whether pursuant to Rule 144 under the Securities Act of 1933
or otherwise, without your prior written consent. The undersigned further
understands that the Company will take such steps as may be necessary to enforce
the foregoing provisions and restrict the sale or transfer of the Securities as
provided herein including, but not limited to, notification to the Company's
transfer agent regarding any such restrictions; and the Undersigned hereby
agrees to and authorizes any actions and acknowledges that the Company and you
are relying upon this Agreement in taking any such actions.
If the foregoing conforms to your understanding of our agreement,
please so indicate by signing a copy of this Agreement, whereupon it shall
become a binding agreement between and among us.
Very truly yours,
____________________________________
Signature
____________________________________
Printed Name
____________________________________
Number of Shares
ACCEPTED:
W. B. McKee Securities, Inc.
By:____________________________________
Its:___________________________________
<PAGE> 1
EXHIBIT 1.2
BIRMAN MANAGED CARE, INC.
1,550,000 UNITS
AGREEMENT AMONG UNDERWRITERS
, 1996
W.B. McKee Securities, Inc.
3003 North Central Avenue, Ste. 100
Phoenix, AZ 85012
(As Representative of the several
Underwriters Named in Schedule I
to Exhibit A annexed hereto)
Gentlemen:
We understand that Birman Managed Care, Inc. a Delaware corporation (the
"Company"), desires to enter into an agreement, substantially in the form of
Exhibit A hereto (the "Underwriting Agreement"). The Underwriting Agreement
provides for the sale by the Company to you and the other prospective
Underwriters named in Schedule I to the Underwriting Agreement, severally and
not jointly, of an aggregate of 1,550,000 units (the "Firm Units") consisting of
one share of common stock ("Common Stock") of the Company and one redeemable
common stock purchase warrant ("Warrant"). In addition, the Company, pursuant to
the Underwriting Agreement, will grant to the Underwriters an option to purchase
up to an additional 232,500 Units underwritten (the "Option Units") for the
purpose of covering over-allotments in connection with the sale of the Firm
Units. The Firm Units and any Option Units purchased pursuant to the
Underwriting Agreement are herein called the "Units."
We understand that changes may be made in those who are to be Underwriters
and in the respective number of Units to be purchased by them, but that the
number of Units to be purchased by us as set forth in said Schedule I will not
be changed without our consent except as provided herein or in the Underwriting
Agreement. The parties on whose behalf you execute the Underwriting Agreement
are herein called the "Underwriters."
We desire to confirm the agreement among you, the undersigned and the other
Underwriters with respect to the purchase of the Units by the Underwriters,
severally and not jointly, from the Company. The aggregate number of Units which
any Underwriter will be obligated to purchase from the Company pursuant to the
terms of the Underwriting Agreement is herein called the "Underwriting
Obligation" of that Underwriter.
1. Authority and Compensation of Representative. We hereby authorize you, as
our representative (the "Representative") and on our behalf, (a) to enter into
an agreement with the Company, in substantially the form attached hereto as
Exhibit A, but with such changes therein as in your judgement will not be
materially adverse to the Underwriters, (b) to exercise all the authority and
discretion vested in the Underwriters and in you by the provisions of the
Underwriting Agreement, (c) to take all such action as you in your discretion
may deem necessary or advisable in order to carry out the provisions of the
<PAGE> 2
Underwriting Agreement and of this Agreement, and the sale and distribution of
the Units and (d) to determine all matters relating to the public advertisement
of the Units. We authorize you, in executing the Underwriting Agreement on our
behalf, to set forth in Schedule I of the Underwriting Agreement as our
commitment to purchase the number of Units (which shall not be substantially in
excess of the number of Units included in your invitation to participate unless
we have agreed otherwise) included in a wire, telex, or similar means of
communication transmitted by you to us at least 24 hours prior to the
commencement of the offering as our finalized underwriting obligation.
As our share of the compensation, you have agreed to pay us $ per share,
with no expenses allowed, in respect of the aggregate number of Firm Units and
Option Units, respectively, which we shall agree to purchase pursuant to the
Underwriting Agreement.
2. Public Offering of Units. A public offering of the Units is to be made,
as herein provided, as soon after the Registration Statement relating hereto
becomes effective as in your judgement is advisable. The Units shall be
initially offered to the public at the public offering price of $ per unit as
determined by you and the Company. You will advise us by telegraph, facsimile or
telephone when the Units shall be released for offering, when the registration
statement relating to the Units shall become effective and the price at which
the Units is initially to be offered. We authorize you as Representative of the
Underwriters after the initial public offering, to change the public offering
price, the concession and the re-allowance if, in your sole discretion, such
action becomes desirable by reason of changes in general market conditions or
otherwise. The public offering price at the time in effect is herein called the
"Offering Price." After notice from you that the Units are released for public
sale, we will offer to the public in conformity with the provisions hereof and
with the terms of offering set forth in the Prospectus such Units as you advise
us are not reserved. We agree not to offer or sell any of the Units to persons
over whose accounts we exercise investment discretion without their specific
advance consent.
We hereby agree to deliver all preliminary and final prospectuses required
for compliance with the provisions of Rule 15c2-8 under the Securities Exchange
Act of 1934 and Section 5(b) of the Securities Act. You have heretofore
delivered to us such preliminary prospectuses as have been requested by us,
receipt of which is hereby acknowledged, and will deliver such final
Prospectuses as will be requested by us.
3. Offering to Dealers and Retail Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell to retail purchasers (such sales
being herein called "Retail Sales") and to dealers selected by you (such
dealers, among whom any Underwriter may be included, being herein called
"Selected Dealers") all or any part of our Units as you, in your sole
discretion, shall determine. Such sales, if any, shall be made (a) in the case
of Retail Sales, at the Offering Price, and (b) in the case of sales to Selected
Dealers at the Offering Price less such concession or concessions as you, in
your sole discretion, shall determine.
Any Retail Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Selected
Dealers made for our account shall be as nearly as practicable in the ratio that
the Units reserved for our account for offering to Dealers bears to the
aggregate of all Units of all Underwriters including you
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<PAGE> 3
so reserved. The over-allotment option to the extent exercised, shall be
exercised by you as a Representative of the Underwriters, and shall be exercised
only for the purpose of making Retail Sales or sales to Selected Dealers by you.
Such sales for our account of the over-allotment option shall as nearly as
practicable be in proportion to the underwriting obligations of the respective
Underwriters. On any Retail Sales or sales to Selected Dealers, including those
pertaining to the overallotment option, made by you on our behalf we shall be
entitled to receive only the Underwriter's concession.
We agree that, from time to time prior to the termination of the provisions
referred to in Section 13 hereof, we shall furnish to you such information as
you may request in order to determine the number of Units purchased by us under
the Underwriting Agreement which then remain unsold, and we shall upon your
request sell to you for the account of any Underwriter as many of such unsold
Units as you may designate at the Offering Price, less all or any part of the
concession to Selected Dealers as you, in your sole discretion, shall determine.
The provisions of Section 4 hereof shall not be applicable in respect of any
such sale.
We authorize you to determine the form and manner of any communications or
agreements with the Selected Dealers. In the event that there shall be any
agreements with Selected Dealers, you are authorized to act as manager
thereunder and we agree, in such event, to be governed by the terms and
conditions of such agreements. The form of Selected Dealer Agreement attached
hereto as Exhibit B is satisfactory to us. Sales to Dealers shall be made under
a Selected Dealers Agreement, attached hereto as Exhibit B, attached hereto and
by this reference incorporated herein. Each Underwriter agrees that it will not
offer any of the Units for sale at a price below the Offering Price or allow any
concession therefrom except as herein otherwise provided. We as to our Units may
enter into agreements with dealers, but any reallowance concession shall not
exceed half of the Dealer's Concession.
It is understood that any Selected Dealer to whom an offer may be made as
hereinbefore provided shall be actually engaged in the investment banking or
securities business and shall be either (a) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or (b) a dealer
with its principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), who agrees not
to make any sales within the United States, its territories or its possessions
or to persons who are nationals thereof or residents therein. Each Selected
Dealer shall agree to comply with the provisions of Section 24 of Article III of
the Rules of Fair Practice of the NASD, and each foreign Selected Dealer who is
not a member of the NASD also shall agree to comply with the NASD's
interpretation with respect to free-riding and withholding, to comply, as though
it were a member of the NASD, with the provisions of Sections 8 and 36 of
Article III of such Rules of Fair Practice, and to comply with Section 25 of
Article III thereof as that Section applies to a non-member foreign dealer. The
several Underwriters may allow, and the Selected Dealers, if any, may re-allow
such concession or concessions as you may determine from time to time on sales
of Units to any qualified dealer, all subject to the Rules of Fair Practice of
the NASD.
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<PAGE> 4
We authorize you to determine the form and manner of any public advertisement of
the Units.
Nothing contained in this Agreement shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Units prior to the
effective date of the Registration Statement, provided that any such offer shall
be made in compliance with any applicable requirements of the Securities Act of
1933 (the "1933 Act") and the 1934 Act and the rules and regulations of the
Securities and Exchange Commission thereunder and of any applicable state
securities laws.
4. Repurchases in the Open Market. Any Units, Common Stock or Warrants sold
by us (otherwise than through you) which shall be contracted for or purchased in
the open market by you on behalf of any Underwriter or Underwriters shall be
repurchased by us on demand at a price equal to the cost of such purchase plus
commissions and taxes on redelivery. Any Units, Common Stock or Warrants
delivered on such repurchase need not be the identical Units, Common Stock or
Warrants originally sold by us. In lieu of delivery of such Units, Common Stock
or Warrants to us, you may sell such Units, Common Stock or Warrants in any
manner for our account and charge us with the amount of any loss or expense or
credit us with the amount of any profit, less any expense, resulting from such
sale, or charge our account with an amount not in excess of the concession to
Selected Dealers.
5. Delivery and Payment. We agree to deliver to you at or before 6:00 a.m.
Arizona time on the Closing Date referred to in the Underwriting Agreement
payment for the Units to be purchased by us under the Underwriting Agreement in
an amount equal to the Offering Price for such Units less the concession to
Selected Dealers for Units which we retained for direct sale by us, against
delivery of certificates for the Units for our account hereunder. If we are a
member of or clear through a member of The Depository Trust Company ("DTC"), you
may, in your discretion, deliver our Units through the facilities of DTC.
You shall remit to us, as promptly as practicable, the amounts received
by you from Selected Dealers and retail purchasers as payment in respect of
Units sold by you for our account pursuant to Section 3 hereof for which payment
has been received. Units purchased by us under the Underwriting Agreement and
not reserved or sold by you for our account pursuant to Section 3 hereof shall
be delivered to us as promptly as practicable after receipt by you. Any Units
purchased by us and so reserved which remains unsold at any time prior to the
settlement of accounts hereunder may, in your discretion, and shall, upon your
request, be delivered to us, but, until termination of the first three
paragraphs of Section 7 of the Selected Dealer Agreements pursuant to Section 8
thereof and of other selling arrangements, such delivery shall be for carrying
purposes only. In case any Units reserved for sales in Retail Sales or to
Selected Dealers shall not be purchased and paid for in due course as
contemplated hereby, we agree (a) to accept delivery when tendered by you of any
Units so reserved for our account and not so purchased and paid for, and (b) in
case we shall have received payment from you in respect of any such Units, to
reimburse you on demand for the full amount which you shall have paid us in
respect for such Units.
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<PAGE> 5
In the event of our failure to tender payment for Units as provided in the
Underwriting Agreement, you shall have the right under the provisions thereof to
arrange for other persons, who may include you and any other Underwriter, to
purchase such Units which we had agreed to purchase, but without relieving us
from liability for our default.
6. Authority to Borrow. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
or the account of the Underwriters for the purpose of carrying out this
Agreement, and in connection therewith to execute and deliver any notes or other
instruments and to hold or pledge as security therefor all or any part of our
Units or other Units purchased hereunder for our account. Any lender is hereby
authorized to accept your instructions in all matters relating to such loans.
Any part of our Units or of such other Units so held by you may be delivered to
us for carrying purposes and, if so delivered, will be redelivered to you upon
demand.
7. Allocation of Expenses and Liability. We authorize you to charge our
account with and we agree to pay (a) all transfer taxes on sales made by you for
our account, except as herein otherwise provided, and (b) our proportionate
share (based on our Underwriting Obligation) of all expenses incurred by you in
connection with the purchase, carrying, sale and distribution of the Units and
all other expenses arising under the terms of the Underwriting Agreement or this
Agreement. Your determination of all such expenses and your allocation thereof
shall be final and conclusive. You may at any time make partial distributions of
credit balances or call for payment of debit balances. Funds for our account at
any time in your hands may be held in your general funds without accountability
for interest. As soon as practicable after the termination of this Agreement,
the net credit or debit balance in our account, after proper charge and credit
for all interim payments and receipts, shall be paid to or paid by us, provided
that you may establish such reserves as you, in your sole discretion, shall deem
advisable to cover possible additional expenses chargeable to the several
Underwriters. Notwithstanding any settlement, we will remain liable for any
taxes on transfers for our account and for our proportionate share (based on our
Underwriting Obligation) of all expenses and liabilities that may be incurred
for the accounts of the Underwriters.
8. Liability for Future Claims. Neither any statement by you of any credit
or debit balance in our account nor any reservation from distribution to cover
possible additional expenses relating to the Units shall constitute any
representation by you as to the existence or non-existence of possible
unforeseen expenses or liabilities of or charges against the several
Underwriters. Notwithstanding the distribution of any net credit balance to us
or the termination of this Agreement or both, we shall be and remain liable for,
and will pay on demand, (a) our proportionate share (based on our Underwriting
Obligation) of all expenses and liabilities which may be incurred by or for the
accounts of the Underwriters, or any of them, including any liability which may
be incurred by or for the accounts of the underwriters, or any of them, based on
the claim that the Underwriters constitute an association, unincorporated
business, partnership or any separate entity, and (b) any transfer taxes paid
after such settlement on account of any sale or transfer for our account.
9. Stabilization and Over-Allotment. We authorize you (a) to make purchases
and sales of Units, Common Stock and Warrants in the open market or otherwise,
for long or short
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<PAGE> 6
account, and on such terms and at such prices as you, in your sole discretion,
shall deem advisable, (b) in arranging for sales of the Units, to over-allot,
and (c) either before or after the termination of this Agreement, to cover any
short position or liquidate any long position incurred pursuant to this Section
9; subject, however, to the applicable rules and regulations of the Securities
and Exchange Commission (the "Commission") under the 1934 Act. All such
purchases and sales and over-allotments shall be made for the accounts of the
several Underwriters as nearly as practicable in proportion to their respective
Underwriting Obligations; provided, however, that our net position resulting
from such purchases and sales and over-allotments shall not at the time of each
such purchase or sale or over-allotment exceed, for either long or short
account, 15% of the aggregate amount which we shall become obligated to pay in
respect of the total number of Firm Units and Option Units purchased for our
account.
If you engage in any stabilizing transactions as Representative of the
Underwriters, you shall notify us of that fact. Each of us agrees to file with
you, within five business days following the date of termination of such
transactions, triplicate originals of a report "not as manager" on Form X-17A-1
in accordance with the requirements of Rule 17a-2(e) under the Securities
Exchange Act of 1934. You shall, as such Representative, file such reports with,
and make the requisite reports on such transactions as required by, the
Securities and Exchange Commission in accordance with Rule 17a-2 under the 1934
Act.
10. Open Market Transactions. We agree that we will not make bids or offers,
or make or induce purchases or sales for our own account or the accounts of
customers, in the open market or otherwise, either before or after the purchase
of the Units and for either long or short account, of any shares of Common Stock
or any security of the same class and series, or any right to purchase any such
security except: (a) as provided in this Agreement, the Underwriting Agreement
and the Selected Dealer Agreements or otherwise approved by you, (b) in
brokerage transactions not involving solicitation of the customer's order and
(c) in connection with option and option-related transactions that are
consistent with the "no-action" position set forth in Release No. 17609, as
amended in Release No. 19565, of the Commission under the 1934 Act. We further
agree that we will not lend, either before or after the purchase of the Units,
to any customer, Underwriter, Selected Dealer or to any other securities broker
or dealer any shares of Common Stock. Prior to the completion (as defined in
Rule 10b-6 under the 1934 Act) of our participation in the distribution, we will
otherwise comply with Rule 10b-6.
11. Blue Sky. Prior to the initial offering by the Underwriters, you will
inform us as to the states and other jurisdictions under the respective
securities or blue sky laws of which it is believed that the Units have been
qualified for sale or is exempt from such qualification, but you do not assume
any responsibility or obligation as to the accuracy of such information or as to
the right of any Underwriter or dealer to offer or sell the Units in any state
or other jurisdiction.
12. Default by Underwriters. Default by one or more Underwriters in respect
of their obligations under the Underwriting Agreement shall not release us from
any of our obligations. In the event of such default by one or more
Underwriters, you are authorized to increase, pro rata with the other
non-defaulting Underwriters, the number of Units which we
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<PAGE> 7
shall be obligated to purchase from the Company; provided, however, that the
aggregate amount of all such increases for all non-defaulting Underwriters shall
not exceed 10% of the Units and, if the aggregate amount of the Units not taken
up by such defaulting Underwriters exceeds such 10%, you are further authorized,
but shall not be obligated, to arrange for the purchase by other persons, who
may include you and other non-defaulting Underwriters, of all or a portion of
the Units not taken up by such Underwriters. In the event any such increases or
arrangements are made, the respective amounts of the Units to be purchased by
the non-defaulting Underwriters and by any such other person or persons shall be
taken as the basis for the Underwriter's obligations under this Agreement, but
this shall not in any way affect the liability of any defaulting Underwriter to
the other Underwriters for damages resulting from such default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Units purchased by
you for their respective accounts pursuant to Section 9 hereof, or to deliver
any Units sold or over-alloted by you for their respective accounts pursuant to
any provision of this Agreement, and to the extent that arrangements shall not
have been made by you for other persons to assume the obligations of such
defaulting Underwriter or Underwriters, each non-defaulting Underwriter shall
assume its proportionate share of the aforesaid obligations of each such
defaulting Underwriter without relieving any such defaulting Underwriter of its
liability therefor.
13. Termination. Unless earlier terminated by you, the provisions of
Section 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as otherwise
provided herein, terminate thirty full business days after the effective date
of the Registration Statement herein referred to, but may be extended by you
for an additional period or periods not exceeding thirty full business days in
the aggregate. You may, however, terminate this Agreement or any provisions
hereof at any time by written or telegraphic notice to us.
14. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority shall include the taking of such action as you may deem advisable in
respect of all matters pertaining to any and all offers and sales of the Units,
including the right to make any modifications which you consider necessary or
desirable in the arrangements with Selected Dealers or others. You shall be
under no liability for or in respect of the value of the Units or the validity
or the form thereof, the Registration Statement, the Prospectus or agreements or
other instruments executed by the Company or others; or for or in respect of the
delivery of the Units; or for the performance by the Company or others of any
agreement on its or their part; nor shall you as Representative or otherwise be
liable under any of the provisions hereof or for any matters connected herewith,
except for want of good faith, and except for any liability arising under the
1933 Act; and only obligations expressly assumed by you as Representative herein
shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as Representative of each of them respectively. Nothing
herein contained shall constitute the several Underwriters partners with you or
with each other, or render any Underwriter liable for the commitments of any
other Underwriter, except as otherwise provided in Section 12 hereof and in
Section 7 of the Underwriting Agreement. If the Underwriters shall be deemed to
constitute a partnership for Federal income tax purposes, it is the intent of
each Underwriter to be excluded from the application
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<PAGE> 8
of Subchapter x, Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as
amended. Each Underwriter elects to be so excluded and agrees not to take any
position inconsistent with such election. Each Underwriter authorizes you, in
your discretion, to execute and file on behalf of the Underwriters such evidence
of election as may be required by the Internal Revenue Service. The commitments
and liabilities of each of the several Underwriters are several in accordance
with their respective Underwriting Obligations and are not joint.
15. Acknowledgement of Receipt of Registration Statement, etc. We hereby
confirm that we have examined the Registration Statement relating to the Units
as heretofore filed by the Company with the Commission and each amendment
thereto, if any, filed through the date hereof, including any documents filed
under the 1934 Act through the date hereof and incorporated by reference into
the Prospectus, that we are willing to be named as an underwriter therein and to
accept the responsibilities of an underwriter thereunder, and that we are
willing to proceed as therein contemplated. We confirm that we have authorized
you to advise the Company on our behalf (a) as to the statements to be included
in any Preliminary Prospectus and in the Prospectus under the heading
"Underwriting" insofar as they relate to us, and (b) that there is no other
information about us required to be stated in the Registration Statement or
Prospectus. We understand that the aforementioned documents are subject to
further change and that we will be supplied with copies of any further
amendments or supplements to the Registration Statement, of any document filed
under the 1934 Act after the effective date of the Registration Statement and
before termination of the offering of the Units by the Underwriters if such
document is deemed to be incorporated by reference into the Prospectus and of
any amended or supplemented Prospectus promptly, if and when received by you,
but the making of such changes, amendments and supplements shall not release us
or affect our obligations hereunder or under the Underwriting Agreement.
16. Indemnity. We agree to indemnify and hold harmless each other
Underwriter and any person who controls any such Underwriter within the meaning
of Section 15 of the 1933 Act, to the extent that, and upon the terms on which,
we agree to indemnify and hold harmless the Company and other specified persons
as set forth in the Underwriting Agreement. Our indemnity agreement contained in
this Section 16 shall remain in full force and effect regardless of any
investigation made by or on behalf of such other Underwriter or controlling
person and shall survive the delivery of and payment for the Units and the
termination of this Agreement and the similar agreements entered into with the
other Underwriters.
Each Underwriter (including you) will pay, upon your request, as
contribution, its proportionate share, based upon its Underwriting Obligation,
of any loss, claim damage or liability, joint or several, paid or incurred by
any Underwriter (including you) to any person other than an Underwriter, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any preliminary Prospectus or any other
selling or advertising material approved by you for use by the Underwriters in
connection with the sale of the Units, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading (other than an untrue statement or alleged
untrue statement or omission or alleged omission made in
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<PAGE> 9
conformity with written information furnished to the Company through you by or
on behalf of an Underwriter expressly for use therein) or relating to any
transaction contemplated by this Agreement; and will pay such proportionate
share of any legal or other expense reasonably incurred by you or with your
consent in connection with investigating or defending against any such loss,
claim, damage or liability, or any action in respect thereof. In determining the
amount of our obligation under this paragraph, appropriate adjustment may be
made by you to reflect any amounts received by any one or more Underwriters in
respect of such claim from the Company pursuant to Section 6 of the Underwriting
Agreement or otherwise. There shall be credited against any amount paid or
payable by us pursuant to this paragraph any loss, claim, damage, liability or
expense which is incurred by us as a result of any such claim asserted against
us, and if such loss, claim, damage, liability or expense is incurred by us
subsegment to any payment by us pursuant to this paragraph, appropriate
provision shall be made to effect such credit, by refund or otherwise. If any
such claim is asserted, you may take such action in connection therewith as you
deem necessary or desirable, including retention of counsel for the
Underwriters, and in your discretion separate counsel for any particular
Underwriter or group of Underwriters, and the fees and disbursements of any
counsel so retained by you shall be included in the amounts payable pursuant to
this paragraph. In determining amounts payable pursuant to this paragraph, any
loss, claim, damage, liability or expense incurred by any person who controls
any Underwriter within the meaning of Section 15 of the 1933 Act which has been
incurred by reason of such control relationship shall be deemed to have been
incurred by such Underwriter. Any Underwriter may elect to retain, at its own
expense, its own counsel. You may settle or consent to the settlement of any
such claim on advice of counsel retained by you. Whenever you receive notice of
the assertion of any claim to which the provisions of this paragraph would be
applicable, you will give prompt notice thereof to each Underwriter. If any
Underwriter or Underwriters defaults in its or their obligation to make any
payments under this paragraph, each non-defaulting Underwriter shall be
obligated to pay its proportionate share of all defaulted payments, based upon
the proportion such non-defaulting Underwriter's Underwriting Obligation bears
to the Underwriting Obligations of all non-defaulting Underwriters. Nothing
therein shall relieve a defaulting Underwriter from liability for its default.
17. Capital Requirements. We confirm that the incurrence by us of our
obligations under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
1934 Act or of any applicable rules relating to capital requirements of any
securities exchange to which we are subject.
18. Undertaking to Mail Prospectuses. We represent to you that we have taken
all action on our part required to have been taken to satisfy the policy set
forth in Release No. 4968 of the Commission under the 1933 Act, including the
distribution in the manner and at or prior to the time set forth in such
Release, of copies of the Preliminary Prospectus relating to the Units (or, if
you have so requested, copies of any revised Preliminary Prospectus) to all
persons to whom we expect to mail confirmation of sale.
As contemplated by Rule 15c2-8 under the 1934 Act, you agree to mail a copy
of the Prospectus mentioned in the Underwriting Agreement to any person making a
written request therefor during the period referred to in said Rule, the mailing
to be made to the
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<PAGE> 10
address given in the request. We confirm that we have delivered all Preliminary
Prospectuses and revised Preliminary Prospectuses, if any, required to be
delivered under the provisions of Rule 15c2-8 and agree to deliver all
Prospectuses required to be delivered thereunder. We acknowledge that the copies
of the Preliminary Prospectus furnished to us have been distributed to dealers
who have been notified of the foregoing requirements pertaining to the delivery
of Preliminary Prospectuses and Prospectuses. You have heretofore delivered to
us such number of copies of Preliminary Prospectuses as have been reasonably
requested by us, receipt of which is hereby acknowledged, and will deliver such
number of copies of Prospectuses as will be reasonably requested by us.
19. Miscellaneous. We have transmitted herewith a completed Underwriters'
Questionnaire on the form thereof supplied by you. Any notice hereunder from you
to us or from us to you shall be deemed to have been duly given if sent by
registered mail, telegram or teletype, to us at our address as set forth in our
Underwriters' Questionnaire previously delivered to you, or to you at W.B. McKee
Securities, Inc., 3003 North Central Ave., Ste. 100, Phoenix, Arizona 85012,
Attention: Mrs. Julie J. Cincera, Managing Director, Corporate Finance.
We understand that you are a member in good standing of the NASD. We hereby
confirm that we are actually engaged in the investment banking or securities
business and are either (a) a member in good standing of the NASD or (b) a
dealer with its principal place of business located outside the United States,
its territories and its possessions and not registered as a broker or dealer
under the 1934 Act who agrees not to make any sales within the United States,
its territories or its possessions or to persons who are nationals thereof or
residents therein (except that we may participate in sales to Selected Dealers
and others under Section 3 of this Agreement). We hereby agree to comply with
the provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD, and, if we are a foreign dealer and not a member of the NASD, we also
hereby agree to comply with the NASD's interpretation with respect to
free-riding and withholding and to comply, as though we were a member of the
NASD, with the provisions of Sections 8 and 36 of Article III of such Rules of
Fair Practice, and to comply with Section 25 of Article III thereof as that
Section applies to a non-member foreign dealer. In connection with sales and
offers to sell Units made by us outside the United States, its territories and
possessions (i) we will either furnish to each person to whom any such sale or
offer is made a copy of the then current Preliminary Prospectus or the
Prospectus, as the case may be, or inform such person that such Preliminary
Prospectus or Prospectus will be available upon request, and (ii) we will
furnish to each person to whom any such sale or offer is made such prospectus,
advertisement or other offering document containing information relating to the
Units or the Company as may be required under the law of the jurisdiction in
which such sale or offer is made. Any prospectus, advertisement or other
offering document furnished by us to any person in accordance with the preceding
sentence and any such addition offering material as we may furnish to any person
(x) shall comply in all respects with the law of the jurisdiction in which it is
so furnished, (y) shall be prepared and so furnished at our sole risk and
expense and (z) shall not contain information relating to the Units or the
Company which is inconsistent in any respect with the information contained in
the then current Preliminary Prospectus or in the Prospectus, as the case may
be.
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This instrument may be signed by or on behalf of the Underwriters in one or
more counterparts each of which shall constitute an original and all of which
together shall constitute one and the same agreement among all the Underwriters
and shall become effective at such time as all the Underwriters shall have
signed or have had signed on their behalf such counterparts and you shall have
confirmed all such counterparts. You may confirm such counterparts by facsimile
signature.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Arizona without giving effect to the choice of law or
conflicts of laws principles thereof.
Please confirm that the foregoing correctly states the understanding between
us by signing and returning to us a counterpart hereof.
Very truly yours,
/s/
---------------------------------
As Attorney-in-Fact for each of the
several Underwriters named in
Schedule I to the Underwriting
Agreement
Confirmed as of the date
first above written:
W.B. McKee Securities, Inc.
As Representative
By:
--------------------------------
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<PAGE> 1
EXHIBIT 1.3
BIRMAN MANAGED CARE, INC.
1,550,000 UNITS
SELECTED DEALER AGREEMENT
, 1996
Dear Sirs:
W.B. McKee Securities, Inc. and the other Underwriters named in the
Prospectus relating to the above units (the "Underwriters"), acting through us
as Representative, is severally offering for sale an aggregate of 1,550,000
units (the "Firm Units"), each unit consisting of one share of common stock
("Common Stock") of Birman Managed Care, Inc. (the "Company") and one redeemable
common stock purchase warrant ("Warrant") at a price of $ per unit. In addition,
the several Underwriters have been granted an option to purchase from the
Company up to an additional 232,500 Units (the "Option Units") to cover
over-allotments in connection with the sale of the Firm Units. The Firm Units
and any Option Units purchased are herein called the "Units". The Units and the
terms under which they are to be offered for sale by the several Underwriters
are more particularly described in the Prospectus.
The Underwriters are offering the Units pursuant to a Registration Statement
(the "Registration Statement") under the Securities Act of 1933, as amended,
subject to the terms of (a) their Underwriting Agreement with the Company, (b)
this Agreement, and (c) the Representative's instructions which may be forwarded
to the Selected Dealers from time to time. This invitation is made by the
Representative only if the Units may be lawfully offered by dealers in your
state. The terms and conditions of this invitation are as follows:
Offer to Selected Dealers. The Representative is hereby soliciting offers to
buy, upon the terms and conditions hereof, a portion of the Units from Selected
Dealers who are to act as principal. Units are to be offered to the public at a
price of $____ per Unit (the "Offering Price"). Selected Dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD")
will be allowed, on all Units sold by them, a concession of $____ payable as
hereinafter provided. Selected Dealers may reallow other dealers who are members
of the NASD a portion of that concession up to the amount of $____ per Unit with
respect to Units sold by or through them. No NASD member may reallow commissions
to any non-member broker-dealer including foreign broker-dealers registered
pursuant to the Securities Exchange Act of 1934. This offer is solicited subject
to the Company's issuance and delivery of certificates and other documents
evidencing its Units and the acceptance thereof by the Representative, to the
approval of legal matters by counsel, and to the terms and conditions set forth
herein.
1. Revocation of Offer. The Selected Dealer's offer to purchase, if made
prior to the effective date of the Registration Statement, may be revoked in
whole or in part without obligation or commitment of any kind by it any time
prior to acceptance and no offer may be accepted by the Representative and no
sale can be made until after the Registration Statement covering the Units has
become effective with the Securities and Exchange
<PAGE> 2
Commission. Subject to the foregoing, upon execution by the Selected Dealer of
the Offer to Purchase below and the return of same to the Representative, the
Selected Dealer shall be deemed to have offered to purchase the number of Units
set forth in its offer on the basis set forth in Section 1 above. Any oral offer
to purchase made by the Selected Dealer shall be deemed subject to this
Agreement and shall be confirmed by the Representative by the subsequent
execution and return of this Agreement. Any oral notice by the Representative of
acceptance of the Selected Dealer's offer shall be followed by written or
telegraphic confirmation preceded or accompanied by a copy of the Prospectus. If
a contractual commitment arises hereunder, all the terms of this Selected Dealer
Agreement shall be applicable. The Representative may also make available to the
Selected Dealer an allotment to purchase Units, but such allotment shall be
subject to modification or termination upon notice from the Representative any
time prior to an exchange of confirmations reflecting completed transactions.
All references hereafter in this Agreement to the purchase and sale of Units
assume and are applicable only if contractual commitments to purchase are
completed in accordance with the foregoing.
2. Selected Dealer Sales. Any Units purchased by a Selected Dealer under
the terms of this Agreement may be immediately re-offered to the public at the
Offering Price in accordance with the terms of the offering thereof set forth
herein and in the Prospectus, subject to the securities or blue sky laws of the
various states or other jurisdictions. Units shall not be offered or sold by the
Selected Dealers below the Offering price. The Selected Dealer agrees to advise
the Representative, upon request, of any Units purchased by it remaining unsold
and, the Representative has the right to purchase all or a portion of such
Units, at the Public Offering Price less the selling concession or such part
thereof as the Representative shall determine.
3. Payment for Units. Payment for Units which the Selected Dealer purchases
hereunder shall be made by the Selected Dealer on or before five (5) business
days after the date of each confirmation by certified or bank cashier's check
payable to the Representative. Certificates for the securities shall be
delivered as soon as practicable after delivery instructions are received by the
Representative.
4. Open Market Transactions; Stabilization.
4.1 For the purpose of stabilizing the market in the Units, the
Representative has been authorized to make purchases and sales of the
Company's Units, Common Stock and Warrants, in the open market or otherwise,
and, in arranging for sales, to overallot. If, in connection with such
stabilization, the Representative contracts for or purchases in the open
market any Units, Common Stock or Warrants sold to the Selected Dealer
hereunder and not effectively placed by the Selected Dealer, the
Representative may charge the Selected Dealer for the accounts of the
several Underwriters an amount equal to the Selected Dealer concession on
such Units, Common Stock or Warrants, together with any applicable transfer
taxes, and the Selected Dealer agrees to pay such amount to the
Representative on demand. Certificates for Units, Common Stock or Warrants
delivered on such repurchases need not be the identical certificates
originally purchased.
2
<PAGE> 3
4.2 The Selected Dealer will not, until advised by the Representative
that the entire offering has been distributed and closed, bid for or
purchase Units, Common Stock or Warrants in the open market or otherwise
make a market in the Units, Common Stock or Warrants or otherwise attempt to
induce others to purchase Units, Common Stock or Warrants in the open
market. Nothing contained in this section shall prohibit the Selected Dealer
from acting as an agent in the execution of unsolicited orders of customers
in transactions effectuated for them through a market maker.
5. Allotments. The Representative reserves the right to reject all
subscriptions, in whole or in part, to make allotments and to close the
subscription books at any time without notice. If an order from a Selected
Dealer is rejected or if a payment is received which proves insufficient, any
compensation paid to the Selected Dealer shall be returned by the Selected
Dealer either in cash or by a charge against the account of the Selected Dealer,
as the Representative may elect.
6. Reliance on Prospectus. The Selected Dealer agrees not to use any
supplemental sales literature of any kind without prior written approval of the
Representative unless it is furnished by the Representative for such purpose. In
offering and selling the Company's Units, the Selected Dealer will rely solely
on the representations contained in the Prospectus. Additional copies of the
current Prospectus will be supplied by the Representative in reasonable
quantities upon request.
7. Representations of Selected Dealer. By accepting this Agreement, the
Selected Dealer represents that it: (a) is registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended; (b) is qualified to act as a
Dealer in the States or other jurisdictions in which it offers the Units; (c) is
a member in good standing with the NASD; (d) will maintain all such
registrations, qualifications, and memberships throughout the term of this
Agreement; (e) will comply with all applicable Federal laws relating to the
offering, including, but not limited to, Rule 15c2-8 under the Securities
Exchange Act of 1934 and Release No. 4968 under the Securities Act of 1933
relating to delivery of preliminary and final prospectuses; (f) will comply with
the laws of the state or other jurisdictions concerned; (g) will comply the
rules and regulations of the NASD including, but not limited to, full compliance
with Sections 1, 8, 24, 25 and 36 of Article III of the NASD's Rules of Fair
Practice and the interpretations of such sections promulgated by the Board of
Governors of the NASD including an interpretation with respect to "Free-Riding
and Withholding" dated November 1, 1970, and as thereafter amended; and (h)
confirms that the purchase of the number of Units it has subscribed for and may
be obligated to purchase will not cause it to violate the net capital
requirements of Rule 15c3-1 under the Exchange Act.
8. Blue Sky Qualification. The Selected Dealer agrees that it will offer to
sell the Units only (a) in states or jurisdictions in which it is licensed as a
broker-dealer under the laws of such states, and (b) in which the Representative
has been advised by counsel that the Units have been qualified for sale under
the respective securities or Blue Sky laws of such states. The Representative
assumes no obligation or responsibility as to the right of any Selected Dealer
to sell the Units in any state or as to any sale therein.
3
<PAGE> 4
9. Expenses. No expenses will be charged to Selected Dealers. A single
transfer tax, if any, on the sale of the Units by the Selected Dealer to its
customers will be paid when such Units are delivered to the Selected Dealer for
delivery to its customers. However, the Selected Dealer will pay its
proportionate share of any transfer tax or any other tax (other than the single
transfer tax described above) if any such tax shall be from time to time
assessed against the Underwriters and other Selected Dealers.
10. No Joint Venture. No Selected Dealer is authorized to act as the
Underwriters' agent, or otherwise to act on our behalf, in the offering or
selling of Units to the public or otherwise. Nothing contained herein will
constitute the Selected Dealers an association or other separate entity or
partners with the Underwriters, or with each other, but each Selected Dealer
will be responsible for its share of any liability or expense based on any claim
to the contrary.
11. Communications. This Agreement and all communications to the
Underwriters shall be sent to the Representative at the following address or, if
sent by facsimile, to the number set forth below:
Mr. William B. McKee, Chairman
W.B. McKee Securities, Inc.
3003 North Central Avenue, Suite 100
Phoenix, AZ 85012
Fax No. (602)266-5774
Any notice to the Selected Dealer shall be properly given if mailed,
telephoned, or transmitted by facsimile to the Selected Dealer at its address or
number set forth below its signature to this Agreement. All communications and
notices initially transmitted by facsimile shall be confirmed in writing.
12. Governing Law. This Agreement shall be governed by and construed
according to the laws of the State of Arizona.
13. The Representative shall have full authority to take such actions as it
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Representative shall not be under any liability to the
Selected Dealer, except such as may be incurred under the Securities Act of 1933
and the rules and regulations thereunder, except for lack of good faith and
except for obligations assumed by it in this Agreement, and no obligation on its
part shall be implied or inferred herefrom.
14. Assignment. This Agreement may not be assigned by the Selected Dealer
without the Representative's prior written consent.
15. Termination. The Selected Dealer will be governed by the terms and
conditions of this Agreement until it is terminated. This Agreement will
terminate upon the termination of the Offering.
4
<PAGE> 5
16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one instrument. A copy of an executed counterpart of this Agreement may be sent
via facsimile by any party to the other party, and the other party may deem such
facsimile copy of the executed counterpart to be an original.
17. Application. If you desire to purchase any of the Units, please confirm
your application by signing and returning to us your confirmation on the
duplicate copy of this letter, even though you may have previously advised us
thereof by telephone or telegraph. Our signature hereon may be by facsimile.
W.B. MCKEE SECURITES, INC.
Dated: , 1996
-----------------
By:
--------------------------
William B. McKee, Chairman
Dated: , 1996
-----------------
By:
--------------------------
5
<PAGE> 6
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke set forth in Section 2) Units in accordance with the terms and conditions
set forth above.
By:
------------------------------------
Its:
-----------------------------------
Address:
-------------------------------
Facsimile Number:
----------------------
Telephone Number:
----------------------
("Selected Dealer")
Date of Acceptance:
--------------------
Accepted By:
---------------------------
IRS Employer Identification No.:
-------
Share Allocation:
----------------------
6
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BIRMAN MANAGED CARE, INC. - DELAWARE
*********************
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the corporation is BIRMAN MANAGED CARE, INC. -
DELAWARE (hereinafter the "Corporation").
SECOND: The registered office of the Corporation is to be located at
1013 Centre Road, in the City of Wilmington, in the County of New Castle and in
the State of Delaware 19805-1297. The name of its registered agent at that
address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The aggregate number of shares that the Corporation is
authorized to issue is 30,000,000, 25,000,000 of such shares being classified as
Common Stock, each such share having a par value of $0.001; and 5,000,000 of
such shares being classified as Preferred Stock, each such share having a par
value of $0.001 (the "Preferred Stock").
Shares of Preferred Stock may be issued from time to time in one or
more series, each of which series may have such voting powers (if any), and such
designations, preferences and
<PAGE> 2
relative, participating, optional or other special rights and qualifications,
limitations, and restrictions, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such Preferred Stock of
each such series adopted by the Board of Directors of the Corporation; and
authority to adopt such resolution or resolutions stating and expressing any or
all of the foregoing be and is hereby expressly vested in the Board of Directors
of the Corporation.
FIFTH: The name and address of the Incorporator is as follows:
NAME ADDRESS
John H. Heuberger 203 North LaSalle Street, Suite 1800
Chicago, Illinois 60601
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The number of directors of the Corporation shall be such
as from time to time shall be fixed by, or in the manner provided in,
the by-laws. Election of directors need not be by ballot unless the
by-laws so provide.
(2) The Board of Directors shall have power without the assent
or vote of the stockholders to make, alter, amend, change, add to or
repeal the by-laws of the Corporation; to fix and vary the amount to be
reserved for any proper purpose; to authorize and cause to be executed
mortgages and liens upon all or any part of the property of the
Corporation; to determine the use and disposition
2
<PAGE> 3
of any surplus or net profits; and to fix the times for the declaration
and payment of dividends.
(3) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the
purpose of considering any such act or contract, and any contract or
act that shall be approved or be ratified by the vote of the holders of
a majority of the stock of the Corporation which is represented in
person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the
Corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the Corporation, whether
or not the contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation; subject, nevertheless,
to the provisions of the statutes of Delaware, of this Certificate, and
to any by-laws from time to time made by the stockholders; provided,
however, that no by-laws so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not been made.
3
<PAGE> 4
SEVENTH: The Corporation shall, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: No director of this Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article EIGHTH
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derives an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended to further eliminate or limit the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended. No amendment to or
repeal of this Article EIGHTH shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors, or any class of them and/or between this
Corporation and its stockholders, or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or
4
<PAGE> 5
on the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
ELEVENTH: Section 1. Except as otherwise provided in this Section 11,
the stockholders of this Corporation shall have power only by the affirmative
vote of the holders of not less than 60 percent of the voting power of the
shares present and entitled to vote to approve any proposal (i) for the merger
of this Corporation with any other corporation; (ii) for the sale,
5
<PAGE> 6
lease, transfer, or other disposition of all or any substantial part of the
assets of this Corporation; or (iii) for the issuance or transfer of any voting
securities of this Corporation in exchange or payment for any securities or
other property, including cash, of any other corporation, person, entity.
Section 2. The percentage of the voting power, if any, required to
approve any transaction referred to in Section 1 of this Article Eleventh shall
be determined by the applicable provisions of Delaware law, rather than by the
provisions of said Section 1, if such transaction will have been approved by a
majority of the Continuing Directors, as hereinafter defined, of this
Corporation.
Section 3. For the purposes of this Article Eleventh, the term
"Continuing Director" with respect to a transaction shall mean (i) a director
who was initially elected to the board prior to the acquisition by the other
party to the transaction of fifteen percent (15%) or more of the voting power of
the shares of this Corporation; or (ii) a director elected to succeed a
Continuing Director upon recommendation by a majority of the Continuing
Directors then serving.
TWELFTH: Section 1. In addition to the vote of stockholders otherwise
required by law or by the terms of any other article of this Certificate,
whether now or hereafter authorized, the affirmative vote of the holders of not
less than 66.67 percent of the voting power of the shares present and entitled
to vote, considered for purposes of this Article Twelfth as one class, shall be
required for the approval or authorization of any Business Combination (as
hereinafter defined) between this Corporation and any Control Person (as
hereinafter defined); provided, however, that such 66.67 percent voting
requirement shall not be applicable if such Business
6
<PAGE> 7
Combination has been unanimously approved by the directors, or if all of the
following conditions are satisfied:
(A) The cash, or fair market value of the property,
securities, or other consideration, to be received per share in the
Business Combination by holders of the Common Shares is not less than
the higher of (i) the highest price per share (including brokerage
commissions, soliciting dealers' fees, and dealer-management
compensation) paid by such Control Person in acquiring any of its
holdings of the Common Shares, or (ii) the highest per share market
price of the Common Shares during the three-month period immediately
preceding the date of the proxy statement described in (C) below.
(B) After becoming a Control Person and prior to the
consummation of such Business Combination (i) such Control Person shall
have taken steps to ensure that the Corporation's board included at all
times representation by Continuing Directors (as hereinafter defined)
proportionate to the shareholdings of the Corporation's public common
stockholders not affiliated with such Control Person (with a Continuing
Director to occupy any resulting fractional board position); (ii) there
shall have been no change in the amount per share payable or paid as
dividends on the Common Shares except as may have been approved by a
unanimous vote of the directors; (iii) such Control Person shall not
have acquired any newly issued shares, directly or indirectly, from the
Corporation (except upon conversion of convertible securities acquired
by it prior to becoming a Control Person or upon compliance with the
provisions of this Article Twelfth or as a result of a pro rata share
dividend or split); and (iv) such Control Person shall not have
received the benefit, directly or indirectly except proportionately as
a
7
<PAGE> 8
stockholder), of any loan, advances, guarantees, pledges, or the
financial assistance or tax credits provided by the Corporation, or
made any major changes in the Corporation's business or equity capital
structure.
(C) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934, whether or not the Corporation is then
subject to such requirements, shall be mailed to the public
stockholders of the Corporation for the purpose of soliciting
stockholder approval of such Business Combination and shall contain at
the front thereof, in a prominent place, any recommendations as to the
advisability (or inadvisability) of the Business Combination which the
Continuing Directors, or any of them, may choose to state and, if
deemed advisable by a majority of the Continuing Directors, an opinion
of a reputable investment banking firm as to the fairness (or not) of
the terms of such Business Combination, from the point of view of the
remaining public stockholders of the Corporation (such investment
banking firm to be selected by a majority of the Continuing Directors
and to be paid a reasonable fee for their services by the Corporation
upon receipt of such opinion).
Section 2. For purposes of this Article Twelfth:
(A) The term"Business Combination" shall man (i) any merger or
consolidation of the Corporation with or into a Control Person; (ii)
any sale, lease, exchange, transfer, or the disposition, including
without limitation a mortgage or any other security device, of all or
any substantial part of the assets of the Corporation (including
without limitation any voting securities of a subsidiary) or of a
subsidiary, to a Control Person; (iii) any
8
<PAGE> 9
merger or consolidation of a Control Person with or into the
Corporation or a subsidiary of the Corporation; (iv) any sale, lease,
exchange, transfer, or other disposition of all or any substantial part
of the assets of a Control Person to the Corporation or a subsidiary of
the Corporation; (v) the issuance of any securities of the Corporation
or a subsidiary of the Corporation to a Control Person; (vi) the
acquisition by the Corporation or a subsidiary of the Corporation of
any securities of a Control Person; (vii) any reclassification of
shares of Common Stock, or any recapitalization involving shares of
Common Stock, consummated within five years after a Control Person
becomes a Control Person; and (viii) any agreement, contract, or other
arrangement providing for any of the transactions described in this
definition of Business Combination.
(B) The term "Control Person" shall mean and include any
individual, corporation, partnership or other person or entity which,
together with their Affiliates and Associates (as defined below),
beneficially owns (as this term is defined on the date on which this
Article Twelfth becomes effective in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934) in the
aggregate thirty percent (30%) of the outstanding shares of the
Corporation, and any Affiliate or Associate (as those terms are defined
on the date on which this Article Twelfth becomes effective in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934) of any such individual, corporation, partnership
or other person or entity.
(C) The term" Continuing Director" with respect to a
transaction shall mean (i) a director who was initially elected to the
board prior to the time that the Control Person acquired fifteen
percent (15%) or more of the voting power of the shares of this
9
<PAGE> 10
Corporation, or (ii) a director elected to succeed a Continuing
Director upon recommendation by a majority of the Continuing Directors
then serving.
(D) The term "other consideration to be received" shall
include, without limitation, shares of Common Stock of this Corporation
retained by its existing public stockholders in the event of a Business
Combination with such Control Person in which this Corporation is the
surviving corporation.
Section 3. The provisions of this Article Twelfth shall be in addition to the
requirements of applicable provisions of Delaware law.
IN WITNESS WHEREOF, I have hereunto set my hand and seal.
Dated: August 30, 1996.
________________________________
John H. Heuberger
10
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
BIRMAN MANAGED CARE, INC. - DELAWARE
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be
established and maintained at the office of Corporation Service Company, in the
City of Wilmington, in the County of New Castle, in the State of Delaware, and
said corporation shall be the registered agent of this corporation in charge
thereof.
SECTION 2. OTHER OFFICES. The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as may properly come before the
meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose
other than the election of directors 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.
SECTION 3. VOTING. Each stockholder entitled to vote in accordance with
the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote for directors
and
<PAGE> 2
the vote upon any question before the meeting, shall be by ballot. All elections
for directors shall be decided by plurality vote; all other questions shall be
elected by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, 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 4. QUORUM. Except as otherwise required by Law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action
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<PAGE> 3
at a meeting at which all shares entitled to vote thereon were present and
voted. Every written consent shall bear the date of signature of each
stockholder who signs the consent. 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.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors shall be one or
more as shall be determined from time to time by the Board or stockholders. The
directors shall be elected at the annual meeting of the stockholders and each
director shall be elected to serve until his successor shall be elected and
shall qualify.
SECTION 2. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors, or, if there be classes of directors, at an
election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or more
directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the
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<PAGE> 4
removal without cause of a director or directors so elected, to the vote of the
holders of the outstanding shares of that class or series and not to the vote of
the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER. The number of directors may be increased
by amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or, by the affirmative vote of a majority
in interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be chosen
at such meeting to hold office until the next annual election and until their
successors are elected and qualify.
SECTION 6. POWERS. The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board 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. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
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<PAGE> 5
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two day's
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, 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 9. QUORUM. A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.
SECTION 10. COMPENSATION. Directors shall not receive any stated salary
for their services as directors or as members of committees, but by resolution
of the board a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. 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 a written consent thereto is signed by all
members of the board, or of such committee as the case may be, and such written
consent is filed with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice-Presidents and such Assistant Secretaries and Assistant
5
<PAGE> 6
Treasurers as they may deem proper. None of the officers of the corporation need
be directors. The officers shall be elected at the first meeting of the Board of
Directors after each annual meeting. More than two offices may be held by the
same person.
SECTION 2. REMOVAL OF OFFICERS. Any officer may be removed, either with
or without cause, by the vote of a majority of the directors then in office at
any meeting of the board of directors, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 4. CHAIRMAN. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 5. PRESIDENT. The President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of the stockholders if present
thereat, and in the absence or non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 6. VICE-PRESIDENT. Each Vice-President shall have such powers
and shall perform such duties as shall be assigned to him by the directors.
SECTION 7. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial
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<PAGE> 7
condition of the corporation. If required by the Board of Directors, he shall
give the corporation a bond for the faithful discharge of his duties in such
amount and with such surety as the board shall prescribe.
SECTION 8. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the corporation and of the directors in a book to
be kept for that purpose, and shall perform such other duties as may be assigned
to him by the directors or the President. He shall have the custody of the seal
of the corporation and shall affix the same to all instruments requiring it,
when authorized by the directors or the President, and attest the same.
SECTION 9. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. A certificate of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any of or all
the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued
in the place of any certificate theretofore issued by the corporation, alleged
to have been lost or destroyed, and the directors may, in their discretion,
require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered
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<PAGE> 8
to the corporation by the delivery thereof to the person in charge of the stock
and transfer books and ledgers, or to such other person as the directors may
designate, by whom they shall be cancelled, and new certificates shall thereupon
be issued. A record shall be made of each transfer and whenever a transfer shall
be made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer.
SECTION 4. STOCKHOLDERS 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. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. The corporate seal, if any, shall be circular in form
and shall contain the name of the corporation and the words "CORPORATE SEAL
DELAWARE". Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. 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 be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
by these By-Laws to be given, personal notice is not meant unless expressly so
stated,
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<PAGE> 9
and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by Statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
ARTICLE VII
REPAYMENT OF SALARY AND EXPENSE REIMBURSEMENTS
Any payments made to an officer, director, employee, or other agent of
the corporation in the nature of salary, wages, other compensation or expense
reimbursements which shall be disallowed in whole or in part as a deductible
expense by the Internal Revenue Service in any judicial or administrative
proceeding, shall be repaid by such officer, director, employee, or other agent
of the corporation to the full extent of such disallowance. In lieu of payment
by such person or persons, subject to the determination of the Board of
Directors, proportionate amounts may be withheld from his or their future
compensation payments until the amount so owed to the corporation has been
recovered.
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ARTICLE VIII
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. The corporation may indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. The corporation may indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
SECTION 3. To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in the defense of
any action, suit or proceeding referred to in Sections 1 and 2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
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SECTION 4. Any indemnification under Sections 1 and 2 (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 and 2. Such determination
shall be made (a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (b) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders.
SECTION 5. Expenses (including attorneys' fees) incurred in defending a
civil, criminal, administrative or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
this Article. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
SECTION 6. The indemnification and advancement of expenses provided by,
or granted pursuant to, other Sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
SECTION 7. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article.
SECTION 8. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
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EXHIBIT 3.3
CERTIFICATE OF MERGER
OF
BIRMAN MANAGED CARE, INC. - DELAWARE
AND
BIRMAN MANAGED CARE, INC.
It is herby certified that:
1. The constituent business corporations participating in the merger
herein certified are:
(i) BIRMAN MANAGED CARE, INC. - DELAWARE, which is incorporated under the
laws of the State of Delaware; and
(ii) BIRMAN MANAGED CARE, INC., which is incorporated under the laws of
the State of Tennessee.
2. An Agreement and Plan of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware and Sections 48-21-104 and 48-21-105 of
the Tennessee Business Corporation Act.
3. The name of the surviving corporation in the merger herein certified is
BIRMAN MANAGED CARE, INC.-DELAWARE, which will continue its existence as said
surviving corporation under the name Birman Managed Care, Inc.
4. The Certificate of Incorporation of BIRMAN MANAGED CARE,
INC. - DELAWARE, as in effect immediately prior to such merger, shall continue
to be the Certificate of Incorporation of the surviving corporation, except that
Article FIRST shall be amended to change the name of the surviving corporation
to Birman Managed Care, Inc.
5. The executed Agreement and Plan of Merger between the aforesaid
constituent corporations is on file at the office of the aforesaid surviving
corporation, the address of which is as follows:
Birman Managed Care, Inc.
502 Gould Drive
Cookeville, Tennessee 38506
<PAGE> 2
6. A copy of the aforesaid Agreement and Plan of Merger will be
furnished by the aforesaid surviving corporation, on request and without cost,
to any stockholder of either of the aforesaid constituent corporations.
7. The authorized capital stock of Birman Managed Care, Inc.,
the Tennessee corporation, consists of twenty million shares (20,000,000) of
which fifteen million (15,000,000) share are common stock with a par value of
$.001 per share, and five million (5,000,000) shares are preferred stock with a
par value of $.001 per share.
Dated: ,1996
------------
BIRMAN MANAGED CARE, INC. -
DELAWARE, a Delaware corporation
By: /s/ David N. Birman, MD
---------------------------
David N. Birman, M.D.
President and Chief Executive
Officer
ATTEST:
/s/ Robert D. Arkin
- --------------------------------
Name: Robert D. Arkin
---------------------------
Its: Secretary
-----------------
Dated: August , 1996
----
BIRMAN MANAGED CARE, INC., a
Tennessee corporation
By: /s/ David N. Birman
-----------------------------
David N. Birman, M.D.,
President and Chief
Executive Officer
ATTEST
/s/ Robert D. Arkin
- --------------------------------
Name: Robert D. Arkin
---------------------------
Its: Secretary
-----------------
2
<PAGE> 1
EXHIBIT 4.3
===============================================================================
BIRMAN MANAGED CARE, INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
WARRANT AGENT
---------------
WARRANT AGREEMENT
DATED AS OF , 1996
---------------
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. Appointment of Warrant Agent.......................................................................... 1
SECTION 2. Form of Warrant Certificates.......................................................................... 1
SECTION 3. Issuance of Warrant Certificates; Countersignature and Registration................................... 1
SECTION 4. Transfer, Split Up, Combination, and Exchange of Warrant Certificates; Mutilated, Destroyed,
Lost, or Stolen Warrant Certificates.................................................................. 2
SECTION 5. Subsequent Issue of Warrant Certificates.............................................................. 2
SECTION 6. Exercise of Warrants; Exercise Price; Expiration Date of Warrants..................................... 2
SECTION 7. Cancellation and Destruction of Warrant Certificates.................................................. 3
SECTION 8. Reservation and Availability of Shares of Common Stock................................................ 4
SECTION 9. Transfer Taxes........................................................................................ 4
SECTION 10. Common Stock Record Date.............................................................................. 4
SECTION 11. Adjustment of Exercise Price, Number of Shares, or Number of Warrants................................. 5
SECTION 12. Notices to Warrantholders............................................................................. 7
SECTION 13. Obtaining of Governmental Approvals................................................................... 8
SECTION 14. Fractional Warrants and Fractional Shares............................................................. 8
SECTION 15. Rights of Action...................................................................................... 8
SECTION 16. Agreement of Warrant Certificate Holders.............................................................. 8
SECTION 17. The Warrant Agent..................................................................................... 9
SECTION 18. Change of Warrant Agent............................................................................... 10
SECTION 19. Maintenance of Office................................................................................. 10
SECTION 20. Issuance of New Warrant Certificates.................................................................. 10
SECTION 21. Notices............................................................................................... 10
SECTION 22. Supplements and Amendments............................................................................ 11
SECTION 23. Successors............................................................................................ 11
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 24. Benefits of this Agreement............................................................................ 11
SECTION 25. California Contract................................................................................... 11
SECTION 26. Counterparts.......................................................................................... 11
SECTION 27. Descriptive Headings.................................................................................. 11
EXHIBIT
Exhibit A..................................................................................... Form of Warrant Certificate
</TABLE>
ii
<PAGE> 4
WARRANT AGREEMENT
THIS AGREEMENT, dated as of___________, 1996 is between Birman Managed
Care, Inc., a Delaware corporation (the "Company"), and American Stock Transfer
and Trust Company, a New York banking corporation (the "Warrant Agent").
WITNESSETH:
WHEREAS, the Company proposes to issue Warrants, as hereinafter
described (the "Warrants"), to purchase up to an aggregate of 1,782,500 of its
Shares of Common Stock, in connection with a public offering of Shares of
Common Stock and Warrants evidencing the right to purchase Shares of Common
Stock; and W.B. McKee Securities, Inc. has agreed to act as the representative
(the "Representative") of certain underwriters (the "Underwriters") in the
offering of the Units and
WHEREAS, to provide for the appointment of a Warrant Agent, to provide
for countersignature of the Warrants by the Warrant Agent, and to establish the
terms and conditions of the Warrants, the Company in and by resolution of its
Board of Directors has duly authorized the execution and delivery of this
Warrant Agreement and the execution, issuance, and delivery of the Warrant
Certificates (as hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the terms and conditions hereinafter in this Agreement set forth and the Warrant
Agent hereby accepts such appointment. The Company may from time to time, upon
providing written notice to the Warrant Agent, appoint such additional
substitute Warrant Agents as it may deem necessary or desirable.
SECTION 2. Form of Warrant Certificates. The certificates
evidencing the Warrants (the "Warrant Certificates") and the form of election
to purchase shares of Common Stock (and the form of assignment to be printed on
the reverse thereof) to be delivered pursuant to this Agreement shall be in
registered form only, shall be substantially in the form set forth in Exhibit A
hereto, and may have such letters, numbers, or other marks of identification
or designation and such legends, summaries, or endorsements, printed,
lithographed, or engraved thereon as the Company may deem appropriate and as
are not inconsistent with the provisions of this Warrant Agreement, or as may
be required to comply with any applicable law or any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
inter-dealer quotation system on which the Warrant Certificates may from time
to time be listed, or to conform to usage. Each Warrant Certificate shall be
dated as of the date of issuance thereof by the Warrant Agent issuing such
Warrant Certificate, either upon initial issuance or upon transfer or exchange,
and on its face shall entitle the registered holder thereof to purchase one
share of Common Stock for each Warrant evidenced by such Warrant Certificate,
initially at the price per share set forth therein, but the number of such
shares and such price per share shall be subject to adjustments as provided
herein.
The Warrant Certificate shall be exercisable and separately
transferable. Without limitation, any exercise shall comply with the provisions
of subsection 6(b) hereof.
SECTION 3. Issuance of Warrant Certificates; Countersignature and
Registration. No fractional Warrants will be issued to the purchaser of
Warrants, and no such purchaser will be entitled to any cash payment or other
compensation in respect of a fractional Warrant that would otherwise have been
issued, except pursuant to the terms of Subsection 14(a).
The Warrant Certificates shall be executed on behalf of the Company by
its President or any Vice President, by facsimile signature and have affixed
thereto a facsimile of the Company's seal which shall be attested
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by the Secretary or an Assistant Secretary of the Company by facsimile
signature. The Warrant Certificates shall be manually countersigned by the
Warrant Agent (or by any successor as a Warrant Agent hereunder) and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any Warrant Certificate shall cease to be such
officer of the Company before countersignature by a Warrant Agent and issuance
and delivery thereof, such Warrant Certificate, nevertheless, may be
countersigned by the Warrant Agent, and issued and delivered with the same
force and effect as though the person who signed such Warrant Certificate had
not ceased to be such officer of the Company; and any Warrant Certificate may
be signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the Company
to sign such Warrant Certificate, although at the date of the execution of this
Warrant Agreement any such person was not such an officer. Upon
countersignature by the Warrant Agent and delivery, the Warrant Certificate
shall be valid and binding upon the Company, and the holder thereof shall be
entitled to all the benefits of this Agreement.
The Warrant Agent will keep or cause to be kept at its principal
corporate trust office in New York, New York, or elsewhere, books for
registration and registration of transfer of the Warrant Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Warrant Certificates, the number of Warrants evidenced on its
face by each of the Warrant Certificates, and the date of each of the Warrant
Certificates.
SECTION 4. Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Mutilated, Destroyed, Lost, or Stolen Warrant Certificates.
Subject to the provisions of Section 14 hereof, any Warrant Certificate, with
or without other Warrant Certificates, may be transferred, split up, combined,
or exchanged for another Warrant Certificate or Warrant Certificates
representing in the aggregate a like number of Warrants. Subject to any
restriction on transferability that may appear on a Warrant Certificate in
accordance with the terms hereof, any registered holder desiring to register
the transfer of, or to split up, combine, or exchange, any Warrant Certificate
or Warrant Certificates shall make such request in writing delivered to the
Warrant Agent and shall surrender such Warrant Certificate or Warrant
Certificates to the Warrant Agent at its offices maintained for that purpose in
New York, New York or elsewhere. Thereupon the Warrant Agent shall countersign
and deliver to the person entitled thereto a Warrant Certificate or Warrant
Certificates, as the case may be, as soon as required. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination, or exchange of
Warrant Certificates.
Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction, or mutilation
of a Warrant Certificate, and, in case of loss, theft, or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to the
Company and the Warrant Agent of all reasonable expenses incidental thereto,
and upon surrender and cancellation of the Warrant Certificate if mutilated,
the Company will direct the Warrant Agent to make a new Warrant Certificate of
like tenor for the same number of Warrants and deliver such new Warrant
Certificate to the registered owner in lieu of the Warrant Certificate so lost,
stolen, destroyed or mutilated.
SECTION 5. Subsequent Issue of Warrant Certificates. Subsequent to
their original issuance, no Warrant Certificates shall be issued except (a)
Warrant Certificates issued upon any transfer, combination, split up, or
exchange of Warrants pursuant to Section 4 hereof, (b) Warrant Certificates
issued in replacement of mutilated, destroyed, lost, or stolen Warrant
Certificates pursuant to Section 4 hereof, (c) Warrant Certificates issued
pursuant to Section 6 hereof upon the partial exercise of any Warrant
Certificate to evidence the unexercised portion of such Warrant Certificate, and
(c) Warrant Certificates issued pursuant to Subsection 11(g) or Section 20
hereof.
SECTION 6. Exercise of Warrants; Exercise Price; Expiration Date of
Warrants.
(a) Each Warrant may be exercised on any business day
through the close of business on the date three years after the date of the
Prospectus (the "Prospectus Date") that is a part of the Registration Statement
relating to the Warrants; provided, however, that this termination date shall be
subject to the redemption provisions of Subsection 6(f) hereof (such date, as it
may be changed, is herein called the "Expiration Date"). Each Warrant not
exercised on or before the close of business on the Expiration Date shall
automatically become void at 5:00 P.M., New York City Time
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(which time shall be deemed the "close of business" for purposes of this
Agreement, the Warrants and the Warrant Certificates), on the Expiration Date;
each holder thereof shall thereafter have no further rights with respect
thereto and the Company and the Warrant Agent shall thereafter have no further
obligations with respect thereto.
(b) Subject to the provisions of this Agreement, including
Sections 11, 13 and 14, the holder of each Warrant shall have the right to
purchase from the Company (and the Company shall issue and sell to such
holder(s) of a Warrant) one fully paid and non-assessable Share at the exercise
price per share set forth in the form of Warrant Certificate included herein,
as such price may be adjusted in accordance with the provisions hereof (such
price, as so adjusted, being herein called the "Exercise Price"), upon
surrender to the Warrant Agent, at its offices maintained for that purpose in
New York, New York, or elsewhere, of the Warrant Certificate evidencing such
Warrant, with the form of election to purchase on the reverse thereof duly
completed and signed, and upon payment of the Exercise Price. Payment of the
Exercise Price and any amounts described in Subsection 6(c) shall be: (i) in
cash in United States dollars; or (ii) by certified or official bank check
payable in United States dollars to the order of the Company.
(c) Upon receipt of a Warrant Certificate, with the form of
election to purchase duly executed, accompanied by payment of the Exercise
Price for the shares of Common Stock to be purchased and an amount (if required
by Section 9 hereof) equal to any applicable transfer tax, the Warrant Agent
shall thereupon promptly (i) requisition from any transfer agent for the shares
of Common Stock certificates evidencing ownership of the number of shares of
Common Stock to be purchased, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
of Common Stock or Warrants, and (iii) promptly after receipt of such
certificates cause the same to be delivered to or upon the order of the
registered holder of such Warrant Certificate, registered in such name or names
as may be designated by such holder, and, when appropriate after receipt
promptly deliver such cash to or upon the order of the registered holder of
such Warrant Certificate.
(d) In case the registered holder of any Warrant
Certificate shall exercise fewer than all of the Warrants evidenced thereby, a
new Warrant Certificate evidencing Warrants equivalent to the Warrants
remaining unexercised shall be issued by the Warrant Agent to the registered
holder of such Warrant Certificate or to his or her duly authorized assignee,
subject to the provisions of Section 14 hereof.
(e) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently deliver to the Company all
monies or checks for the purchase of shares of Common Stock.
(f) The Company may redeem all of the Warrants at $0.01 per
Warrant, commencing ninety days from the Prospectus Date on not less than 30
days prior written notice; provided, that the Closing Price (as defined in
Section 6(g) below) per share of Common Stock for 20 consecutive trading days,
ending not more than 15 calendar days prior to the date of the redemption
notice, averages in excess of $____ (subject to adjustment for any stock splits
or dividends or recapitalizations). Such notice shall contain a certification
by the Company that the above condition to redeem has been satisfied. Notice of
redemption shall be mailed by the Warrant Agent to all registered holders of
Warrant Certificates on a date designated by the Company, but in no event shall
such designated date be earlier than the fifth business day after the date on
which the Warrant Agent received notice of redemption from the Company. The
notice of redemption also shall be given by publishing it at least once in The
Wall Street Journal (national edition).
(g) As used in this Agreement, the term "Closing Price" of
the shares of Common Stock or Warrants for a day or days shall mean (a) if the
shares of Common Stock or Warrants are listed or admitted for trading on a
national securities exchange, the last reported sales price as reported in The
Wall Street Journal (or similar publication), or, in case no such reported
sale takes place on such day or days, the reported highest closing bid price,
in either case on the principal national securities exchange on which the
shares of Common Stock or Warrants are listed or admitted for trading or (b) if
the shares of Common Stock or Warrants are not listed or admitted for trading
on a national securities exchange, (i) the last closing bid price of the shares
of Common Stock or Warrants on the National Association of Securities Dealers'
Automated Quotations System ("NASDAQ")
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National Market System or Small-Cap Market, or (ii) if the shares of Common
Stock or Warrants are not quoted on the NASDAQ National Market System or
Small-Cap Market, the highest closing bid price of the shares of Common Stock
or Warrants in the over-the-counter market, as reported by a generally accepted
reporting service.
SECTION 7. Cancellation and Destruction of Warrant Certificates. All
Warrant Certificates surrendered for the purpose of exercise, conversion,
exchange, substitution, or registration of transfer shall, if surrendered to
the Company or to any of its agents, be delivered to the Warrant Agent for
cancellation or in canceled form, or if surrendered to the Warrant Agent shall
be canceled by it. The Company shall deliver to the Warrant Agent for
cancellation and retirement and the Warrant Agent shall so cancel and retire,
any other Warrant Certificate purchased or acquired by the Company otherwise
than upon the exercise thereof. The Warrant Agent shall deliver all canceled
Warrant Certificates to the Company, or shall, at the written request of the
Company, destroy such canceled Warrant Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
SECTION 8. Reservation and Availability of Shares of Common Stock.
The Company will at all times reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued shares of Common
Stock, for the purpose of enabling it to satisfy any obligation to issue shares
of Common Stock upon exercise or conversion of Warrants, the full number of
shares of Common Stock deliverable upon the exercise or conversion of all
outstanding Warrants.
Before taking any action which would cause an adjustment pursuant to
Section 11 reducing the Exercise Price, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
Common Stock at the Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock which may be
issued upon exercise of Warrants will upon issue be fully paid and
non-assessable and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
The Warrant Agent is hereby authorized to requisition from time to time
from any transfer agent for the shares of Common Stock, and any subsequent
transfer agent of any of the Company's securities issuable upon the exercise of
the Warrants, share certificates required to honor outstanding Warrants. The
Company hereby authorizes and instructs its present and any future transfer
agent to comply with all such requests. The Company will supply such transfer
agent with duly executed share certificates for such purpose and will itself
provide or otherwise make available any cash which may be payable as provided in
Section 14.
If and for so long as the outstanding shares of Common Stock may be
listed on any securities exchange or inter-dealer quotation system in the
United States, the Company shall use its best efforts to cause all shares
reserved for issuance or conversion upon the exercise or conversion of Warrants
to be listed on each such exchange or quotation system upon official notice of
issuance upon such exercise or conversion.
SECTION 9. Transfer Taxes. The Company further covenants and agrees
that it will pay when due and payable any and all federal and state transfer
taxes and charges which may be payable in respect of the issuance or delivery of
the Warrant Certificates or of any shares of Common Stock upon the exercise or
conversion of Warrants. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer involved in the
transfer or delivery of Warrant Certificates or the issuance or conversion or
delivery of certificates for shares of Common Stock in a name other than that of
the registered holder of the Warrant Certificate evidencing Warrants surrendered
for exercise or to issue or deliver any certificates for shares of Common Stock
upon the exercise or conversion of any Warrants until any such tax shall have
been paid (any such tax being payable by the holder of such Warrant Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
SECTION 10. Common Stock Record Date. Each person in whose name any
certificate for shares of Common Stock is issued upon the exercise of Warrants
shall for all purposes be deemed to have become the
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holder of record of the shares of Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes) was made. Prior to the exercise of the
Warrants evidenced thereby, the holder of a Warrant Certificate shall not be
entitled to any rights of a shareholder of the Company with respect to shares
for which the Warrants shall be exercisable, including, without limitation, the
rights to vote, to receive dividends or other distributions (except as
expressly set forth herein), or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as expressly provided herein.
SECTION 11. Adjustment of Exercise Price, Number of Shares, or
Number of Warrants. The Exercise Price, the number and kind of securities
purchasable upon the exercise of each Warrant, and the number of Warrants
outstanding shall be subject to adjustment from time to time upon the happening
of the events enumerated in this Section 11.
(a) In case the Company shall at any time after the
date of this Agreement (i) pay a dividend in shares of Common Stock or other
stock of the Company or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, (iii) combine the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its shares of Common Stock other securities of the
Company (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing corporation), the number and
kind of shares purchasable upon exercise of each Warrant outstanding
immediately prior thereto shall be adjusted so that the holder of each Warrant
shall be entitled to receive at the same aggregate Warrant Exercise Price the
kind and number of shares of Common Stock or other securities of the Company
which the holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Warrant been exercised
in full immediately prior to the earlier of the happening of such event or any
record date with respect thereto. In the event of any adjustment of the total
number of shares of Common Stock purchasable upon the exercise of the then
outstanding Warrants pursuant to this Subsection 11(a), the Exercise Price
shall be adjusted to be the amount resulting from dividing the number of shares
of Common Stock (including fractional shares of Common Stock) covered by such
Warrant immediately after such adjustment into the total amount payable upon
exercise of such Warrant in full immediately prior to such adjustment. An
adjustment made pursuant to this Subsection 11(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall distribute to all
holders of its shares of Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the surviving
corporation) evidences of its indebtedness or assets (other than cash dividends
and distributions payable out of retained earnings in accordance with Delaware
law and dividends or distributions payable in shares of stock described in
Subsection 11(a) above) or rights, options, or warrants or exchangeable or
convertible securities containing the right to subscribe for or purchase shares
of Common Stock, then the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, of which the numerator shall be the current Market Price per share of
Common Stock (as defined in Subsection 11(c) below) on such record date, less
the fair market value (as determined by the Board of Directors of the Company,
whose determination shall be conclusive and described in a statement filed with
the Warrant Agent) of the portion of the evidences of indebtedness or assets so
to be distributed or of such rights, options or warrants applicable to one
share of Common Stock and of which the denominator shall be such current Market
Price per share of Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination of
shareholders entitled to receive such distribution.
(c) For the purpose of any computation under
Subsection 11(b), the current Market Price per share of Common Stock at any
date shall be deemed to be the average daily Closing Prices of the shares of
Common Stock for the 20 consecutive trading days commencing 25 trading days
before the day in question.
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(d) No adjustment will be made until the cumulative
adjustments in the exercise price per share amount to $0.25 or more.
(e) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least
one-half of one percent (1/2%) or more of the Exercise Price; provided,
however, that any adjustments which by reason of this Subsection 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(f) Unless the Company shall have exercised its election as
provided in Subsection 6(f), upon each adjustment of the Exercise Price as a
result of the calculations made in Subsection 11(b), each Warrant outstanding
prior to the making of the adjustment in the Exercise Price shall thereafter
evidence the right to purchase, at the adjusted Exercise Price, that number of
shares of Common Stock (calculated to the nearest hundredth) obtained by (i)
multiplying the number of shares of Common Stock purchasable upon exercise of a
Warrant prior to adjustment of the number of shares of Common Stock by the
Exercise Price in effect prior to adjustment of the Exercise Price and (ii)
dividing the product so obtained by the Exercise Price in effect after such
adjustment of the Exercise Price.
(g) The Company may elect on or after the date of any
adjustment of the Exercise Price to adjust the number of Warrants, in
substitution for any adjustment in the number of shares of Common Stock
purchasable upon the exercise of a Warrant as provided in Subsection 11(e). Each
of the Warrants outstanding after such adjustment of the number of Warrants
shall be exercisable for one share of Common Stock. Each Warrant held of record
prior to such adjustment of the number of Warrants shall become that number of
Warrants (calculated to the nearest hundredth) obtained by dividing the Exercise
Price in effect prior to adjustment of the Exercise Price by the Exercise Price
in effect after adjustment of the Exercise Price. The Company shall send to each
holder of record of Warrant Certificates an announcement of its election to
adjust the number of Warrants, indicating the record date for the readjustment,
and, if known at the time, the amount of the adjustment to be made. This record
date may be the date on which the Exercise Price is adjusted or any day
thereafter, but shall be at least ten days later than the date such announcement
is sent to each holder of record of Warrant Certificates. Upon each adjustment
of the number of Warrants pursuant to this Subsection 11(g), the Company shall,
as promptly as practicable, cause to be distributed to holders of record of
Warrant Certificates on such record date Warrant Certificates evidencing,
subject to Section 14, the additional Warrants to which such holders shall be
entitled as a result of such adjustment, or at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Warrant Certificates held by such holders prior to the date
of adjustment and upon surrender thereof if required by the Company, new Warrant
Certificates evidencing all the Warrants to which such holders shall be entitled
after such adjustment. Warrant Certificates so to be distributed shall be
issued, executed, and countersigned in the manner specified in Section 3 (but
shall bear, at the option of the Company, the adjusted Exercise Price) and shall
be registered in the names of the holders of record of Warrant Certificates on
the record date specified in the announcement sent to each holder of Warrant
Certificates.
(h) In case of any capital reorganization of the Company,
or of any reclassification of the shares of Common Stock (other than a
reclassification of the shares of Common Stock referred to in Subsection
11(a)), or in case of the consolidation of the Company with, or the merger of
the Company with, or the merger of the Company into, any other corporation or
entity (other than a reclassification of the shares of Common Stock referred to
in Subsection 11(a) or a consolidation or merger which does not result in any
reclassification or change of the outstanding shares of Common Stock) or of the
sale of the properties and assets of the Company as, or substantially as, an
entirety to any other corporation or entity, each Warrant shall after such
capital reorganization, reclassification of shares of Common Stock,
consolidation, merger, or sale be exercisable, upon the terms and conditions
specified in this Agreement, for the number of shares or other securities,
assets, or cash to which a holder of the number of shares of Common Stock
purchasable (at the time of such capital reorganization, reclassification of
shares of Common Stock, consolidation, merger, or sale) upon exercise of such
Warrant would have been entitled upon such capital reorganization,
reclassification of shares of Common Stock, consolidation, merger, or sale; and
in any such case, if necessary, the provisions set forth in this Section 11
with respect to the rights and interests thereafter of the holders of the
Warrants shall be appropriately adjusted so as to
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be applicable, as nearly as shall be reasonable, to any shares or other
securities, assets, or cash thereafter deliverable on the exercise of the
Warrants. The subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares shall not be deemed to be
a reclassification of the shares of Common Stock for the purposes of this
Subsection 11(h) and shall be dealt with as provided in Subsection 11(a) above.
The Company shall not effect any such consolidation, merger, or sale unless
prior to or simultaneously with the consummation thereof the successor
corporation or entity (if other than the Company) resulting from such a
consolidation or merger or the corporation or entity purchasing such assets or
another appropriate corporation or entity shall assume, by written instrument
executed and delivered to, and in a form acceptable to, the Warrant Agent,the
obligation to deliver to the holder of each Warrant such shares, securities,
assets or cash as, in accordance with the foregoing provisions, such holders
may be entitled to purchase, as well as the other obligations of the Company
under this Warrant Agreement.
(i) In the event that at any time, as a result of an
adjustment made pursuant to this Section 11, the holders of Warrants shall
become entitled to purchase any shares or securities of the Company other than
the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the Exercise Price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on such terms as nearly equivalent as practicable to the
provisions with respect to shares of Common Stock contained in Subsections
11(a) through 11(h), inclusive, above, and the provisions of Sections 6, 8, 9,
10 and 14, inclusive, with respect to shares of Common Stock shall apply on
like terms to any such other shares or securities.
(j) In any case in which this Section 11 shall
require that an adjustment in the Exercise Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event issuing to the holder of any Warrant exercised after
such record date the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Warrant Agent shall deliver as soon as practicable to such
holder a due bill or other appropriate instrument, provided by the Company and
in a form acceptable to the Warrant Agent, evidencing such holder's right to
receive such additional shares of Common Stock upon the occurrence of the event
requiring such adjustment.
SECTION 12. Notices to Warrantholders. Upon any adjustment of the
Exercise Price pursuant to Section 11, the Company within 20 days thereafter
shall (i) cause to be filed with the Warrant Agent a certificate of a firm of
independent public accountants of recognized standing (who may be the regular
auditors of the Company) selected by the Board of Directors of the Company
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based and setting forth the number of Warrants to be issued
under Subsection 11(g) hereof, or the number of shares of Common Stock (or
portion thereof) purchasable upon exercise of a Warrant after such adjustment
in the Exercise Price, which certificate shall be conclusive evidence of the
correctness of the matters set forth therein, and (ii) cause to be given to
each of the holders of record of Warrant Certificates at their respective
addresses appearing on the Warrant register written notice of such adjustment
by first-class mail, postage prepaid. Where appropriate, such notice may be
given in advance and included as a part of the notice required to be mailed
under the other provisions of this Section 12.
In the event of any of the following:
(a) the Company shall authorize the issuance to its
holders of rights or warrants to subscribe for or purchase shares of Common
Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to
all holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends not exceeding $1.00 per share of Common Stock
payable during any 12-month period or distributions or dividends payable in
shares of Common Stock); or
(c) any consolidation or merger to which the
Company is a party and for which
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approval of any shareholders of the Company is required, or of the conveyance
or transfer of the properties and assets of the Company as, or substantially
as, an entirety, or of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination); or
(d) the voluntary or involuntary dissolution, liquidation,
or winding up of the Company; or
(e) the Company proposes to take any action (other than
actions of the character described in Subsection 11(a) except as required under
Subsection 12(c) above) which would require an adjustment of the Exercise Price
pursuant to Section 11;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the holders of record of the Warrant Certificates at
their respective addresses appearing on the Warrant register, at least 20 days
(or ten days in any case specified in clause (a) or (b) above) prior to the
applicable record date hereinafter specified, by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of
record of shares of Common Stock to be entitled to receive any such rights,
warrants, or distribution are to be determined, or (ii) the date on which any
such consolidation, merger, conveyance, transfer, dissolution, liquidation, or
winding up is expected to become effective, and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation, or winding up. The failure to give the
notice required by this Section 12 or any defect therein shall not affect the
legality or validity of any distribution, right, warrant, consolidation,
merger, conveyance, transfer, dissolution, liquidation, or winding up, or the
vote upon any such action.
SECTION 13. Obtaining of Governmental Approvals. The Company will
use its reasonable efforts to take such action which may be necessary from time
to time to obtain and keep effective any and all permits, consents, and
approvals of governmental agencies and authorities and to make all filings
under federal and state securities laws which may be or become requisite in
connection with the issuance, sale, transfer and delivery of the Warrant
Certificates, the exercise of the Warrants, and the issuance, sale, transfer
and delivery of the shares of Common Stock issuable upon exercise of the
Warrants.
The Company will give written notice of the issuance of shares of
Common Stock pursuant to the exercise of Warrants, at such times and in such
detail as may be required, to each stock exchange and inter-dealer quotation
system on which the shares of Common Stock are listed.
Notwithstanding any other provision of this Agreement or of the
Warrants to the contrary, (1) the Warrants shall not be exercisable by the
holder of any Warrant Certificate resident in a jurisdiction under the
securities or blue sky laws of which the shares of Common Stock issuable upon
exercise of such Warrant Certificate are not registered or qualified or exempt
from registration or qualification or in which a current prospectus meeting the
requirements of the laws of such jurisdiction cannot be lawfully delivered by
or on behalf of the Company, and (2) the Warrants shall not be exercisable by
the holder of any Warrant Certificate if the shares of Common Stock issuable
upon exercise of such Warrant Certificate are not the subject of a current
registration statement filed with and declared effective by the Securities and
Exchange Commission or exempt from such registration.
SECTION 14. Fractional Warrants and Fractional Shares
(a) The Company shall not be required to issue
fractions of Warrants or to distribute Warrant Certificates which evidence
fractional Warrants. In lieu of such fractional Warrants, there shall be paid
to the registered holders of Warrant Certificates with regard to which such
fractional Warrants would otherwise be issuable an amount in cash in United
States dollars equal to the same fraction of the current market value of a
whole Warrant. For purposes of this Subsection 14(a), the current market value
of a Warrant shall be the Closing Price of the Warrant for the trading day
immediately prior to the date on which such fractional Warrant would have been
otherwise issuable.
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(b) The Company shall not be required to issue fractions of
shares of Common Stock upon exercise of the Warrants or to distribute share
certificates which evidence fractional shares of Common Stock. In lieu of
fractional shares of Common Stock, there shall be paid to the registered
holders of Warrant Certificates at the time such Warrants are exercised as
herein provided an amount in cash in United States dollars equal to the same
fraction of the current market value of a share of Common Stock. For purposes
of this Subsection 14(b), the current market value of a share of Common Stock
shall be the Closing Price of a share of Common Stock for the trading day
immediately prior to the date of such exercise.
(c) The holder of a Warrant, by the acceptance of the
Warrant, expressly waives the holder's right to receive any fractional Warrant
or any fractional share of Common Stock upon exercise of a Warrant.
SECTION 15. Rights of Action. All rights of action in respect of
this Agreement are vested in the respective registered holders of the Warrant
Certificates; and any registered holder of any Warrant Certificate, without the
consent of the Warrant Agent or of the holder of any other Warrant Certificate,
may, in such holder's own behalf and for such holder's own benefit, enforce,
and may institute and maintain any suit, action, or proceeding against the
Company to enforce, or otherwise act in respect of, such holder's right to
exercise the Warrants evidenced by such Warrant Certificate in the manner
provided in such Warrant Certificate and in this Agreement.
SECTION 16. Agreement of Warrant Certificate Holders. Every holder
of a Warrant Certificate by accepting the same consents and agrees with the
Company and the Warrant Agent and with every other holder of a Warrant
Certificate that:
(a) transfer of the Warrant Certificates shall be
registered on the Warrant register only if surrendered at the principal
corporate trust office or agency of the Warrant Agent as set forth in Section 4
hereof, duly endorsed or accompanied by a proper instrument of transfer; and
(b) prior to due presentment for registration of transfer,
the Company and the Warrant Agent may deem and treat the person in whose name
the Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company or
the Warrant Agent) for all purposes whatsoever, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
SECTION 17. The Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The Warrant
Agent assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken in accordance with the
opinion or the advice of such counsel, provided the Warrant Agent shall have
exercised reasonable care in the selection and continued employment of such
counsel.
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(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document, or instrument believed by it to be
genuine and to have been signed, sent, or presented by the proper party or
parties.
(e) The Company agrees to pay to the Warrant Agent
compensation, in such amounts as previously agreed upon, for the services
rendered by the Warrant Agent in the performance of this Agreement, to
reimburse the Warrant Agent for all expenses, taxes and governmental charges
and other charges of any kind and nature incurred by the Warrant Agent in the
performance of this Agreement, and to indemnify the Warrant Agent and hold it
harmless against any and all liabilities, including judgments, expenses, and
counsel fees, for anything done or omitted by the Warrant Agent in the
performance of this Agreement except as a result of the Warrant Agent's
negligence or bad faith.
(f) Except as otherwise provided by law, the Warrant Agent
and any shareholder, director, officer, or employee of the Warrant Agent may
buy, sell, or deal in any of the Warrants or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not a Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(g) The Warrant Agent shall act hereunder solely as agent
for the Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything which it may do or
refrain from doing in connection with this Agreement except for its own
negligence or bad faith; provided, however, the Warrant Agent shall have no
liability hereunder for failing to take any action which it is not specifically
directed to take by the terms of this Agreement.
(h) The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from the President or any Vice President or the Treasurer or Chief Financial
Officer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
SECTION 18. Change of Warrant Agent. The Warrant Agent may resign
or be discharged from its duties under this Agreement by giving to the Company
notice in writing, and by giving notice in writing by first class mail, postage
prepaid, to the registered holders of Warrant Certificates at their respective
addresses appearing in the Warrant register, specifying a date when such
resignation shall take effect, which notice shall be sent at least 30 days
prior to the date so specified. The Company may remove the Warrant Agent or any
successor warrant agent upon 30 days' notice in writing, mailed to the Warrant
Agent or any successor warrant agent and to each transfer agent of the shares
of Common Stock by registered or certified mail, and to the registered holders
of Warrant Certificates at their respective addresses appearing in the Warrant
register. If the Warrant Agent shall resign or shall otherwise become incapable
of acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the registered holder of a
Warrant Certificate, then the registered holder of any Warrant Certificate may
apply to any court of competent jurisdiction for the appointment of a successor
to the Warrant Agent. Pending appointment of a successor to the Warrant Agent,
either by the Company or by such a court, the duties of the Warrant Agent shall
be carried out by the Company. Any warrant agent that is to be the successor of
the Warrant Agent or any of its successors, whether appointed by the Company or
by such a court, shall be a bank or trust company in good standing,
incorporated under the laws of the State of New York or of the United States of
America, and having its principal office in New York, New York, or elsewhere,
and having at the time of its appointment as warrant agent a combined capital
and surplus of at least Ten Million Dollars ($10,000,000.00). After appointment,
any successor warrant agent shall be vested with the same powers, rights,
duties, and responsibilities as if it had been originally named as Warrant
Agent without further act or deed; but the former Warrant Agent shall deliver
and transfer to the successor warrant
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agent any property at the time held by it hereunder and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
give any notice provided for in this Section 18, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor warrant agent, as the case may
be.
SECTION 19. MAINTENANCE OF OFFICE. As long as any of the Warrant
Certificates remain unexercised or unconverted, the Company will maintain an
office or agency in New York where the Warrant Certificates may be presented
for registration, transfer, exchange, or exercise pursuant to the terms of this
Agreement, and where notices and demands to or upon the Company in respect of
the Warrants, Warrant Certificates, or this Agreement may be served. The
principal corporate trust office of the Warrant Agent in the City of New York
shall be the office or agency for such purposes, which at the date hereof is:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Michael Karfunkel, President
SECTION 20. ISSUANCE OF NEW WARRANT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Warrants or Warrant Certificates to
the contrary, the Company may, at its option, issue new Warrant Certificates
evidencing Warrants in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Exercise Price and the number or kind or
class of shares of stock or other securities or property purchasable under the
several Warrant Certificates made in accordance with the provisions of this
Agreement.
SECTION 21. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Warrant Agent or by the holder of any Warrant
Certificate to or on the Company shall be sufficiently given or made if sent
by first class mail, postage prepaid, addressed (until another address is
filed in writing with the Warrant Agent) as follows:
Birman Managed Care, Inc.
502 Gould Drive
Cookeville, Tennessee 38506
Attention: David N. Birman, M.D.
Subject to the provisions of Section 18, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made,
except as otherwise provided in this Agreement with respect to a particular
Section or Subsection, if sent by first class mail, postage prepaid, addressed
(until another address is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Michael Karfunkel, President
Notice or demands authorized by this Agreement to be given or made by the
Company or the Warrant Agent to the holder of any Warrant Certificate shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the Warrant
register and published at least once in THE WALL STREET JOURNAL (national
edition).
SECTION 22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement without the approval of
any holders of Warrant Certificates in order to cure any ambiguity, to correct
or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising
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hereunder which the Company and the Warrant Agent may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates. Other than as provided in the preceding sentence, no
supplement or amendment to this Agreement shall be made without the affirmative
vote or written consent of each of the Company, the Warrant Agent and the
holders of a majority of the Warrants then outstanding.
SECTION 23. Successors. All of the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 24. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or entity other than the Company, the
Warrant Agent, and the registered holders of the Warrant Certificates any legal
or equitable right, remedy, or claim under this Agreement, but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent,
and the registered holders of the Warrant Certificates.
SECTION 25. New York Contract. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made by residents of and to be performed entirely within such state.
SECTION 26. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 27. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
fully executed and attested, all as of the day and year first above written.
The Company:
BIRMAN MANAGED CARE, INC.,
a Delaware Corporation
By:
--------------------------------
ATTEST: David N. Birman, M.D., President
- -----------------------------------
Robert D. Arkin, Secretary
The Warrant Agent:
AMERICAN STOCK TRANSFER AND TRUST
COMPANY
By:
--------------------------------
Michael Karfunkel, President
ATTEST:
- -----------------------------------
Secretary
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EXHIBIT 4.5
REPRESENTATIVE'S WARRANT AGREEMENT
THIS REPRESENTATIVE'S WARRANT AGREEMENT (the "Agreement"), dated as of
_________________, 1996, is made and entered into by and between BIRMAN MANAGED
CARE, INC., a Delaware corporation (the "Company"), and W. B. MCKEE SECURITIES,
INC. (the "Warrantholder").
The Company agrees to issue and sell, and the Warrantholder agrees to
purchase, for the price of $1,550, warrants, as hereinafter described (the
"Warrants"), to purchase up to an aggregate of 155,000 units (the "Units"), each
Unit consisting of (i) one (subject to adjustment pursuant to Section 8 hereof)
share (the "Shares") of the Company's Common Stock, $.001 par value (the "Common
Stock") and (ii) one Common Stock Purchase Warrant (the "Common Stock Warrants")
exercisable to purchase one share of Common Stock, in connection with a public
offering (the "Offering") by the Company of 1,550,000 Units pursuant to an
underwriting agreement (the "Underwriting Agreement"), dated as of , 1996, among
the Company and the Warrantholder, as Representative of the several underwriters
as contemplated by the prospectus of the Company dated ___________, 1993 (the
"Final Prospectus"). (The Common Stock Warrants underlying the Units are
hereinafter referred to as the "Unit Warrants." The shares of Common Stock
purchasable upon exercise of the Unit Warrants are hereinafter referred to as
the "Unit Warrant Stock.") The purchase and sale of the Warrants shall occur
upon completion of the Offering, and be subject to the conditions to the
Representative's obligation to purchase Units thereunder. The Unit Warrants
shall be subject to all of the terms and conditions of the warrant agreement,
dated as of , 1996, between the Company and American Stock Transfer and Trust
Company, Inc., as Warrant Agent (the "Warrant Agreement").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder, the Company and the Warrantholder, for value received, hereby agree
as follows:
Section 1. TRANSFERABILITY AND FORM OF WARRANTS.
1.1. REGISTRATION. The Warrants shall be numbered and shall
be registered on the books of the Company when issued.
1.2. TRANSFER. The Warrants shall be transferable only on
the books of the Company maintained at its principal office in Cookeville,
Tennessee, or wherever its principal office may then be located, upon delivery
thereof duly endorsed by the Warrantholder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver new Warrants to the person entitled thereto.
1.3. LIMITATIONS ON TRANSFER OF THE WARRANTS. Subject to the
provisions of Section 11, the Warrants shall not be sold, transferred, assigned
or hypothecated by the Warrantholder, except to (i) one or more persons, each of
whom on the date of transfer is an officer of the Warrantholder; (ii) a
partnership or partnerships, the general partners of which are the
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Warrantholder and one or more persons, each of whom on the date of transfer is
an officer of the Warrantholder; (iii) a successor to the Warrantholder in
merger or consolidation; (iv) a purchaser of all or substantially all of the
Warrantholder's assets; (v) the stockholders of the Warrantholder or the
stockholders or partners of the Warrantholder's transferees in the event of
liquidation or dissolution; or (vi) any person receiving the Warrants from one
or more of the persons listed in this subsection 1.3 at such person's or
persons' death pursuant to will, trust or the laws of intestate succession. The
Warrants may be divided or combined, upon request to the Company by the
Warrantholder, into a certificate or certificates representing the right to
purchase the same aggregate number of Units. Unless the context indicates
otherwise, the term "Warrantholder" shall include any transferee or transferees
of the Warrants pursuant to this subsection 1.3, and the term "Warrants" shall
include any and all warrants outstanding pursuant to this Agreement, including
those evidenced by a certificate or certificates issued upon division, exchange,
substitution or transfer pursuant to this Agreement.
1.4. FORM OF WARRANTS. The text of the Warrants and of the
form of election to purchase Units shall be substantially as set forth in
Exhibit A attached hereto. The number of shares per Unit issuable upon exercise
of the Warrants is subject to adjustment upon the occurrence of certain events,
all as hereinafter provided. The Warrants shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer, President or by a
Vice President, and attested to by its Secretary or an Assistant Secretary.
A Warrant bearing the signature of an individual who was at
any time the proper officer of the Company shall bind the Company,
notwithstanding that such individual shall have ceased to hold such office prior
to the delivery of such Warrant or did not hold such office on the date of this
Agreement.
The Warrants shall be dated as of the date of signature
thereof by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
1.5. LEGEND ON SHARES AND UNIT WARRANTS. Each certificate for
Shares or Unit Warrants (or Unit Warrant Stock issued upon exercise of a Unit
Warrant) initially issued upon exercise of the Warrants or a Unit Warrant shall
bear the following legend, unless, at the time of exercise, such Shares or Unit
Warrants (or Unit Warrant Stock) are subject to a currently effective
Registration Statement under the Securities Act of 1933, as amended (the "Act"):
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933 or any state
securities laws and may not be sold, exchanged, hypothecated
or transferred in any manner except in compliance with
Section 11 of the Agreement pursuant to which they were
issued."
Any certificate issued at any time in exchange or substitution
for any certificate bearing such legend (except a new certificate issued upon
completion of a public distribution pursuant to a registration statement under
the Act, of the securities represented thereby) shall also bear the above legend
unless, in the opinion of the Company's counsel, the securities represented
thereby need no longer be subject to such restrictions.
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Section 2. EXCHANGE OF WARRANT CERTIFICATE. Any Warrant certificate may
be exchanged for another certificate or certificates entitling the Warrantholder
to purchase a like aggregate number of Units as the certificate or certificates
surrendered then entitled such Warrantholder to purchase. Any Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, with
signatures guaranteed, the certificate evidencing the Warrant to be so
exchanged. Thereupon, the Company shall execute and deliver to the person
entitled thereto a new Warrant certificate as so requested.
Section 3. TERM OF WARRANTS; EXERCISE OF WARRANTS. Subject to the terms
of this Agreement, the Warrantholder shall have the right, at any time during
the period commencing at 9:00 A.M. Arizona Time, on the date one year from the
date of the Final Prospectus, and ending at 5:00 P.M., Arizona Time, on the date
immediately preceding the date five years from the date of the Final Prospectus
(the "Termination Date"), to purchase from the Company up to the number of fully
paid and nonassessable Shares and Unit Warrants to which the Warrantholder may
at the time be entitled to purchase pursuant to this Agreement, upon surrender
to the Company, at its principal office, of the certificate evidencing the
Warrants to be exercised, together with the purchase form on the reverse thereof
duly filled in and signed, with signatures guaranteed, and upon payment to the
Company of the Warrant Price (as defined in and determined in accordance with
the provisions of Sections 7 and 8 hereof), for the number of Units in respect
of which such Warrants are then exercised, but in no event for less than 100
Units (unless less than an aggregate of 100 Units are then purchasable under all
outstanding Warrants held by a Warrantholder). Payment of the aggregate Warrant
Price shall be made in cash or by check. No Unit Warrant may be exercised by the
Warrantholder after 5:00 p.m., Arizona Time, on the date immediately preceding
the date five years from the date of the Final Prospectus. The exercise price of
the Unit Warrants shall be $_______ subject to adjustment as is provided in
Section 4 of the of the Warrant Agreement dated as of ______________, 1996,
between the Company and American Stock Transfer and Trust Company, Inc. as
Warrant Agent.
Upon such surrender of the Warrants and payment of such Warrant Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Warrantholder and in
such name or names as the Warrantholder may designate a certificate or
certificates for the number of full Shares and Unit Warrants so purchased upon
the exercise of the Warrant, together with cash, as provided in Section 9
hereof, in respect of any fractional Shares otherwise issuable upon surrender.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such securities as of the date of surrender of the Warrants and
payment of the Warrant Price, as aforesaid, notwithstanding that the certificate
or certificates representing such securities shall not actually have been
delivered or that the Common Stock and Unit Warrant transfer books of the
Company shall then be closed. The Warrants shall be exercisable, at the election
of the Warrantholder, either in full or from time to time in part and, in the
event that a certificate evidencing the Warrants is exercised in respect of less
than all of the Units specified therein at any time prior to the Termination
Date, a new certificate evidencing the remaining portion of the Warrants will be
issued by the Company.
Section 4. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants or the
securities comprising the Units; provided, however, the Company shall not be
required to pay any tax which may be payable in respect of any secondary
transfer of the Warrants or the securities comprising the Units.
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<PAGE> 4
Section 5. MUTILATED OR MISSING WARRANTS. In case the certificate or
certificates evidencing the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrantholder, issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for the certificate
or certificates lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest, but
only upon receipt of evidence satisfactory to the Company of such loss, theft or
destruction of such Warrant and a bond of indemnity, if requested, also
satisfactory in form and amount at the applicant's cost. Applicants for such
substitute Warrant certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Section 6. RESERVATION OF SHARES. There has been reserved, and the
Company shall at all times keep reserved so long as the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of Common
Stock as shall be subject to purchase under the Warrants (including such number
of shares of Unit Warrant Stock subject to purchase upon exercise of the Unit
Warrants). Every transfer agent for the Common Stock and other securities of the
Company issuable upon the exercise of the Warrants will be irrevocably
authorized and directed at all times to reserve such number of authorized shares
and other securities as shall be requisite for such purpose. The Company will
keep a copy of this Agreement and the Warrant Agreement on file with every
transfer agent for the Common Stock and other securities of the Company issuable
upon the exercise of the Warrants. The Company will supply every such transfer
agent with duly executed stock and other certificates, as appropriate, for such
purpose and will provide or otherwise make available any cash which may be
payable as provided in Section 9 hereof.
Section 7. WARRANT PRICE. The price per Unit (the "Warrant Price") at
which Units shall be purchasable upon the exercise of the Warrants shall be
$____, subject to adjustment as provided in Section 8.
Section 8. ADJUSTMENT OF NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of the Warrants and the Warrant Price
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
8.1. ADJUSTMENTS. The number of Shares purchasable upon the
exercise of the Warrants shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in
Common Stock or make a distribution in Common Stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares of Common Stock, or (iv) issue by reclassification of
its Common Stock other securities of the Company, the number of Shares
purchasable upon exercise of the Warrants immediately prior thereto shall be
adjusted so that the Warrantholder shall be entitled to receive the kind and
number of Shares or other securities of the Company which it would have owned or
would have been entitled to receive immediately after the happening of any of
the events described above, had the Warrants been exercised immediately prior to
the happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this subsection 8.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
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(b) In case the Company shall issue rights, options,
warrants or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to subscribe
for or purchase Common Stock at a price per share which is lower at the record
date mentioned below than the then Current Market Price (as defined in Section
9), the number of Shares thereafter purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of Shares theretofore
purchasable upon exercise of the Warrant by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such rights, options, warrants or convertible securities plus
the number of additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights, options,
warrants or convertible securities plus the number of shares which the aggregate
offering price of the total number of shares offered would purchase at such
Current Market Price. Such adjustment shall be made whenever such rights,
options, warrants or convertible securities are issued, and shall become
effective immediately and retroactive to the record date for the determination
of stockholders entitled to receive such rights, options, warrants or
convertible securities.
(c) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase Common Stock (excluding those referred to in subsection 8.1(b)
above), then in each case the number of Shares thereafter purchasable upon the
exercise of the Warrants shall be determined by multiplying the number of Shares
theretofore purchasable upon exercise of the Warrants by a fraction, of which
the numerator shall be the then Current Market Price on the date of such
distribution, and of which the denominator shall be such Current Market Price on
such date minus the then fair value (determined as provided in subparagraph (e)
below) of the portion of the assets or evidences of indebtedness so distributed
or of such subscription rights, options, warrants or convertible securities
applicable to one share. Such adjustment shall be made whenever any such
distribution is made and shall become effective on the date of distribution
retroactive to the record date for the determination of stockholders entitled to
receive such distribution.
(d) No adjustment in the number of Shares purchasable
pursuant to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of Shares then
purchasable upon the exercise of the Warrants or, if the Warrants are not then
exercisable, the number of Shares purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants become exercisable; provided,
however, that any adjustments which by reason of this subsection 8.1(d) are not
required to be made immediately shall be carried forward and taken into account
in any subsequent adjustment.
(e) Whenever the number of Warrant Shares purchasable
upon the exercise of the Warrant is adjusted, as herein provided, the Warrant
Price payable upon exercise of the Warrant shall be adjusted by multiplying such
Warrant Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
the Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares so purchasable immediately thereafter,
provided, however, that in no event shall the Warrant Price be adjusted to an
amount less than 120% of the initial public offering price of the Units (after
taking into account adjustments resulting for stock splits, reverse stock
splits, stock dividends and similar events occurring after the date hereof).
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<PAGE> 6
(f) To the extent not covered by subsections 8.1(b) or
(c) hereof, in case the Company shall sell or issue Common Stock or rights,
options, warrants or convertible securities containing the right to subscribe
for or purchase shares of Common Stock at a price per share (determined, in the
case of such rights, options, warrants or convertible securities, by dividing
(i) the total amount received or receivable by the Company in consideration of
the sale or issuance of such rights, options, warrants or convertible
securities, plus the total consideration payable to the Company upon exercise or
conversion thereof, by (ii) the total number of shares covered by such rights,
options, warrants or convertible securities) lower than the then Current Market
Price in effect immediately prior to such sale or issuance, then the number of
Shares thereafter purchasable upon the exercise of the Warrants shall be
determined by multiplying the number of Shares theretofore purchasable upon
exercise of the Warrants by a fraction, of which the numerator shall be the
Warrant Price and the denominator shall be that price (calculated to the nearest
cent) determined by dividing (I) an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such sale or issuance
multiplied by the Warrant Price, plus (B) the consideration received by the
Company upon such sale or issuance, by (II) the total number of shares of Common
Stock outstanding immediately after such sale or issuance. For the purposes of
such adjustments, the Common Stock which the holders of any such rights,
options, warrants or convertible securities shall be entitled to subscribe for
or purchase shall be deemed issued and outstanding as of the date of such sale
or issuance and the consideration received by the Company therefor shall be
deemed to be the consideration received by the Company for such rights, options,
warrants or convertible securities, plus the consideration or premiums stated in
such rights, options, warrants or convertible securities to be paid for the
Common Stock covered thereby. In case the Company shall sell or issue Common
Stock or rights, options, warrants or convertible securities containing the
right to subscribe for or purchase Common Stock for a consideration consisting,
in whole or in part, of property other than cash or its equivalent, then in
determining the "price per share" of Common Stock and the "consideration
received by the Company" for purposes of the first sentence of this subsection
8.1(f), the Board of Directors shall determine the fair value of said property,
and such determination, if reasonable and based upon the Board of Directors'
good faith business judgment, shall be binding upon the Warrantholder. In
determining the "price per share" of Common Stock, any underwriting discounts or
commissions shall not be deducted from the price received by the Company for
sales of securities registered under the Act.
(g) Whenever the number of Shares purchasable upon the
exercise of the Warrants is adjusted as herein provided, the Company shall cause
to be promptly mailed to the Warrantholder by first class mail, postage prepaid,
notice of such adjustment and a certificate of the chief financial officer of
the Company setting forth the number of Shares purchasable upon the exercise of
the Warrants after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
(h) For the purpose of this subsection 8.1, the term
"Common Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 8, the Warrantholder shall become
entitled to purchase any securities of the Company other than Common Stock and
Unit Warrants, (i) if the Warrantholder's right to purchase is on any other
basis than that available to all holders of the Company's Common Stock, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other
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<PAGE> 7
securities and (ii) thereafter the number of such other securities so
purchasable upon exercise of the Warrants shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Shares contained in this Section 8.
(i) Upon the expiration of any rights, options,
warrants or conversion privileges, if such shall not have been exercised, the
number of Shares purchasable upon exercise of the Warrants, to the extent the
Warrants have not then been exercised, shall, upon such expiration, be
readjusted and shall thereafter be such as they would have been had they been
originally adjusted (or had the original adjustment not been required, as the
case may be) on the basis of (A) the fact that the only shares of Common Stock
so issued were the shares of Common Stock, if any, actually issued or sold upon
the exercise of such rights, options, warrants or conversion privileges, and (B)
the fact that such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise plus the
consideration, if any, actually received by the Company for the issuance, sale
or grant of all such rights, options, warrants or conversion privileges whether
or not exercised; provided, however, that no such readjustment shall have the
effect of decreasing the number of Shares purchasable upon exercise of the
Warrants by an amount in excess of the amount of the adjustment initially made
in respect of the issuance, sale or grant of such rights, options, warrants or
conversion privileges.
8.2. NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
subsection 8.1, no adjustment in respect of any dividends or distributions out
of earnings shall be made during the term of the Warrants or upon the exercise
of the Warrants.
8.3. NO ADJUSTMENT IN CERTAIN CASES. No adjustments shall be
made pursuant to Section 8 hereof in connection with the issuance of Units,
Shares, Unit Warrants or Unit Warrant Stock sold as part of the public sale and
issuance of Units pursuant to the Underwriting Agreement or the issuance of
Units, Shares, Unit Warrants or Unit Warrant Stock upon exercise of the
Warrants. No adjustments shall be made pursuant to Section 8 hereof in
connection with the grant or exercise of presently authorized or outstanding
options to purchase Common Stock under the Company's existing stock option plan
or the exercise of presently outstanding warrants to purchase Common Stock.
8.4. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrantholder
an agreement that the Warrantholder shall have the right thereafter upon payment
of the Warrant Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale or conveyance
had the Warrants (and each underlying security) been exercised immediately prior
to such action. In the event of a merger described in Section 368(a)(2)(E) of
the Internal Revenue Code of 1954, as amended, in which the Company is the
surviving corporation, the right to purchase Units under the Warrants shall
terminate on the date of such merger and thereupon the Warrants shall become
null and void, but only if the controlling corporation shall agree to substitute
for the Warrants its warrant which entitles the holder thereof to purchase upon
its exercise the kind and amount of shares and other securities and property
which it would have owned or been entitled to receive had the Warrants been
exercised
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<PAGE> 8
immediately prior to such merger. Any such agreements referred to in this
subsection 8.4 shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 8
hereof. The provisions of this subsection 8.4 shall similarly apply to
successive consolidations, mergers, sales or conveyances.
8.5. PAR VALUE OF SHARES OF COMMON STOCK. Before taking any
action which would cause an adjustment effectively reducing the portion of the
Warrant Price allocable to each Share below the then par value per share of the
Common Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Common Stock upon exercise of the Warrants.
8.6. INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a
firm of independent public accountants of recognized national standing (which
may be any such firm regularly employed by the Company) to make any computation
required under this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 8.
8.7. STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of Warrants,
Warrant certificates theretofore or thereafter issued may continue to express
the same number of securities as are stated in the similar Warrant certificates
initially issuable pursuant to this Agreement. However, the Company may, at any
time in its sole discretion (which shall be conclusive), make any change in the
form of Warrant certificate that it may deem appropriate and that does not
affect the substance thereof; and any Warrant certificate thereafter issued,
whether upon registration of transfer of, or in exchange or substitution for, an
outstanding Warrant certificate, may be in the form so changed.
Section 9. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Shares on the exercise of the Warrants. If any fraction of a
Share would, except for the provisions of this Section 9, be issuable on the
exercise of the Warrants (or specified portion thereof), the Company shall pay
an amount in cash equal to the then Current Market Price multiplied by such
fraction. For purposes of this Agreement, the term "Current Market Price" shall
mean (i) if the Common Stock is traded in the over-the-counter market and not in
the Nasdaq National Market nor on any national securities exchange, the average
of the per share closing bid prices of the Common Stock on the 30 consecutive
trading days immediately preceding the date in question, as reported by Nasdaq
or an equivalent generally accepted reporting service, or (ii) if the Common
Stock is traded in the Nasdaq National Market or on a national securities
exchange, the average for the 30 consecutive trading days immediately preceding
the date in question of the daily per share closing prices of the Common Stock
in the Nasdaq National Market or on the principal stock exchange on which it is
listed, as the case may be. For purposes of clause (i) above, if trading in the
Common Stock is not reported by Nasdaq, the bid price referred to in said clause
shall be the lowest bid price as reported in the "pink sheets" published by
National Quotation Bureau, Incorporated. The closing price referred to in clause
(ii) above shall be the last reported sale price or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices, in either case in the Nasdaq National Market or on the national
securities exchange on which the Common Stock is then listed.
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<PAGE> 9
Section 10. NO RIGHTS AS STOCKHOLDER; NOTICES TO WARRANTHOLDER. Nothing
contained in this Agreement or in the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a stockholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a stockholder in respect of any meeting of stockholders for the
election of directors of the Company or any other matter. If, however, at any
time prior to the expiration of the Warrants and prior to their exercise, any
one or more of the following events shall occur:
(a) any action which would require an adjustment pursuant to
Section 8.1 (except subsections 8.1(e) and 8.1(h)) or 8.4; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of its
property, assets and business as an entirety or substantially as an
entirety) shall be proposed;
then the Company shall give notice in writing of such event to the
Warrantholder, as provided in Section 14 hereof, at least 20 days prior to the
date fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to any relevant dividend,
distribution, subscription rights or other rights or for the determination of
stockholders entitled to vote on such proposed dissolution, liquidation or
winding up. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to mail or receive such notice
or any defect therein shall not affect the validity of any action taken with
respect thereto.
Section 11. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
(a) The Warrantholder agrees that prior to making any
disposition of the Warrants, the Shares, the Unit Warrants or the Unit Warrant
Stock, other than to persons or entities identified in clauses (i) through (vi),
inclusive, of Section 1.3, the Warrantholder shall give written notice to the
Company describing briefly the manner in which any such proposed disposition is
to be made; and no such disposition shall be made if the Company has notified
the Warrantholder that in the opinion of counsel reasonably satisfactory to the
Warrantholder a registration statement or other notification or post-effective
amendment thereto (hereinafter collectively a "Registration Statement") under
the Act is required with respect to such disposition and no such Registration
Statement has been filed by the Company with, and declared effective, if
necessary, by, the Securities and Exchange Commission (the "Commission").
(b) The Company shall be obligated to the owners of the
Warrants, the Shares, the Unit Warrants and the Unit Warrant Stock to file a
Registration Statement as follows:
(i) Whenever during the four-year period beginning on
the date one year from the date of the Final Prospectus and ending on the date
immediately preceding the date five years from the date of the Final Prospectus,
the Company proposes to file with the Commission a Registration Statement (other
than as to securities issued pursuant to an employee benefit plan or as to a
transaction subject to Rule 145 promulgated under the Act), it shall, at least
30 days prior to each such filing, give written notice of such proposed filing
to the Warrantholder and each holder of Shares, Unit Warrants and Unit Warrant
Stock, at their respective addresses as they appear on the records of the
Company, and shall offer to include and shall include in such filing any
proposed disposition of the Shares, the Unit Warrants and the Unit Warrant Stock
upon receipt by the
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<PAGE> 10
Company, not less than 10 days prior to the proposed filing date, of a request
therefor setting forth the facts with respect to such proposed disposition and
all other information with respect to such person reasonably necessary to be
included in such Registration Statement. In the event that the managing
underwriter for said offering advises the Company in writing that the inclusion
of such securities in the offering would be detrimental to the offering, such
securities shall nevertheless be included in the Registration Statement,
provided that the Warrantholder and each holder of Shares, Unit Warrants and
Unit Warrant Stock desiring to have such securities included in the Registration
Statement agrees in writing, for a period of 60 days following such offering,
not to sell or otherwise dispose of such securities pursuant to such
Registration Statement, which Registration Statement the Company shall keep
effective for a period of at least nine months following the expiration of such
60-day period.
(ii) In addition to any Registration Statement pursuant
to subparagraph (i) above, during the four-year period beginning on the date one
year from the date of the Final Prospectus and ending on the date immediately
preceding the date five years from the date of the Final Prospectus the Company
will, as promptly as practicable (but in any event within 60 days), after
written request by W. B. McKee Securities, Inc. or by a person or persons
holding (or having the right to acquire by virtue of holding the Warrants or
Unit Warrants) at least 50% of the shares of Common Stock which have been (or
may be) issued upon exercise of the Warrants and Unit Warrants, prepare and file
at its own expense a Registration Statement with the Commission and appropriate
Blue Sky authorities sufficient to permit the public offering of the Shares, the
Unit Warrants and the Unit Warrant Stock, and will use its best efforts at its
own expense through its officers, directors, auditors and counsel, in all
matters necessary or advisable, to cause such Registration Statement to become
effective as promptly as practicable; provided, however, that the Company shall
only be obligated to file one such Registration Statement under this Section
11(b)(ii).
(c) All fees, disbursements and out-of-pocket expenses
(other than Warrantholders' brokerage fees and commissions and legal fees of
counsel to the Warrantholder, if any) in connection with the filing of any
Registration Statement under Section 11(b) and in complying with applicable
securities and Blue Sky laws shall be borne by the Company. The Company at its
expense will supply any Warrantholder and any holder of Shares, Unit Warrants or
Unit Warrant Stock with copies of such Registration Statement and the prospectus
included therein and other related documents in such quantities as may be
reasonably requested by the Warrantholder or holder of Shares, Unit Warrants or
Unit Warrant Stock.
(d) If the Warrantholder shall be entitled to registration
of any Shares, Unit Warrants or Unit Warrant Stock as provided in this Section
11 and so requests, in lieu of such registration, the Company shall have the
right, for a period of 30 days following such request, to purchase or cause to
be purchased all of the securities to which such request for registration
pertains, at the Current Market Price (as defined in Section 9) less the
exercise price, if any, of the Warrants or Unit Warrants, as the case may be.
(e) The Company shall not be required by this Section 11 to
file such Registration Statement if, in the opinion of counsel for the
Warrantholders and holders of Shares, Unit Warrants and Unit Warrant Stock and
the Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for such holders and
the Company), the proposed public offering or other transfer as to which such
Registration Statement is requested is exempt from applicable federal and state
securities laws and would result in all
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purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144 under the Act.
(f) The provisions of this Section 11 and Section 12 hereof
shall apply to the extent as provided herein if the Company chooses to file an
Offering Statement under Regulation A promulgated under the Act.
(g) The Company agrees that until all Shares, Unit Warrants
and Unit Warrant Stock have been sold under a Registration Statement or pursuant
to Rule 144 under the Act, it will keep current in filing all materials required
to be filed with the Commission in order to permit the holders of such
securities to sell the same under Rule 144.
Section 12. INDEMNIFICATION.
(a) In the event of the filing of any Registration Statement
with respect to the Warrants, the Shares, the Unit Warrants or the Unit Warrant
Stock pursuant to Section 11 hereof, the Company agrees to indemnify and hold
harmless the Warrantholder or any holder of such Shares, Unit Warrants or Unit
Warrant Stock and each person, if any, who controls the Warrantholder or any
holder of such Shares, Unit Warrants or Unit Warrant Stock, within the meaning
of the Act, against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), to which
the Warrantholder or any holder of such Shares, Unit Warrants or Unit Warrant
Stock or such controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such Registration Statement, or
any related preliminary prospectus, final prospectus, or amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, preliminary prospectus, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Warrantholder or the holder of such Shares, Unit Warrants
or Unit Warrant Stock specifically for use in the preparation thereof. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Warrantholder and the holders of the Shares, Unit
Warrants and Unit Warrant Stock agree that they will indemnify and hold harmless
the Company, each other person referred to in subparts (1), (2) and (3) of
Section 11(a) of the Act in respect of the Registration Statement and each
person, if any, who controls the Company within the meaning of the Act, against
any losses, claims, damages or liabilities (which shall, for all purposes of
this Agreement, include but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
or any related preliminary prospectus, final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the
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<PAGE> 12
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, preliminary prospectus, final prospectus or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by the Warrantholder or such holder
of Shares, Unit Warrants or Unit Warrant Stock specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Warrantholder or such holder of Shares, Unit warrants or
Unit Warrant Stock may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 12 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 12, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this Section 12. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, reasonably assume the defense thereof, subject to the
provisions herein stated, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense hereof, the
indemnifying party will not be liable to such indemnified party under this
Section 12 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is a Warrantholder or a holder of Shares,
Unit Warrants or Unit Warrant Stock or a person who controls a Warrantholder or
a holder of Shares, Unit Warrants or Unit Warrant Stock within the meaning of
the Act, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the named parties to any
such action, including any impleaded parties, include both a Warrantholder or a
holder of Shares, Unit Warrants or Unit Warrant Stock or such controlling person
and the indemnifying party and a Warrantholder or a holder of Shares, Unit
Warrants or Unit Warrant Stock or such controlling person shall have been
advised by such counsel that there may be one or more legal defenses available
to a Warrantholder or a holder of Shares, Unit Warrants or Unit Warrant Stock or
controlling person which are not available to or in conflict with any legal
defenses which may be available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of a Warrantholder or a holder of Shares, Unit Warrants or Unit
Warrant Stock or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
Warrantholder, the holders of the Shares, the Unit Warrants and the Unit Warrant
Stock and controlling persons, which firm shall be designated in writing by a
majority in interest of such holders and controlling persons based upon the
value of the securities included in the Registration Statement). No settlement
of any action against an indemnified party shall be made without the
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consent of the indemnified and the indemnifying parties, which shall not be
unreasonably withheld in light of all factors of importance to such parties.
Section 13. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) a Warrantholder or any
holder of the Shares, Unit Warrants or Unit Warrant Stock or controlling person
makes a claim for indemnification pursuant to Section 12 hereof but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 12 hereof
provide for indemnification in such case or (ii) contribution under the Act may
be required on the part of any Warrantholder or any holder of the Shares, Unit
Warrants or Unit Warrant Stock or controlling person, then the Company and any
Warrantholder or any such holder of the Shares, Unit Warrants or Unit Warrant
Stock or controlling person shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or a
Warrantholder or holder of Shares, Unit Warrants or Unit Warrant Stock or
controlling person on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and such holders of such securities and such controlling
persons agree that it would not be just and equitable if contribution pursuant
to this Section 13 were determined by pro rata allocation or by any other method
which does not take account of the equitable considerations referred to in this
Section 13. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof
referred to above in this Section 13 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
Section 14. NOTICES. Any notice pursuant to this Agreement by the
Company or by a Warrantholder, a holder of Shares, Unit Warrants or Unit Warrant
Stock shall be in writing and shall be deemed to have been duly given if
delivered or mailed by certified mail, return receipt requested:
(a) If to a Warrantholder, a holder of Shares, Unit Warrants
or Unit Warrant Stock:
W. B. McKee Securities Inc.
3003 N. Central Avenue, Suite 100
Phoenix, Arizona 85012
(b) If to the Company:
Birman Managed Care, Inc.
502 Gould Drive
Cookeville, Tennessee 38506
Attention: President
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Each party may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice in accordance herewith to
the other party.
Section 15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company, the Warrantholder, or the
holders of Shares, Unit Warrants or Unit Warrant Stock shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 16. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will
not merge or consolidate with or into any other corporation or sell all or
substantially all of its property to another corporation, unless the provisions
of Section 8.4 are complied with.
Section 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered by
or on behalf of the parties hereto, or in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties and agreements
made by the parties to this Agreement or pursuant hereto shall survive.
Section 18. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of Arizona and for all purposes shall
be construed in accordance with the laws of said State.
Section 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrantholder and the holders of Shares, Unit Warrants or Unit Warrant Stock any
legal or equitable right, remedy or claim under this Agreement. This Agreement
shall be for the sole and exclusive benefit of the Company, the Warrantholder
and the holders of Shares, Unit Warrants and Unit Warrant Stock.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, all as of the day and year first above written.
BIRMAN MANAGED CARE, INC.
By:
---------------------------------
, President
------------------
ATTEST:
- -----------------------------------
, Secretary
- ------------------
W. B. MCKEE SECURITIES, INC.
By:
---------------------------------
, President
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<PAGE> 1
EXHIBIT 4.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED, HYPOTHECATED
OR TRANSFERRED IN ANY MANNER EXCEPT IN COMPLIANCE WITH SECTION
11 OF THE AGREEMENT PURSUANT TO WHICH THEY WERE ISSUED.
Warrant Certificate, No. _____
REPRESENTATIVE'S WARRANT
TO PURCHASE ______ UNITS, EACH UNIT CONSISTING OF ONE SHARE OF COMMON
STOCK AND ONE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK
VOID AFTER 5:00 P.M.,
ARIZONA TIME, ON [date immediately preceding date
five years from the date of final prospectus]
BIRMAN MANAGED CARE, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
This certifies that, for value received,______________________
________________________________________ , the registered holder hereof or
assigns (the "Warrantholder"), is entitled to purchase from BIRMAN MANAGED CARE,
INC., a Delaware corporation (the "Company"), at any time during the period
commencing at 9:00 a.m., Arizona Time, on [date one year from the date of final
prospectus] and before 5:00 p.m., Arizona Time, on [date immediately preceding
date five years from the date of final prospectus], at the purchase price per
Unit of $___________ (the "Warrant Price"), the number of Units of the Company
set forth above (the "Units"). The number of shares of Common Stock of the
Company included in the Units purchasable upon exercise of each Warrant
evidenced hereby shall be subject to adjustment from time to time as set forth
in the Representative's Warrant Agreement referred to below.
The Warrants evidenced hereby may be exercised in whole or in part
by presentation of this Warrant certificate with the Purchase Form attached
hereto duly executed (with a signature guarantee as provided thereon) and
simultaneous payment of the Warrant Price at the principal office of the
Company. Payment of such price shall be made at the option of the Warrantholder
in cash or by check.
The Warrants evidenced hereby represent a portion of an aggregate of
up to 155,000 Units issued under and in accordance with a Representative's
Warrant Agreement, dated as of
1
<PAGE> 2
_______________, 1996, between the Company and W. B. McKee Securities, Inc. (the
"Representative's Warrant Agreement") and are subject to the terms and
provisions contained in the Representative's Warrant Agreement, to all of which
the Warrantholder by acceptance hereof consents.
Upon any partial exercise of the Warrants evidenced hereby, there
shall be signed and issued to the Warrantholder a new Warrant certificate in
respect of the Units as to which the Warrants evidenced hereby shall not have
been exercised. These Warrants may be exchanged at the office of the Company by
surrender of this Warrant certificate properly endorsed for one or more new
Warrants of the same aggregate number of Units as here evidenced by the Warrant
or Warrants exchanged. No fractional shares of Common Stock will be issued upon
the exercise of rights to purchase hereunder, but the Company shall pay the cash
value of any fraction upon the exercise of one or more Warrants. These Warrants
are transferable at the office of the Company in the manner and subject to the
limitations set forth in the Representative's Warrant Agreement.
This Warrant certificate does not entitle any Warrantholder to any
of the rights of a stockholder of the Company.
BIRMAN MANAGED CARE, INC.
By
----------------------------------
[Seal]
ATTEST:
- -----------------------------------
Secretary
Dated:
-----------------------------
2
<PAGE> 3
BIRMAN MANAGED CARE, INC.
PURCHASE FORM
Birman Managed Care, Inc.
502 Gould Drive
Cookeville, Tennessee 38506
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder, Units (the "Units") provided for therein, and requests that
certificates for the Units be issued in the name of:
- --------------------------------------------------------------------------------
(Please Print or Type Name, Address and Social Security Number)
- --------------------------------------------------------------------------------
and, if said number of Units shall not be all the Units purchasable hereunder,
that a new Warrant certificate for the balance of the Units purchasable under
the within Warrant certificate be registered in the name of the undersigned
Warrantholder or his or her Assignee as below indicated and delivered to the
address stated below.
Dated:
--------------
Name of Warrantholder
or Assignee:
--------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
Signature:
----------------------------------------------------------------------
Note: The above signature must correspond with the name as written upon the
face of this Warrant certificate in every particular, without
alteration or enlargement or any change whatever, unless these Warrants
have been assigned.
Signature Guaranteed:
- -----------------------------------
(Signature must be guaranteed by a Bank, Stockbroker, Savings and Loan
Association, or Credit Union with membership in an approved signature guaranty
Medallion Program pursuant to the Securities Exchange Act of 1934 Rule 17Ad-15.
Notarization by a notary public is not acceptable.)
3
<PAGE> 4
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto
- --------------------------------------------------------------------------------
(Name and Address of Assignee Must Be Printed or Typewritten)
- --------------------------------------------------------------------------------
the within Warrants, hereby irrevocably constituting and appointing
Attorney to transfer said Warrants on the books of the Company, with
full power of substitution in the premises.
Dated:
------------------ ----------------------------------------------
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant certificate in every
particular, without alteration or enlargement or any change whatever.
Signature Guaranteed:
- -----------------------------------
(Signature must be guaranteed by a Bank, Stockbroker, Savings and Loan
Association, or Credit Union with membership in an approved signature guaranty
Medallion Program pursuant to the Securities Exchange Act of 1934 Rule 17Ad-15.
Notarization by a notary public is not acceptable.)
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1996, by and between BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"), and DAVID N. BIRMAN, M.D., a Tennessee
resident ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive mutually desire that Executive be
employed in accordance with the terms and conditions hereof as the Company's
Chief Executive Officer;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1 0
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company as Chief Executive Officer. Executive
shall perform services for the Company for the period and upon the terms and
conditions set forth in the Agreement and shall hold such other positions with
the Company or an Affiliate as the Company may specify from time to time.
"Affiliate" means a person that, directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
2. TERM. Subject to the provisions for termination set forth herein,
the term of Executive's employment under the Agreement shall commence as of the
date hereof and shall continue up to and including June 30, 2001 (the "Initial
Term"). Following the expiration of the Initial Term, the Company may extend the
Agreement for an additional term of five (5) years.
3. POSITION AND DUTIES.
3.1 SERVICES. During the term of the Agreement, Executive shall perform
such duties as are customary to Executive's office and as are designated by the
Board of Directors from time to time. Executive also shall serve, for any period
for which Executive is elected, as a member of the Board of Directors of the
Company and/or any of its Affiliates without additional compensation.
3.2 PERFORMANCE OF DUTIES. Executive shall serve the Company faithfully
and to the best of Executive's ability and devote such time, attention, skill
and effort as is required to effectively discharge Executive's duties hereunder.
Executive shall provide services to the Company on an exclusive basis and shall
not be employed or otherwise provide services to any
<PAGE> 2
other entity without the prior written consent of the Company, which consent
shall not be unreasonably withheld.
4. COMPENSATION: BENEFITS.
4.1 BASE SALARY. During the Initial Term and any renewal thereof, the
Company shall pay to Executive as compensation for all personal services to be
rendered by Executive under the Agreement, a base salary ("Base Salary"), in
accordance with the Company's customary payroll practices, reduced by applicable
federal, state and local withholding taxes, of three hundred fifty thousand and
no/100 dollars ($350,000) per annum, subject to the following adjustment (the
"Base Salary Adjustment"): Beginning on July 1, 1997 and each July 1 thereafter
during the term of the Agreement, the Base Salary shall be increased by the
product of (i) a fraction, the numerator of which is the Extension CPI Index,
and the denominator of which is the Beginning CPI Index, times (ii) the Base
Salary. "Beginning CPI Index means the U.S. Consumer Price Index for all Urban
Consumers, U.S. City Average (Base year 1982-84=100), published most immediately
preceding July 1, 1996 by the U.S. Department of Labor, Bureau of Labor
Statistics. "Extension CPI Index" means the CPI Index published most immediately
preceding the July 1, 1997 and each successive July 1 st thereafter during the
term hereof. In the event the CPI Index is changed or discontinued, the most
nearly comparable price index of the U.S. government for computing the foregoing
calculation of the Base Salary Adjustment, after converting said new index so
that the same shall correspond with the changed or discontinued CPI Index. In
addition, in reviewing and setting Executive's Base Salary, the Board or
Compensation Committee, as the case may be, shall consider results of
operations, financial condition, prospects, salary levels for similarly sized
companies in the Company's industry for comparable executive positions,
Executive's performance and other criteria deemed relevant by the Company in
assessing Executive's compensation.
4.2 EXECUTIVE BONUS PLAN AND OTHER COMPENSATION. In addition to the
Base Salary described in Section 4.1, Executive shall be entitled to participate
in the Company's Executive Bonus Plan according to the terms and conditions
thereof, and receive incentive compensation thereunder ("Incentive
Compensation"). In addition, the Company shall (i) maintain in force and pay on
Executive's behalf to the insurer the entire premium (not to exceed forty
thousand and no/100 dollars ($40,000) per annum) on a life insurance policy or
policies insuring Executive's life, and (ii) provide to Executive an automobile
allowance of one thousand six hundred sixty-six and no/100 dollars ($1,666) per
month.
4.3 PARTICIPATION IN DEFERRED COMPENSATION AND STOCK OPTION PLANS.
Executive shall be entitled to participate in all employee qualified and
non-qualified deferred compensation plans or supplemental income plans or
programs maintained by the Company, including any Section 401(k) plan adopted by
the Company, according to the terms and conditions thereof. Executive shall also
be entitled to participate in Birman's 1995 Stock Option Plan, according to the
terms and conditions of said plan.
2
<PAGE> 3
4.4 OTHER INSURANCE PLANS. Executive shall be entitled to participate
in any and all plans, arrangements or distributions maintained by the Company
pertaining to or in connection with any pension, life, health insurance,
disability insurance or similar benefits provided by the Company to its
employees, as determined by the Board of Directors pursuant to the governing
instruments which establish and determine eligibility and other rights of the
participants and beneficiaries under such plans or other benefit programs. To
the extent permitted under any applicable group or individual disability policy,
the premium payable by the Company for Executive's benefit shall be reported as
income to Executive on Forms W-2 or 1099.
4.5 VACATION AND SICK LEAVE. Executive will be entitled to participate
in the vacation and sick leave benefit program of the Company to the extent that
Executive's position, title, salary and other qualifications make him eligible
to participate. Vacation time and sick leave may not be accumulated after the
end of any year and, to the extent unused, shall have no economic value to
Executive. Executive's use of vacation time shall be subject to the prior
approval of the Company.
4.6 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Executive in the performance of duties under the Agreement, subject to the
presentment of appropriate vouchers in accordance with the Company's policies
and procedures as adopted from time to time.
5. CONFIDENTIALITY: RETURN OF MATERIALS.
5.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges that (i)
Executive's services to the Company and its Affiliates of a special, unique,
extraordinary and intellectual character, (ii) Executive's position with the
Company or its Affiliates will place Executive in a position of confidence,
responsibility and trust with respect to the operations of the Company and its
Affiliates, and (iii) in reliance on Executive's ethical responsibility and
loyalty, the Company and its Affiliates have entrusted and expect to entrust
Executive with highly sensitive, confidential, restricted and proprietary
information involving Trade Secret Information (as hereinafter defined).
Executive acknowledges that Executive is legally and ethically responsible for
protecting and preserving the proprietary rights of the Company and its
Affiliates for use only for the benefit of the Company and its Affiliates, and
these responsibilities may impose limitations on Executive's ability to pursue
some kinds of business opportunities that might interest Executive after the
termination of Executive's employment.
5.2 DEFINITION OF "TRADE SECRET INFORMATION". For purposes of the
Agreement, "Trade Secret Information" means information, whether or not in
written or tangible form, in the possession of the Company or its Affiliates and
considered by the Company or its Affiliates to be proprietary, valuable and
confidential, from which the Company or any of its Affiliates derives economic
value, actual or potential, by such information 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 is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. Trade
Secret Information includes, without limitation, (a) any data or information
acquired by Executive during Executive's employment by the
3
<PAGE> 4
Company or its Affiliates relating to the products, services, business methods
customer accounts or operations of the Company or any Affiliate or any customer
or business partner of the Company or its Affiliates, and (b) the techniques and
business methods for (i) applying scientific literature to merge resources and
clinical language used in defining medical payments for purposes of quality
management, (ii) utilizing concurrent case review activity to merge resources
and clinical language used in defining medical payments for the purpose of
quality management, (iii) developing and managing health care provider
organizations and providing services thereto, (iv) developing reimbursement and
at-risk systems under capitation, prepayment, indemnity and other forms of
compensatory arrangements, and (v) managing the delivery, reporting and
financing of health care services in managed care and managed cost settings,
including the systems, techniques, strategies and methods used to compete
successfully in these lines of business and the Managed Care Business generally.
5.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET INFORMATION.
Except as authorized by the Company or any Affiliate, Executive shall not,
during the term of the Agreement and for so long after the termination of
employment as the information or data remains Trade Secret Information, directly
or indirectly divulge, furnish or make accessible to anyone or use in any way
(other than in the ordinary course of business of the Company or its Affiliates)
the Trade Secret Information.
5.4 RETURN OF MATERIALS. Upon the request of the Company or any
Affiliate and, in any event, upon the termination of Executive's employment,
Executive shall return to the Company and leave at the disposal of the Company
all copies of memoranda, notes, records, drawings, manuals, computer programs,
documentation, diskettes and other documents or media, in Executive's possession
or control, pertaining in any way to the business, practices or techniques of
the Company or its Affiliates.
5.5 DURATION. The restrictions contained in this Section 5 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of the Agreement.
6. RESTRICTIONS ON COMPETITION.
6.1 PREMISES. The Company has invested prior to the date hereof and
expects to continue to invest considerable time, effort, and capital in
developing the business of the Company and its Affiliates and enhancing the
value and desirability of the skills of its executives and technical personnel.
This investment, together with the compensation payable to Executive pursuant to
Article 4, reflect the Company's expectation of receiving a considerable return
from the exclusive use of Executive's services and know-how in the future, free
from any risk that the Company's competitors may attempt to induce Executive to
leave the Company and wrongfully gain the benefit of the Company's investment.
The partial restraint set forth in Section 6.2 hereof does not, and cannot,
provide complete protection for the Company's investment, but the Company and
Executive believe that, in combination with the other provisions of the
Agreement, it is a fair and reasonable measure permitted under applicable law to
protect the Company's interests, giving due regard to both the interests of
Executive and the interests of the Company. Executive hereby (i) agrees that the
restrictions contained within
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<PAGE> 5
Section 6 are reasonable and necessary-for the protection of the goodwill of the
business of the Company during the term of the Agreement and thereafter and that
the limitations as to period of time and geographic area contained in Section
6.2 are reasonable and necessary for the protection of the Company's business;
and (ii) acknowledges that the Company would not have entered into the Agreement
but for these restrictions. For purposes of this Section 6, "Company" means the
Company and its subsidiaries and affiliates.
6.2 COVENANT NOT TO COMPETE: SOLICIT. Subject to receipt by Executive
of the compensation payable pursuant to Article 4 and Section 8.5, during the
term of the Agreement and for a period equal to two (2) years from the earlier
of the date of expiration or termination of the Agreement (at any time for any
reason), Executive shall not:
(a) directly or indirectly, for himself, as an owner, partner,
principal, shareholder, officer, director, employee, or independent
contractor engage in the development, management or operation of any
Managed Care Plan (i) within two hundred (200) miles from any city,
town where the Company has established a Managed Care Plan or (ii) in
any state in which a Managed Care Plan established by the Company has
contracted with state Medicaid agencies for the delivery of health care
services within such state; or
(b) attempt, directly or indirectly, to solicit or entice (i)
any employee or consultant of the Company to terminate his or her
employment or consultancy with the Company or to become employed by or
associated with any person, firm- or corporation other than the
Company, or approach any such employee or associate of any of the
foregoing purposes or authorize or assist in the taking of any such
action by any third party; (ii) any existing customer, business partner
or client of the Company to terminate or reduce its relationship with
the Company; or (iii) any prospective customer, business partner or
client of the Company to refrain from doing business with the Company.
6.3 INTERPRETATION. If Executive violates the restrictive covenant in
Section 6 2 and the Company brings legal action for injunctive or other relief,
the Company shall not, as a result of the time involved in obtaining the relief,
be deprived of the benefit of the full period of the restrictive covenant.
Accordingly, unless Executive contests the alleged violation in a court of law
and is the prevailing party in a nonappealable decision of the applicable court,
the restrictive covenant shall be deemed to have the two-year post-employment
duration specified in Section 6 2 hereof computed from the date the relief is
granted but reduced by the period when the restriction began to run and the date
of the first violation by Executive. Notwithstanding the foregoing, however, to
the extent this provision is invalid or unenforceable under the laws of any
applicable jurisdiction, the remainder of Section 6 shall be interpreted, status
quo ante, as if Section 6.3 had never been included herein and was an absolute
nullity.
6.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges and agrees
that a violation of any of the provisions contained in Section 6.2 will cause
irreparable damage to the Company, the exact amount of which may be impossible
to ascertain and that, for such reason, among others, the Company shall be
entitled to injunctive relief, both pen-dense lite and
5
<PAGE> 6
permanently, against Executive to restrain any further violation of such
provisions, and Executive hereby (i) consents to any initiation by the Company
in a court of competent jurisdiction of any action to enjoin immediately any
breach of the Agreement, and (ii) hereby releases the Company from the
requirement of posting any bond in connection with temporary or interlocutory
injunctive relief, to the extent permitted by law. This provision with respect
to injunctive relief shall not, however, diminish the right of the Company to
pursue any other rights and remedies the Company may have against Executive,
including, but not limited to, the recovery of damages.
6.5 DURATION. The restrictions contained in this Section 6 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of the Agreement.
7. TERMINATION OF EMPLOYMENT. The Agreement shall terminate prior to
its expiration upon the earliest to occur of any of the following events:
7.1 FOR CAUSE. Upon written notice by the Company to Executive, which
shall specify the "cause" for termination. For purposes hereof, "cause" shall
include, without limitation: Conviction of a felony; habitual drunkenness;
and/or material breach of the Agreement. If thirty (30) days after receipt by
Executive of written notice thereof from the Company, to correct, cease, or
otherwise alter any material breach of the Agreement, or other willful action
that recklessly affects the Company's business, Executive has not reasonably
corrected the alleged "cause," the Agreement may be terminated. If Executive
disputes that "cause" exists for the termination of Executive's employment, the
decision with respect to the existence of "cause" for termination shall be made
by an arbitrator selected in accordance with the rules of the American
Arbitration Association.
7.2 DEATH. Upon Executive's death.
7.3 DISABILITY. Upon the Company's written notice, at the Company's
sole option, upon Executive's disability. "Disability" shall have the definition
ascribed in the Company's group disability policy if coverage under the policy
is conditioned on using such definition. If no such policy exists or if coverage
is not conditioned on using such definition, then, for purposes of the
Agreement, "Disability" means the inability of Executive to perform Executive's
duties with reasonable accommodation by the Company for ninety (90) days in any
one hundred eighty (180) consecutive day period.
8. SEVERANCE.
8.1 DEATH. If Executive's employment is terminated pursuant to Section
7.2 as a result of Executive's death, the following provisions shall apply:
(a) The Company shall pay to Executive's personal
representative the Base Salary (as adjusted) through the end of the
calendar month in which Executive's death occurs.
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<PAGE> 7
(b) The Company shall pay to Executive's personal
representative (i) the earned but unpaid Incentive Compensation for the
calculation period ended prior to the date of Executive's death and
(ii) a pro rata share (based on the number of days in the period during
which Executive was alive) of Executive's Incentive Compensation for
the calculation period in which Executive died provided that more than
three (3) months of such calculation period has elapsed as of
Executive's death. Such amounts shall be payable in accordance with the
Executive Bonus Plan. If Executive's death occurs during the first
three (3) months of an Incentive Compensation calculation period, no
Incentive Compensation shall be payable with respect to such period.
8.2 DISABILITY. If Executive's employment is terminated pursuant to
Section 7 3 as a result of Executive's Disability, the following provisions
shall apply:
(a) The Company shall maintain any health insurance coverage
provided to Executive hereunder until the expiration of the Initial
Term or any applicable renewal term for Executive and Executive's
dependents, or, if the Company's benefit insurer does not permit such
continuation, pay to Executive the amount of the health insurance
premium the Company would have paid to provide such insurance to
Executive and Executive's dependents. Nothing herein shall affect any
rights to continuation coverage of Executive or Executive's dependents
with respect to any insurance coverage as provided by law.
(b) The Company shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's beneficiaries
until the expiration of the Initial Term or any applicable renewal
term.
(c) The Company shall pay to Executive the Base Salary (as
adjusted) through the end of the calendar month immediately prior to
the initiation of periodic payments under the Company's group
disability policy.
(d) The Company shall pay to Executive (i) the earned but
unpaid Incentive Compensation for the calculation period ended prior to
the date of employment termination and (ii) a pro rata share (based on
the number of days in the period during which Executive not disabled)
of Executive's Incentive Compensation for the calculation period in
which Executive was terminated from employment provided that more than
three (3) months of such calculation period has elapsed as of the date
of termination. Such amounts shall be payable in accordance with the
Executive Bonus Plan. If Executive's employment termination occurs
during the first three (3) months of an Incentive Compensation
calculation period, no Incentive Compensation shall be payable with
respect to such period.
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<PAGE> 8
8.3 TERMINATION FOR CAUSE. If Executive's employment is terminated for
"cause" pursuant to Section 7.1, the following provisions shall apply:
(a) The Company shall pay to Executive the Base Salary (as
adjusted) through the date of termination.
(b) Executive shall forfeit all accrued but unpaid Incentive
Compensation and all unvested options under the Company's 1995 Stock
Option Plan. The foregoing sentence is not a penalty, but is intended
to constitute liquidated damages to compensate the Company for damages,
which may be difficult to measure, suffered by the Company as a result
of Executive's conduct. Nothing contained in this Section 8.3 shall be
deemed to limit the Company's ability to obtain equitable relief.
(c) Health insurance coverage provided to Executive hereunder
for Executive and Executive's dependents and any life insurance
coverage provided to Executive hereunder on Executive's life, payable
to Executive or, as designated by Executive, Executive's beneficiaries
shall terminate as of the last day of the month in which Executive's
employment terminates. Nothing herein shall affect any rights to
continuation coverage of Executive or Executive's dependents with
respect to any insurance coverage as provided by law.
8.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment is
terminated by mutual agreement, the parties hereto shall structure a mutually
acceptable severance benefits program which shall be documented in a Termination
Agreement to be executed by the parties immediately prior to Executive's
resignation from employment.
8.5 OTHER. If Executive's employment is terminated for reasons other
than death, "cause," mutual agreement or Disability, Executive shall be entitled
to receive the Base Salary, as adjusted by the Base Salary Adjustment, for the
remainder of the Initial Term or the applicable renewal term and all unvested
stock options granted pursuant to the Company's 1995 Stock Option Plan shall
accelerate and become vested. If Executive's employment is not renewed following
expiration of the Initial Term or the applicable renewal term, Executive shall
be entitled to receive, as severance, the Base Salary, as last adjusted by the
Base Salary Adjustment, for the twelve (12) month period following Executive's
severance of employment.
9. MISCELLANEOUS.
9.1 GOVERNING LAW. The Agreement shall be deemed to have been executed
in the State of Tennessee and shall be governed and construed as to both
substantive and procedural matters in accordance with the laws of the State of
Tennessee, but excepting (i) any State of Tennessee rule which would result in
judicial failure to enforce the arbitration provisions of Section 9.4 hereof or
any portion thereof and (ii) any State of Tennessee rule which would result in
the application of the law of a jurisdiction other than the State of Tennessee.
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<PAGE> 9
9.2 PRIOR AGREEMENTS. The Agreement, together with any Option Award
Agreement and Executive Bonus Plan, contains the entire agreement of the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter, and the parties hereto have
made no agreements, representations or warranties relating to the subject matter
of the Agreement which are not set forth herein.
9.3 AMENDMENT. The Agreement may not be amended, modified, superseded,
canceled or terminated, and any of the matters, covenants, representations,
warranties or conditions hereof may not be waived, except by written instrument
executed by the parties hereto or, in the case of a waiver, by the party to be
charged with such waiver.
9.4 ARBITRATION. Any controversy or claim arising out of or relating to
the Agreement, or the breach hereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, in the county in which the principal office of the Company is
located, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction over the parties hereto. The dispute shall be
resolved by a panel of three arbitrators if the dollar amount in question that
is being arbitrated exceeds fifty thousand dollars ($50,000). The parties hereto
shall have full rights to pursue equitable remedies in furtherance of enforcing
the Agreement without interference from any arbitration proceedings.
9.5 SEVERABILITY. To the extent any provision of the Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of the Agreement shall be unaffected and not in
limitation of business activities covered by, any provision of the Agreement be
in excess of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or activities
which may validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that the
Agreement be given the construction which renders its provisions valid and
enforceable to the maximum extent possible under applicable law.
9.6 ASSIGNMENT. The Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under the Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
fifty (50%) percent or more of the equity investment and of the voting control
is owned, directly or indirectly, by, or is under common ownership with the
Company. After any such assignment by the Company, the Company shall be
discharged from all further liability hereunder, and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of the
Agreement including this Section 9.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed as of the day and year first above written.
BIRMAN MANAGED CARE, INC.,
a Tennessee corporation
By:____________________________________
David N. Birman, M.D.
Chairman and Chief Executive Officer
[CORPORATE SEAL]
EXECUTIVE:
_________________________________(SEAL)
DAVID N. BIRMAN, M.D.
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Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1996, by and between BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"), and SUE D. BIRMAN, a Tennessee resident
("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive mutually desire that Executive be
employed in accordance with the terms and conditions hereof as the Company's
Executive Vice President;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company as Executive Vice President.
Executive shall perform services for the Company for the period and upon the
terms and conditions set forth in the Agreement and shall hold such other
positions with the Company or any Affiliate as the Company may specify from time
to time. "Affiliate" means a person that, directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified.
2. TERM. Subject to the provisions for termination set forth herein,
the term of Executive's employment under the Agreement shall commence as of the
date hereof and shall continue up to and including June 30, 2001 (the "Initial
Term"). Following the expiration of the Initial Term, the Company may extend the
Agreement for an additional term of five (5) years.
3. POSITION AND DUTIES.
3.1 SERVICES. During the term of the Agreement, Executive shall perform
such duties as are customary to Executive's office and as are designated by the
Chief Executive Officer or the Board of Directors from time to time. Executive
also shall serve, for any period for which Executive is elected, as a member of
the Board of Directors of the Company and/or any of its Affiliates without
additional compensation.
3.2 PERFORMANCE OF DUTIES. Executive shall serve the Company faithfully
and to the best of Executive's ability and devote such time, attention, skill
and effort as is required to effectively discharge Executive's duties hereunder.
Executive shall provide services to the Company on an exclusive basis and shall
not be employed or otherwise provide services to any
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other entity without the prior written consent of the Company, which consent
shall not be unreasonably withheld.
4. COMPENSATION: BENEFITS.
4.1 BASE SALARY. During the Initial Term and any renewal thereof, the
Company shall pay to Executive as compensation for all personal services to be
rendered by Executive under the Agreement, a base salary ("Base Salary"), in
accordance with the Company's customary payroll practices, reduced by applicable
federal, state and local withholding taxes, of one hundred fifty thousand and
no/100 dollars ($150,000) per annum, subject to the following adjustment (the
"Base Salary Adjustment"): Beginning on July 1, 1997 and each July 1 thereafter
during the term of the Agreement, the Base Salary shall be increased by the
product of (i) a fraction, the numerator of which is the Extension CPI Index,
and the denominator of which is the Beginning CPI Index, times (ii) the Base
Salary. "Beginning CPI Index means the U.S. Consumer Price Index for all Urban
Consumers, U.S. City Average (Base year 1982-84=100), published most immediately
preceding July 1, 1996 by the U.S. Department of Labor, Bureau of Labor
Statistics. "Extension CPI Index" means the CPI Index published most immediately
preceding the July 1, 1997 and each successive July 1st thereafter during the
term hereof. In the event the CPI Index is changed or discontinued, the most
nearly comparable price index of the U.S. government for computing the foregoing
calculation of the Base Salary Adjustment, after converting said new index so
that the same shall correspond with the changed or discontinued CPI Index. In
addition, in reviewing and setting Executive's Base Salary, the Board or
Compensation Committee, as the case may be, shall consider results of
operations, financial condition, prospects, salary levels for similarly sized
companies in the Company's industry for comparable executive positions,
Executive's performance and other criteria deemed relevant by the Company in
assessing Executive's compensation.
4.2 EXECUTIVE BONUS PLAN AND OTHER COMPENSATION. In addition to the
Base Salary described in Section 4.1, Executive shall be entitled to participate
in the Company's Executive Bonus Plan according to the terms and conditions
thereof, and receive incentive compensation thereunder ("Incentive
Compensation"). In addition, the Company shall provide to Executive an
automobile allowance of eight hundred five and no/100 dollars ($805) per month.
4.3 PARTICIPATION IN DEFERRED COMPENSATION AND STOCK OPTION PLANS.
Executive shall be entitled to participate in all employee qualified and
non-qualified deferred compensation plans or supplemental income plans or
programs maintained by the Company, including any Section 401(k) plan adopted by
the Company, according to the terms and conditions thereof. Executive shall also
be entitled to participate in Birman's 1995 Stock Option Plan, according to the
terms and conditions of said plan.
4.4 OTHER INSURANCE PLANS. Executive shall be entitled to participate
in any and all plans, arrangements or distributions maintained by the Company
pertaining to or in connection with any pension, life, health insurance,
disability insurance or similar benefits provided by the Company to its
employees, as determined by the Board of Directors pursuant to the governing
instruments which establish and determine eligibility and other rights of the
participants and
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beneficiaries under such plans or other benefit programs. To the extent
permitted under any applicable group or individual disability policy, the
premium payable by the Company for Executive's benefit shall be reported as
income to Executive on Forms W-2 or 1099.
4.5 VACATION AND SICK LEAVE. Executive will be entitled to participate
in the vacation and sick leave benefit program of the Company to the extent that
Executive's position, title, salary and other qualifications make him eligible
to participate. Vacation time and sick leave may not be accumulated after the
end of any year and, to the extent unused, shall have no economic value to
Executive. Executive's use of vacation time shall be subject to the prior
approval of the Company.
4.6 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Executive in the performance of duties under the Agreement, subject to the
presentment of appropriate vouchers in accordance with the Company's policies
and procedures as adopted from time to time.
5. CONFIDENTIALITY; RETURN OF MATERIALS.
5.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges that (i)
Executive's services to the Company and its Affiliates will be of a special,
unique, extraordinary and intellectual character, (ii) Executive's position with
the Company or its Affiliates will place Executive in a position of confidence,
responsibility and trust with respect to the operations of the Company and its
Affiliates, and (iii) in reliance on Executive's ethical responsibility and
loyalty, the Company and its Affiliates have entrusted and expect to entrust
Executive with highly sensitive, confidential, restricted and proprietary
information involving Trade Secret Information (as hereinafter defined).
Executive acknowledges that Executive is legally and ethically responsible for
protecting and preserving the proprietary rights of the Company and its
Affiliates for use only for the benefit of the Company and its Affiliates, and
these responsibilities may impose limitations on Executive's ability to pursue
some kinds of business opportunities that might interest Executive after the
termination of Executive's employment.
5.2 DEFINITION OF "TRADE SECRET INFORMATION". For purposes of the
Agreement, "Trade Secret Information" means information, whether or not in
written or tangible form, in the possession of the Company or its Affiliates and
considered by the Company or its Affiliates to be proprietary, valuable and
confidential, from which the Company or any of its Affiliates derives economic
value, actual or potential, by such information 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 is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. Trade
Secret Information includes, without limitation, (a) any data or information
acquired by Executive during Executive's employment by the Company or its
Affiliates relating to the products, services, business methods, customer
accounts or operations of the Company or any Affiliate or any customer or
business partner of the Company or its Affiliates, and (b) the techniques and
business methods for (i) applying scientific literature to merge resources and
clinical language used in defining medical payments for purposes of quality
management, (ii) utilizing concurrent case review activity to merge resources
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and clinical language used in defining medical payments for the purpose of
quality management, (iii) developing and managing health care provider
organizations and providing services thereto, (iv) developing reimbursement and
at-risk systems under capitation, prepayment, indemnity and other forms of
compensatory arrangements, and (v) managing the delivery, reporting and
financing of health care services in managed care and managed cost settings,
including the systems, techniques, strategies and methods used to compete
successfully in these lines of business and the Managed Care Business generally.
5.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET INFORMATION.
Except as authorized by the Company or any Affiliate, Executive shall not,
during the term of the Agreement and for so long after the termination of
employment as the information or data remains Trade Secret Information, directly
or indirectly divulge, furnish or make accessible to anyone or use in any way
(other than in the ordinary course of business of the Company or its Affiliates)
the Trade Secret Information.
5.4 RETURN OF MATERIALS. Upon the request of the Company or any
Affiliate and, in any event, upon the termination of Executive's employment,
Executive shall return to the Company and leave at the disposal of the Company
all copies of memoranda, notes, records, drawings, manuals, computer programs,
documentation, diskettes and other documents or media, in Executive's possession
or control, pertaining in any way to the business, practices or techniques of
the Company or its Affiliates.
5.5 DURATION. The restrictions contained in this Section 5 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of the Agreement.
6. RESTRICTIONS ON COMPETITION.
6.1 PREMISES. The Company has invested prior to the date hereof and
expects to continue to invest considerable time, effort, and capital in
developing the business of the Company and its Affiliates and enhancing the
value and desirability of the skills of its executives and technical personnel.
This investment, together with the compensation payable to Executive pursuant to
Article 4, reflect the Company's expectation of receiving a considerable return
from the exclusive use of Executive's services and know-how in the future, free
from any risk that the Company's competitors may attempt to induce Executive to
leave the Company and wrongfully gain the benefit of the Company's investment.
The partial restraint set forth in Section 6.2 hereof does not, and cannot,
provide complete protection for the Company's investment, but the Company and
Executive believe that, in combination with the other provisions of the
Agreement, it is a fair and reasonable measure permitted under applicable law to
protect the Company's interests, giving due regard to both the interests of
Executive and the interests of the Company. Executive hereby (i) agrees that the
restrictions contained within Section 6 are reasonable and necessary for the
protection of the goodwill of the business of the Company during the term of the
Agreement and thereafter and that the limitations as to period of time and
geographic area contained in Section 6.2 are reasonable and necessary for the
protection of the Company's business; and (ii) acknowledges that the Company
would not have
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entered into the Agreement but for these restrictions. For purposes of this
Section 6, "Company" means the Company and its subsidiaries and affiliates.
6.2 COVENANT NOT TO COMPETE; SOLICIT. Subject to receipt by Executive
of the compensation payable pursuant to Article 4 and Section 8.5, during the
term of the Agreement and for a period equal to two (2) years from the earlier
of the date of expiration or termination of the Agreement (at any time for any
reason), Executive shall not:
(a) directly or indirectly, for himself, as an owner, partner,
principal, shareholder, officer, director, employee, or independent
contractor engage in the development, management or operation of any
Managed Care Plan (i) within two hundred (200) miles from any city,
town where the Company has established a Managed Care Plan or (ii) in
any state in which a Managed Care Plan established by the Company has
contracted with state Medicaid agencies for the delivery of health care
services within such state; or
(b) attempt, directly or indirectly, to solicit or entice (i)
any employee or consultant of the Company to terminate his or her
employment or consultancy with the Company or to become employed by or
associated with any person, firm or corporation other than the Company,
or approach any such employee or associate of any of the foregoing
purposes or authorize or assist in the taking of any such action by any
third party; (ii) any existing customer, business partner or client of
the Company to terminate or reduce its relationship with the Company;
or (iii) any prospective customer, business partner or client of the
Company to refrain from doing business with the Company.
6.3 INTERPRETATION. If Executive violates the restrictive covenant in
Section 6.2 and the Company brings legal action for injunctive or other relief,
the Company shall not, as a result of the time involved in obtaining the relief,
be deprived of the benefit of the full period of the restrictive covenant.
Accordingly, unless Executive contests the alleged violation in a court of law
and is the prevailing party in a nonappealable decision of the applicable court,
the restrictive covenant shall be deemed to have the two-year post-employment
duration specified in Section 6.2 hereof computed from the date the relief is
granted but reduced by the period when the restriction began to run and the date
of the first violation by Executive. Notwithstanding the foregoing, however, to
the extent this provision is invalid or unenforceable under the laws of any
applicable jurisdiction, the remainder of Section 6 shall be interpreted, status
quo ante, as if Section 6.3 had never been included herein and was an absolute
nullity.
6.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges and agrees
that a violation of any of the provisions contained in Section 6.2 will cause
irreparable damage to the Company, the exact amount of which may be impossible
to ascertain and that, for such reason, among others, the Company shall be
entitled to injunctive relief, both pendente lite and permanently, against
Executive to restrain any further violation of such provisions, and Executive
hereby (i) consents to any initiation by the Company in a court of competent
jurisdiction of any action to enjoin immediately any breach of the Agreement,
and (ii) hereby releases the Company from the requirement of posting any bond in
connection with- temporary
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or interlocutory injunctive relief, to the extent permitted by law. This
provision with respect to injunctive relief shall not, however, diminish the
right of the Company to pursue any other rights and remedies the Company may
have against Executive, including, but not limited to, the recovery of damages.
6.5 DURATION. The restrictions contained in this Section 6 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of the Agreement.
7. TERMINATION EMPLOYMENT. The Agreement shall terminate prior to its
expiration upon the earliest to occur of any of the following events:
7.1 FOR CAUSE. Upon written notice by the Company to Executive, which
shall specify the "cause" for termination. For purposes hereof, "cause" shall
include, without limitation: Conviction of a felony; habitual drunkenness;
and/or material breach of the Agreement. If thirty (30) days after receipt by
Executive of written notice thereof from the Company, to correct, cease, or
otherwise alter any material breach of the Agreement, or other willful action
that recklessly affects the Company's business, Executive has not reasonably
corrected the alleged "cause," the Agreement may be terminated. If Executive
disputes that "cause" exists for the termination of Executive's employment, the
decision with respect to the existence of "cause" for termination shall be made
by an arbitrator selected in accordance with the rules of the American
Arbitration Association.
7.2 DEATH. Upon Executive's death.
7.3 DISABILITY. Upon the Company's written notice, at the Company's
sole option, upon Executive's disability. "Disability" shall have the definition
ascribed in the Company's group disability policy if coverage under the policy
is conditioned on using such definition. If no such policy exists or if coverage
is not conditioned on using such definition, then, for purposes of the
Agreement, "Disability" means the inability of Executive to perform Executive's
duties with reasonable accommodation by the Company for ninety (90) days in any
one hundred eighty (180) consecutive day period.
8. SEVERANCE.
8.1 DEATH. If Executive's employment is terminated pursuant to Section
7.2 as a result of Executive's death, the following provisions shall apply:
(a) The Company shall pay to Executive's personal
representative the Base Salary (as adjusted) through the end of the
calendar month in which Executive's death occurs.
(b) The Company shall pay to Executive's personal
representative (i) the earned but unpaid Incentive Compensation for the
calculation period ended prior to the date of Executive's death and
(ii) a pro rata share (based on the number of days in the period during
which Executive was alive) of Executive's Incentive Compensation for
the
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calculation period in which Executive died provided that more than
three (3) months of such calculation period has elapsed as of
Executive's death. Such amounts shall be payable in accordance with the
Executive Bonus Plan. If Executive's death occurs during the first
three (3) months of an Incentive Compensation calculation period, no
Incentive Compensation shall be payable with respect to such period.
8.2 DISABILITY. If Executive's employment is terminated pursuant to
Section 7.3 as a result of Executive's Disability, the following provisions
shall apply:
(a) The Company shall maintain any health insurance coverage
provided to Executive hereunder until the expiration of the Initial
Term or any applicable renewal term for Executive and Executive's
dependents, or, if the Company's benefit insurer does not permit such
continuation, pay to Executive the amount of the health insurance
premium the Company would have paid to provide such insurance to
Executive and Executive's dependents. Nothing herein shall affect any
rights to continuation coverage of Executive or Executive's dependents
with respect to any insurance coverage as provided by law.
(b) The Company shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's beneficiaries
until the expiration of the Initial Term or any applicable renewal
term.
(c) The Company shall pay to Executive the Base Salary (as
adjusted) through the end of the calendar month immediately prior to
the initiation of periodic payments under the Company's group
disability policy.
(d) The Company shall pay to Executive (i) the earned but
unpaid Incentive Compensation for the calculation period ended prior to
the date of employment termination and (ii) a pro rata share (based on
the number of days in the period during which Executive not disabled)
of Executive's Incentive Compensation for the calculation period in
which Executive was terminated from employment provided that more than
three (3) months of such calculation period has elapsed as of the date
of termination. Such amounts shall be payable in accordance with the
Executive Bonus Plan. If Executive's employment termination occurs
during the first three (3) months of an Incentive Compensation
calculation period, no Incentive Compensation shall be payable with
respect to such period.
8.3 TERMINATION FOR CAUSE. If Executive's employment is terminated for
"cause" pursuant to Section 7.1, the following provisions shall apply:
(a) The Company shall pay to Executive the Base Salary (as
adjusted) through the date of termination.
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(b) Executive shall forfeit all accrued but unpaid Incentive
Compensation and all unvested options under the Company's 1995 Stock
Option Plan. The foregoing sentence is not a penalty, but is intended
to constitute liquidated damages to compensate the Company for damages,
which may be difficult to measure, suffered by the Company as a result
of Executive's conduct. Nothing contained in this Section 8.3 shall be
deemed to limit the Company's ability to obtain equitable relief.
(c) Health insurance coverage provided to Executive hereunder
for Executive and Executive's dependents and any life insurance
coverage provided to Executive hereunder on Executive's life, payable
to Executive or, as designated by Executive, Executive's beneficiaries
shall terminate as of the last day of the month in which Executive's
employment terminates. Nothing herein shall affect any rights to
continuation coverage of Executive or Executive's dependents with
respect to any insurance coverage as provided by law.
8.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment is
terminated by mutual agreement, the parties hereto shall structure a mutually
acceptable severance benefits program which shall be documented in a Termination
Agreement to be executed by the parties immediately prior to Executive's
resignation from employment.
8.5 OTHER. If Executive's employment is terminated for reasons other
than death, "cause," mutual agreement or Disability, Executive shall be entitled
to receive the Base Salary, as adjusted by the Base Salary Adjustment, for the
remainder of the Initial Term or the applicable renewal term and all unvested
stock options granted pursuant to the Company's 1995 Stock Option Plan shall
accelerate and become vested. If Executive's employment is not renewed following
expiration of the Initial Term or the applicable renewal term, Executive shall
be entitled to receive, as severance, the Base Salary, as last adjusted by the
Base Salary Adjustment, for the twelve (12) month period following Executive's
severance of employment.
9. MISCELLANEOUS.
9.1 GOVERNING LAW. The Agreement shall be deemed to have been executed
in the State of Tennessee and shall be governed and construed as to both
substantive and procedural matters in accordance with the laws of the State of
Tennessee, but excepting (i) any State of Tennessee rule which would result in
judicial failure to enforce the arbitration provisions of Section 9.4 hereof or
any portion thereof and (ii) any State of Tennessee rule which would result in
the application of the law of a jurisdiction other than the State of Tennessee.
9.2 PRIOR AGREEMENTS. The Agreement, together with any Option Award
Agreement and Executive Bonus Plan, contains the entire agreement of the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter, and the parties hereto have
made no agreements, representations or warranties relating to the subject matter
of the Agreement which are not set forth herein.
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9.3 AMENDMENT. The Agreement may not be amended, modified, superseded,
canceled or terminated, and any of the matters, covenants, representations,
warranties or conditions hereof may not be waived, except by written instrument
executed by the parties hereto or, in the case of a waiver, by the party to be
charged with such waiver.
9.4 ARBITRATION. Any controversy or claim arising out of or relating to
the Agreement, or the breach hereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, in the county in which the principal office of the Company is
located, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction over the parties hereto. The dispute shall be
resolved by a panel of three arbitrators if the dollar amount in question that
is being arbitrated exceeds fifty thousand dollars ($50,000). The parties hereto
shall have full rights to pursue equitable remedies in furtherance of enforcing
the Agreement without interference from any arbitration proceedings.
9.5 SEVERABILITY. To the extent any provision of the Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of the Agreement shall be unaffected and not in
limitation of business activities covered by, any provision of the Agreement be
in excess of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or activities
which may validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that the
Agreement be given the construction which renders its provisions valid and
enforceable to the maximum extent possible under applicable law.
9.6 ASSIGNMENT. The Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under the Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
fifty (50%) percent or more of the equity investment and of the voting control
is owned, directly or indirectly, by, or is under common ownership with the
Company. After any such assignment by the Company, the Company shall be
discharged from all further liability hereunder, and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of the
Agreement including this Section 9.
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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed as of the day and year first above written.
BIRMAN MANAGED CARE, INC.,
a Tennessee corporation
By:____________________________________
David N. Birman, M.D.
Chairman and Chief Executive Officer
[CORPORATE SEAL]
EXECUTIVE:
_________________________________(SEAL)
SUE D. BIRMAN
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Exhibit 10.3
AMENDMENT NO. 1
THIS INSTRUMENT, dated as of June 1, 1996, by and between Birman
Managed Care, Inc., a Tennessee corporation (the "Company"), and Robert D. Arkin
("Executive"), constitutes a first amendment to that certain Employment
Agreement by and between Executive and the. Company dated as of March 1, 1996
(the "Agreement"). The Company and Executive are hereinafter referred to as the
"Parties."
R E C I T A L S:
WHEREAS, the Parties desire to amend the Agreement;
NOW, THEREFORE, for and in consideration of the premises set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged by each of the parties, intending to be legally bound,
agree as follows:
1. The preamble and Section 1 of the Agreement are hereby amended
by deleting "Secretary and General Counsel" and by inserting in lieu thereof
"Chief Operating Officer, Secretary and General Counsel."
2. Section 4.02 is hereby amended by adding at the foot thereof
the following new sentence". In addition, the Company shall provide to Executive
an automobile allowance of seven hundred fifty and no/100 dollars ($750) per
month."
The Agreement, as above amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
BIRMAN MANAGED CARE, INC.
By:____________________________________________
David N. Birman, M.D.,
President and Chief Executive Officer
EXECUTIVE:
_______________________________________________
Robert D. Arkin
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1996, by and between BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"), and ROBERT D. ARKIN, a Georgia resident
("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive mutually desire that Executive be
employed in accordance with the terms and conditions hereof as the Company's
Secretary and General Counsel;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1
EMPLOYMENT
The Company hereby employs Executive, and Executive hereby accepts
employment from the Company as Secretary and General Counsel. Executive shall
perform services for the Company for the period and upon the terms and
conditions set forth in the Agreement and shall hold such other positions with
the Company or any Affiliate as the Company may specify from time to time.
"Affiliate" means a person that, directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
SECTION 2
TERM
Subject to the provisions for termination set forth herein, the term of
Executive's employment under the Agreement shall commence as of the date hereof
and shall continue up to and including June 30, 2001 (the "Initial Term").
Following the expiration of the Initial Term, the Company may extend the
Agreement for an additional term of five (5) years.
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SECTION 3
POSITION AND DUTIES
3.1 SERVICES. During the term of the Agreement, Executive shall perform
such duties as are customary to Executive's office and as are designated by the
Chief Executive Officer or the Board of Directors from time to time. Executive
also shall serve, for any period for which Executive is elected, as a member of
the Board of Directors of the Company and/or any of its Affiliates without
additional compensation.
3.2 PERFORMANCE OF DUTIES. Executive shall serve the Company faithfully
and to the best of Executive's ability and such time, attention, skill and
effort as is required to effectively discharge his duties hereunder. Once
Executive is employed by the Company on a full-time basis in accordance with
Section 4.01(b), Executive shall provide services to the Company on an exclusive
basis and, except with respect to the activities described at Schedule 3.02
(which scheduled activities Executive hereby represents do not consume a
material portion of Executive's time and are essentially passive in nature), and
shall not be employed or otherwise provide services to any other entity without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Executive shall undertake such reasonable Gavel to the
corporate headquarters of the Company in Cookeville, Tennessee and to such other
locations in which the Company does, or proposes to do, business as shall be
necessary to perform Executive's duties hereunder.
SECTION 4
COMPENSATION; BENEFITS
4.1 BASE SALARY. During the Initial Term and any renewal thereof, the
Company shall pay to Executive as compensation for all personal services to be
rendered by Executive under the Agreement, a base salary ("Base Salary") subject
to the Base Salary Adjustment (as hereinafter defined), in accordance with the
Company's customary payroll practices, reduced by applicable federal, state and
local withholding taxes, as follows:
(a) One hundred sixty-five thousand and no/100 dollars
($165,000) per annum (representing the delivery of services to the
Company on an eighty percent (80%) basis) until the Company enters into
a letter of intent confirming an investment banking firm's interest in
underwriting, on a firm commitment basis, an initial public offering of
the Company's securities (the "Milestone").
(b) Two hundred six thousand two hundred fifty and no/100
dollars ($206,250) per annum from and after the date the Milestone is
achieved.
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"Base Salary Adjustment" means the following: Beginning on July 1, 1997 and each
July 1 thereafter during the term of the Agreement, the Base Salary shall be
increased by the product of (i) a fraction, the numerator of which is the
Extension CPI Index, and the denominator of which is the Beginning CPI Index,
times (ii) the Base Salary. "Beginning CPI Index means the U.S. Consumer Price
Index for all Urban Consumers, U.S. City Average (Base year 1982-84=100),
published most immediately preceding July 1, 1996 by the U.S. Department of
Labor, Bureau of Labor Statistics. Extension CPI Index" means the CPI Index
published most immediately preceding the July 1, 1997 and each successive July 1
st thereafter during the term hereof. In the event the CPI Index is changed or
discontinued, the most nearly comparable price index of the U.S. government for
computing the foregoing calculation of the Base Salary Adjustment, after
converting said new index so that the same shall correspond with the changed or
discontinued CPI Index.
In addition, in reviewing and setting Executive's Base Salary, the
Board or Compensation Committee, as the case may be, shall consider results of
operations, financial condition, prospects, salary levels for similarly sized
companies in the Company's industry for comparable executive positions,
Executive's performance and other criteria deemed relevant by the Company in
assessing Executive's compensation.
4.2 EXECUTIVE BONUS PLAN AND OTHER COMPENSATION. In addition to the
Base Salary described in Section 4.01, Executive shall be entitled to
participate in the Company's Executive Bonus Plan according to the terms and
conditions thereof, and receive incentive compensation thereunder ("Incentive
Compensation").
4.3 PARTICIPATION IN DEFERRED COMPENSATION AND STOCK OPTION PLANS.
Executive shall be entitled to participate in all employee qualified and
non-qualified deferred compensation plans or supplemental income plans or
programs maintained by the Company, including any Section 401(k) plan adopted by
the Company, according to the terms and conditions thereof. Executive shall also
be entitled to participate in the Company's 1995 Stock Option Plan, according to
the terms and conditions of said plan.
4.4 OTHER INSURANCE PLANS. Executive shall be entitled to participate
in any and all plans, arrangements or distributions maintained by the Company
pertaining to or in connection with any pension, life, health insurance,
disability insurance or similar benefits provided by the Company to its
employees, as determined by the Board of Directors pursuant to the governing
instruments which establish and determine eligibility and other rights of the
participants and beneficiaries under such plans or other benefit programs. To
the extent permitted under any applicable group or individual disability policy,
the premium payable by the Company for Executive's benefit shall be reported as
income to Executive on Forms W-2 or 1099.
4.5 VACATION AND SICK LEAVE. Executive will be entitled to participate
in the vacation and sick leave benefit program of the Company to the extent that
Executive's position, title,
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<PAGE> 5
salary and other qualifications make him eligible to participate. Vacation time
and sick leave may not be accumulated after the end of any year and, to the
extent unused, shall have no economic value to Executive. Executive's use of
vacation time shall be subject to the prior approval of the Company.
4.6 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Executive in the performance of duties under the Agreement, subject to the
presentment of appropriate vouchers in accordance with the Company's policies
and procedures as adopted from time to time.
SECTION 5
CONFIDENTIALITY RETURN OF MATERIALS
5.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges that (i)
Executive's services to the Company and its Affiliates will be of a special,
unique, extraordinary and intellectual character, (ii) Executive's position with
the Company or its Affiliates will place Executive in a position of confidence,
responsibility and trust with respect to the operations of the Company and its
Affiliates, (iii) in reliance on Executive's ethical responsibility and loyalty,
the Company and its Affiliates have entrusted and expect to entrust Executive
with highly sensitive, confidential, restricted and proprietary information
involving Trade Secret Information (as hereinafter defined). Executive
acknowledges that Executive is legally and ethically responsible for protecting
and preserving the proprietary rights of the Company and its Affiliates for use
only for the benefit of the Company and its Affiliates, responsibilities may
impose limitations on Executive's ability to pursue some kinds of business
opportunities that might interest Executive after the termination of Executive's
employment.
5.2 DEFINITION OF "TRADE SECRET INFORMATION". For purposes of the
Agreement, "Trade Secret Information" means information, whether or not in
written or tangible form, in the possession of the Company or its Affiliates and
considered by the Company or its Affiliates to be proprietary, valuable and
confidential, from which the Company or any of its Affiliates derives economic
value, actual or potential, by such information 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 is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. Trade
Secret Information includes, without limitation, (a) any data or information
acquired by Executive during Executive's employment by the Company or its
Affiliates relating to the products, services, business methods, customer
accounts or operations of the Company or any Affiliate or any customer or
business partner of the Company or its Affiliates, and (b) the techniques and
business methods for (i) applying scientific literature to merge resources and
clinical language used in defining medical payments for purposes of quality
management, (ii) utilizing concurrent case review activity to merge resources
and clinical language used in defining medical payments for the purpose of
quality management,
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<PAGE> 6
(iii) developing and managing health care provider organizations and providing
services thereto, (iv) developing reimbursement and at-risk systems under
capitation, prepayment, indemnity and other forms of compensatory arrangements,
and (v) managing the delivery, reporting and financing of health care services
in managed care and managed cost settings, including the systems, techniques,
strategies and methods used to compete successfully in these lines of business
and the Managed Care Business generally.
5.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET INFORMATION.
Except as authorized by the Company or any Affiliate, Executive shall not,
during the term of the Agreement and for so long after the termination of
employment as the information or data remains Trade Secret Information, directly
or indirectly divulge, furnish or make accessible to anyone or use in any way
(other than in the ordinary course of business of the Company or its Affiliates)
the Trade Secret Information.
5.4 RETURN OF MATERIALS. Upon the request of the Company or any
Affiliate and, in any event, upon the termination of Executive's employment,
Executive shall return to the Company and leave at the disposal of the Company
all copies of memoranda, notes, records, drawings, manuals, computer programs,
documentation, diskettes and other documents or media, in Executive's possession
or control, pertaining in any way to the business, practices or techniques of
the Company or its Affiliates.
5.5 DURATION. The restrictions contained in this Section 5 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of the Agreement.
SECTION 6
RESTRICTIONS ON COMPETITION
6.1 PREMISES. The Company has invested prior to the date hereof and
expects to continue to invest considerable time, effort, and capital in
developing the business of the Company and its Affiliates enhancing the value
and desirability of the skills of its executives and technical personnel. This
investment, together with the compensation payable to Executive pursuant to
Article 4, reflect the Company's expectation of receiving a considerable return
from the exclusive use of Executive's services and know-how in the future, free
from any risk that the Company's competitors may attempt to induce Executive to
leave the Company and wrongfully gain the benefit of the Company's investment.
The partial restraint set forth in Section 6.2 hereof does not, and cannot,
provide complete protection for the Company's investment, but the Company and
Executive believe that, in combination with the other provisions of the
Agreement, it is a fair and reasonable measure permitted under applicable law to
protect the Company's interests, giving due regard to both the interests of
Executive and the interests of the Company. Executive hereby (i) agrees that the
restrictions contained within Section 6 are reasonable and necessary for the
protection of the goodwill of the business of the
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<PAGE> 7
Company during the term of the Agreement and thereafter and that the limitations
as to period of time and geographic area contained in Section 6.2 are reasonable
and necessary for the protection of the Company's business; and (ii)
acknowledges that the Company would not have entered into the Agreement but for
these restrictions. For purposes of this Section 6, "Company" means the Company
and its subsidiaries and affiliates.
6.2 COVENANT NOT TO COMPETE SOLICIT. Subject to receipt by Executive of
the compensation payable pursuant to Article 4 and Section 8.5, during the term
of the Agreement and for a period equal to two (2) years from the earlier of the
date of expiration or termination of the Agreement (at any time for any reason),
Executive shall not:
(a) directly or indirectly, for himself, as an owner,
partner, principal, shareholder, officer, director, employee, or
independent contractor engage in the development, management or
operation of any Managed Care Plan (i) within two hundred (200) miles
from any city, town where the Company has established a Managed Care
Plan or (ii) in any state in which a Managed Care Plan established by
the Company has contracted with state Medicaid agencies for the
delivery of health care services within such state; or
(b) attempt, directly or indirectly, to solicit or entice
(i) any employee or consultant of the Company to terminate his or her
employment or consultants with the Company or to become employed by or
associated with any person, firm or corporation other than the Company,
or approach any such employee or associate of any of the foregoing
purposes or authorize or assist in the taking of any such action by any
third party; (ii) any existing customer, business partner or client of
the Company to terminate or reduce its relationship with the Company;
or (iii) any prospective customer, business partner or client of the
Company to refrain from doing business with the Company.
6.3 INTERPRETATION. If Executive violates the restrictive covenant in
Section 6.02 and the Company brings legal action for injunctive or other relief,
the Company shall not, as a result of the time involved in obtaining the relief,
be deprived of the benefit of the full period of the restrictive covenant.
Accordingly, unless Executive contests the alleged violation in a court of law
and is the prevailing party in a nonappealable decision of the applicable court,
the restrictive covenant shall be deemed to have the two-year post-employment
duration specified in Section 6.2 hereof computed from the date the relief is
granted but reduced by the period when the restriction began to run and the date
of the first violation by Executive. Notwithstanding the foregoing, however, to
the extent this provision is invalid or unenforceable under the laws of any
applicable jurisdiction, the remainder of Section 6 shall be interpreted, status
quo ante, as if Section 6.3 had never been included herein and was an absolute
nullity.
6.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges and agrees
that a violation of any of the provisions contained in Section 6.02 will cause
irreparable damage to
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<PAGE> 8
the Company, the exact amount of which may be impossible to ascertain and that,
for such reason, among others, the Company shall be entitled to injunctive
relief, both pendente lite and permanently, against Executive to restrain any
further violation of such provisions, and Executive hereby (i) consents to any
initiation by the Company in a court of competent jurisdiction of any action to
enjoin immediately any breach of the Agreement, and (ii) hereby releases the
Company from the requirement of posting any bond in connection with temporary or
interlocutory injunctive relief, to the extent permitted by law. This provision
with respect to injunctive relief shall not, however, diminish the right of the
Company to pursue any other rights and remedies the Company may have against
Executive, including, but not limited to, the recovery of damages.
6.5 DURATION. The restrictions contained in this Section 6 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of the Agreement.
SECTION 7
TERMINATION OF EMPLOYMENT
The Agreement shall terminate prior to its expiration upon the earliest
to occur of any of the following events:
7.1 FOR CAUSE. Upon written notice by the Company to Executive, which
shall specify the "cause" for termination. For purposes hereof, "cause" shall
include, without limitation Conviction of a felony; habitual drunkenness; and/or
material breach of the Agreement. If thirty (30) days after receipt by Executive
of written notice thereof from the Company, to correct, cease, or otherwise
alter any material breach of the Agreement, or other willful action that
recklessly affects the Company's business, Executive has not reasonably
corrected the alleged "cause," the Agreement may be terminated. If Executive
disputes that "cause" exists for the termination of Executive's employment, the
decision with respect to the existence of "cause" for termination shall be made
by an arbitrator selected in accordance with the rules of the American
Arbitration Association.
7.2 DEATH. Upon Executive's death;
7.3 DISABILITY. Upon the Company's written notice, at the Company's
sole option, upon Executive's disability. "Disability" shall have the definition
ascribed in the Company's group disability policy if coverage under the policy
is conditioned on using such definition. If no such policy exists or if coverage
is not conditioned on using such definition, then, for purposes of the
Agreement, "Disability" means the inability of Executive to perform Executive's
duties with reasonable accommodation by the Company for ninety (90) days in any
one hundred eighty ( 180) consecutive day period.
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<PAGE> 9
SECTION 8
SEVERANCE
8.1 DEATH. If Executive's employment is terminated pursuant to Section
7.02 as a result of Executive's death, the following provisions shall apply:
(a) The Company shall pay to Executive's personal
representative the Base Salary (as adjusted) through the end of the
calendar month in which Executive's death occurs.
(b) The Company shall pay to Executive's personal
representative (i) the earned but unpaid Incentive Compensation for the
calculation period ended prior to the date of Executive's death and
(ii) a pro rata share (based on the number of days in the period during
which Executive was alive) of Executive's Incentive Compensation for
the calculation period in which Executive died provided that more than
three (3) months of such calculation period has elapsed as of
Executive's death. Such amounts shall be payable in accordance with the
Executive Bonus Plan. If Executive's death occurs during the first
three (3) months of an Incentive Compensation calculation period, no
Incentive Compensation shall be payable with respect to such period.
8.2 DISABILITY. If Executive's employment is terminated pursuant to
Section 7.03 as a result of Executive's Disability, the following provisions
shall apply:
(a) The Company shall maintain any health insurance
coverage provided to Executive hereunder until the expiration of the
Initial Term or any applicable renewal term for Executive and
Executive's dependents, or, if the Company's benefit insurer does not
permit such continuation, pay to Executive the amount of the health
insurance premium the Company would have paid to provide such insurance
to Executive and Executive's dependents. Nothing herein shall affect
any rights to continuation coverage of Executive or Executive's
dependents with respect to any insurance coverage as provided by law.
(b) The Company shall maintain any life insurance
coverage provided to Executive hereunder on Executive's life, payable
to Executive or, as designated by Executive, Executive's beneficiaries
until the expiration of the Initial Term or any applicable renewal
term.
(c) The Company shall pay to Executive the Base Salary
(as adjusted) through the end of the calendar month immediately prior
to the initiation of periodic payments under the Company's group
disability policy.
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<PAGE> 10
(d) The Company shall pay to Executive (i) the earned but
unpaid Incentive Compensation for the calculation period ended prior to
the date of employment termination and (ii) a pro rata share (based on
the number of days in the period during which Executive not disabled)
of Executive's Incentive Compensation for the calculation period in
which Executive was terminated from employment provided that more than
three (3) months of such calculation period has elapsed as of the date
of termination. Such amounts shall be payable in accordance with the
Executive Bonus Plan. If Executive's employment termination occurs
during the first three (3) months of an Incentive Compensation
calculation period, no Incentive Compensation shall be payable with
respect to such period.
8.3 TERMINATION FOR CAUSE. If Executive's employment is terminated for
"cause" pursuant to Section 7.01, the following provisions shall apply:
(a) The Company shall pay to Executive the Base Salary
(as adjusted) through the date of termination.
(b) Executive shall forfeit all accrued but unpaid
Incentive Compensation and all invested options under the Company's
1995 Stock Option Plan. The foregoing sentence is not a penalty, but is
intended to constitute liquidated damages to compensate the Company for
damages, which may be difficult to measure, suffered by the Company as
a result of Executive's conduct. Nothing contained in this Section 8.03
shall be deemed to limit the Company's ability to obtain equitable
relief.
(c) Health insurance coverage provided to Executive
hereunder for Executive and Executive's dependents and any life
insurance coverage provided to Executive hereunder on Executive's life,
payable to Executive or, as designated by Executive, Executive's
beneficiaries shall terminate as of the last day of the month in which
Executive's employment terminates. Nothing herein shall affect any
rights to continuation coverage of Executive or Executive's dependents
with respect to any insurance coverage as provided by law.
8.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment is
terminated by mutual agreement, the parties hereto shall structure a mutually
acceptable severance benefits program which shall be documented in a Termination
Agreement to be executed by the parties immediately prior to Executive's
resignation from employment.
8.5 OTHER. If Executive's employment is terminated for reasons other
than death, "cause," mutual agreement or Disability, Executive shall be entitled
to receive the Base Salary, as adjusted by the Base Salary Adjustment, for the
remainder of the Initial Term or the applicable renewal term and all invested
stock options granted pursuant to the Company's 1995 Stock Option Plan shall
accelerate and become vested. If Executive's employment is not renewed
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<PAGE> 11
following expiration of the Initial Term or the applicable renewal term,
Executive shall be entitled to receive, as severance, the Base Salary, as last
adjusted by the Base Salary Adjustment, for the twelve (12) month period
following Executive's severance of employment.
SECTION 9
MISCELLANEOUS
9.1 GOVERNING LAW. The Agreement shall be deemed to have been executed
in the State of Tennessee and shall be governed and construed as to both
substantive and procedural matters in accordance with the laws of the State of
Tennessee, but excepting (i) any State' of Tennessee rule which would result in
judicial failure to enforce the arbitration provisions of Section 9.4 hereof or
any portion thereof and (ii) any State of Tennessee rule which would result in
the application of the law of a jurisdiction other than the State of Tennessee.
9.2 PRIOR AGREEMENTS. The Agreement, together with any Option Award
Agreement and Executive Bonus Plan, contains the entire agreement of the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter, and the parties hereto have
made no agreements, representations or warranties relating to the subject matter
of the Agreement which are not set forth herein.
9.3 AMENDMENT. The Agreement may not be amended, modified, superseded,
canceled or terminated, and any of the matters, covenants, representations,
warranties or conditions hereof may not be waived, except by written instrument
executed by the parties hereto or, in the case of a waiver, by the party to be
charged with such waiver.
9.4 ARBITRATION. Any controversy or claim arising out of or relating to
the Agreement, or the breach hereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, in the county in which the principal office of the Company is
located, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction over the parties hereto. The dispute shall be
resolved by a panel of three arbitrators if the dollar amount in question that
is being arbitrated exceeds fifty thousand dollars ($50,000). The parties hereto
shall have full rights to pursue equitable remedies in furtherance of enforcing
the Agreement without interference from any arbitration proceedings.
9.5 SEVERABILITY. To the extent any provision of the Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of the Agreement shall be unaffected and not in
limitation of business activities covered by, any provision of the Agreement be
in excess of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or activities
which may validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in
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this respect and expressly stipulates that the Agreement be given the
construction which renders its provisions valid and enforceable to the maxims
extent possible under applicable law.
9.6 ASSIGNMENT. The Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under the Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
fifty (50%) percent or more of the equity investment and of the voting control
is owned, directly or indirectly, by, or is under common ownership with the
Company. After any such assignment by the Company, the Company shall be
discharged from all further liability hereunder, and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of the
Agreement including this Section 9.
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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed as of the day and year first above written.
BIRMAN MANAGED CARE, INC., a
Tennessee corporation
By:___________________________
David N. Birman, M.D.
Chairman and Chief Executive Officer
[CORPORATE SEAL]
EXECUTIVE:
_________________________(SEAL)
ROBERT D. ARKIN
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SCHEDULE 3.2
Board of Directors, Virtual School Technologies, Inc., Global Cellular Network,
Inc. and Monuments of America, Inc.
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<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1996, by and among BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"), BMC HEALTH PLANS, INC., a Tennessee
corporation ("BMC") and VINCENT W. WONG, an Arizona resident ("Executive").
W I T N E S S E T H:
WHEREAS, BMC and Executive mutually desire that Executive be employed
in accordance with the terms and conditions hereof as BMC's President and Chief
Executive Officer;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. EMPLOYMENT. BMC hereby employs Executive, and Executive hereby
accepts employment from BMC as President and Chief Executive Officer. Executive
shall perform services for BMC for the period and upon the terms and conditions
set forth in the Agreement and shall hold such other positions with BMC or any
Affiliate as BMC may specify from time to time. "Affiliate" means a person that,
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
2. TERM. Subject to the provisions for termination set forth
herein, the term of Executive's employment under the Agreement shall commence as
of the date hereof and shall continue up to and including January 31, 1999 (the
"Initial Term"). Following the expiration of the Initial Term, BMC may extend
the Agreement for an additional term of three (3) years.
3. POSITION AND DUTIES.
3.1 SERVICES. During the term of the Agreement, Executive
shall perform such duties as are customary to Executive's office and as are
designated by the Company's Chief Executive Officer or the Board of Directors
from time to time. Executive also shall serve, for any period for which
Executive is elected, as a member of the Board of Directors of BMC andlor any of
its Affiliates without additional compensation.
<PAGE> 2
3.2 PERFORMANCE OF DUTIES. Executive shall serve BMC
faithfully and to the best of Executive's ability and devote such time,
attention, skill and effort as is required to effectively discharge Executive's
duties hereunder. Executive shall provide services to BMC on an exclusive basis
and shall not be employed or otherwise provide services to any other entity
without the prior written consent of BMC, which consent shall not be
unreasonably withheld. Executive shall undertake such reasonable travel to the
corporate headquarters of the Company in Cookeville, Tennessee and to such other
locations in which the Company does, or proposes to do, business as shall be
necessary to perform Executive's duties hereunder.
4. COMPENSATION; BENEFITS.
4.1 BASE SALARY. During the Initial Term and any renewal
thereof, BMC shall pay to Executive as compensation for all personal services to
be rendered by Executive under the Agreement, a base salary ("Base Salary"), in
accordance with BMC's customary payroll practices, reduced by applicable
federal, state and local withholding taxes, of one hundred eighty thousand and
no/100 dollars ($180,000) per annum, subject to the following adjustment (the
"Base Salary Adjustment"): Beginning on January 1, 1997 and each January 1
thereafter during the term of the Agreement, the Base Salary shall be increased
by the product of (i) a fraction, the numerator of which is the Extension CPI
Index, and the denominator of which is the Beginning CPI Index, times (ii) the
Base Salary. "Beginning CPI Index" means the U.S. Consumer Price Index for all
Urban Consumers, U.S. City Average (Base year 1982-84=100), published most
immediately preceding January 1, 1996 by the U.S. Department of Labor, Bureau of
Labor Statistics. "Extension CPI Index" means the CPI Index published most
immediately preceding January 1, 1997 and each successive January 1st thereafter
during the term hereof. In the event the CPI Index is changed or discontinued,
the most nearly comparable price index of the U.S. government for computing the
foregoing calculation of the Base Salary Adjustment, after converting said new
index so that the same shall correspond with the changed or discontinued CPI
Index. In addition, in reviewing and setting Executive's Base Salary, the Board
or Compensation Committee, as the case may be, shall consider results of
operations, financial condition, prospects, salary levels for similarly sized
companies in BMC's industry for comparable executive positions, Executive's
performance and other criteria deemed relevant by BMC in assessing Executive's
compensation.
4.2 EXECUTIVE BONUS. In addition to the Base Salary
described in Section 4.1, the Company shall pay Executive an annual
performance-based bonus ("Incentive Compensation") in cash not later than ninety
(90) days after the audit of the books of the Company for such annual period has
been completed by the Company's independent accountants, consisting of the
following two components and determined in accordance with the following:
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<PAGE> 3
(a) On all earnings before interest, depreciation and
taxes (EBIDT) of BMC in the annual fiscal period for which the
Incentive Compensation is being calculated:
<TABLE>
<CAPTION>
PERCENTAGE OF
BASE SALARY (AS ADJUSTED)
ANNUAL EBIDT ------------------------
------------
<S> <C>
Less than $100,000 0%
$100,000 to $200,000 5%
$200,001 to $300,000 10%
$300,001 to $500,000 15%
$500,001 to $750,000 20%
$750,001 to $1,000,000 25%
$1,000,001 to $1,250,000 30%
$1,250,001 to $1,500,000 35%
$1,500,001 to $1,750,000 40%
$1,750,001 to $2,000,000 45%
Over $2,000,000 50%
</TABLE>
(b) On cumulative total enrollment in the Managed Care
plans at the completion of the annual fiscal period for which the
Incentive Compensation is being calculated:
<TABLE>
<CAPTION>
PERCENTAGE OF
BASE SALARY (AS ADJUSTED)
NUMBER OF MEMBERS ------------------------
-----------------
<S> <C>
Less than 5,000 0%
5,001 to 10,000 5%
10,001 to 20,000 10%
20,001 to 30,000 15%
30,001 to 40,000 20%
40,001 to 50,000 25%
50,001 to 60,000 30%
60,001 to 70,000 35%
70,001 to 80,000 40%
80,001 to 90,000 45%
Over 90,000 50%
</TABLE>
4.3 PARTICIPATION IN DEFERRED COMPENSATION AND STOCK OPTION PLANS.
Executive shall be entitled to participate in all employee qualified and
non-qualified deferred compensation plans or supplemental income plans or
programs maintained by
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the Company, including any Section 401(k) plan adopted by the Company, according
to the terms and conditions thereof. Executive shall also be entitled to
participate in the Company's 1995 Stock Option Plan, according to the terms and
conditions of said plan.
4.4 OTHER INSURANCE PLANS. Executive shall be entitled to
participate in any and all plans, arrangements or distributions maintained by
BMC pertaining to or in connection with any pension, life, health insurance,
disability insurance or similar benefits provided by BMC to its employees, as
determined by the Board of Directors pursuant to the governing instruments which
establish and determine eligibility and other rights of the participants and
beneficiaries under such plans or other benefit programs. To the extent
permitted under any applicable group or individual disability policy, the
premium payable by BMC for Executive's benefit shall be reported as income to
Executive on Forms W-2 or 1099.
4.5 VACATION AND SICK LEAVE. Executive will be entitled to
participate in the vacation and sick leave benefit program of BMC to the extent
that Executive's position, title, salary and other qualifications make him
eligible to participate. Vacation time and sick leave may not be accumulated
after the end of any year and, to the extent unused, shall have no economic
value to Executive. Executive's use of vacation time shall be subject to the
prior approval of BMC. Executive shall be entitled to receive vacation time of
up to three weeks per year.
4.6 EXPENSES. BMC will pay or reimburse Executive for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Executive in the performance of duties under the Agreement, subject to the
presentment of appropriate vouchers in accordance with BMC's policies and
procedures as adopted from time to time.
4.7 OFFICE FACILITIES. BMC shall provide Executive with a
furnished office in Scottsdale, Arizona, together with such staff, equipment and
materials as may be reasonably necessary for Executive to fulfill his duties
under this Agreement.
5. CONFIDENTIALITY; RETURN OF MATERIALS.
5.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges
that (i) Executive's services to BMC and its Affiliates will be of a special,
unique, extraordinary and intellectual character, (ii) Executive's position with
BMC or its Affiliates will place Executive in a position of confidence,
responsibility and trust with respect to the operations of BMC and its
Affiliates, and (iii) in reliance on Executive's ethical responsibility and
loyalty, BMC and its Affiliates have entrusted and expect to entrust Executive
with highly sensitive, confidential, restricted and proprietary information
involving Trade Secret Information (as hereinafter defined). Executive
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acknowledges that Executive is legally and ethically responsible for protecting
and preserving the proprietary rights of BMC and its Affiliates for use only for
the benefit of BMC and its Affiliates, and these responsibilities may impose
limitations on Executive's ability to pursue some kinds of business
opportunities that might interest Executive after the termination of Executive's
employment.
5.2 DEFINITION OF "TRADE SECRET INFORMATION". For purposes of the
Agreement, "Trade Secret Information" means information, whether or not in
written or tangible form, in the possession of BMC or its Affiliates and
considered by BMC or its Afffiliates to be proprietary, valuable and
confidential, from which BMC or any of its Afffiliates derives economic value,
actual or potential, by such information 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 is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy. Trade Secret
Information includes, without limitation, (a) any data or information acquired
by Executive during Executive's employment by BMC or its Affiliates relating to
the products, services, business methods, customer accounts or operations of BMC
or any Affiliate or any customer or business partner of BMC or its Afffiliates,
and (b) the techniques and business methods for (i) applying scientific
literature to merge resources and clinical language used in defining medical
payments for purposes of quality management, (ii) utilizing concurrent case
review activity to merge resources and clinical language used in defining
medical payments for the purpose of quality management, (iii) developing and
managing health care provider organizations and providing services thereto, (iv)
developing reimbursement and at-risk systems under capitation, prepayment,
indemnity and other forms of compensatory arrangements, and (v) managing the
delivery, reporting and financing of health care services in managed care and
managed cost settings, including the systems, techniques, strategies and methods
used to compete successfully in these lines of business and the Managed Care
Business generally.
5.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET
INFORMATION. Except as authorized by BMC or any Affiliate, Executive shall not,
during the term of the Agreement and for so long after the termination of
employment as the information or data remains Trade Secret Information, directly
or indirectly divulge, furnish or make accessible to anyone or use in any way
(other than in the ordinary course of business of BMC or its Affiliates) the
Trade Secret Information.
5.4 RETURN OF MATERIALS. Upon the request of BMC or any Affiliate
and, in any event, upon the termination of Executive's employment, Executive
shall return to BMC and leave at the disposal of BMC all copies of memoranda,
notes, records, drawings, manuals, computer programs, documentation, diskettes
and other documents or media, in Executive's possession or control, pertaining
in any way to the business, practices or techniques of BMC or its Afffiliates.
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5.5 DURATION. The restrictions contained in this Section 5 shall
inure to the benefit of BMC and each of its Affiliates and shall survive the
termination of the Agreement.
6. RESTRICTIONS ON COMPETITION.
6.1 PREMISES. BMC has invested prior to the date hereof and
expects to continue to invest considerable time, effort, and capital in
developing the business of BMC and its Affiliates and enhancing the value and
desirability of the skills of its executives and technical personnel. This
investment, together with the compensation payable to Executive pursuant to
Article 4, reflect BMC's expectation of receiving a considerable return from the
exclusive use of Executive's services and know-how in the future, free from any
risk that BMC's competitors may attempt to induce Executive to leave BMC and
wrongfully gain the benefit of BMC's investment. The partial restraint set forth
in Section 6.2 hereof does not, and cannot, provide complete protection for
BMC's investment, but BMC and Executive believe that, in combination with the
other provisions of the Agreement, it is a fair and reasonable measure permitted
under applicable law to protect BMC's interests, giving due regard to both the
interests of Executive and the interests of BMC. Executive hereby (i) agrees
that the restrictions contained within Section 6 are reasonable and necessary
for the protection of the goodwill of the business of BMC during the term of the
Agreement and thereafter and that the limitations as to period of time and
geographic area contained in Section 6.2 are reasonable and necessary for the
protection of BMC's business; and (ii) acknowledges that BMC would not have
entered into the Agreement but for these restrictions.
6.2 COVENANT NOT TO COMPETE; SOLICIT. Subject to receipt by
Executive of the compensation payable pursuant to Article 4 and Section 8.5,
during the term of the Agreement and for a period equal to two (2) years from
the earlier of the date of expiration or termination of the Agreement (at any
time for any reason), Executive shall not:
(a) directly or indirectly, for himself, as an owner,
partner, principal, shareholder, officer, director, employee, or
independent contractor engage in the development, management or
operation of any Managed Care Plan (i) within two hundred (200) miles
from any city, town where BMC has established a Managed Care Plan or
(ii) in any state in which a Managed Care Plan established by BMC has
contracted with state Medicaid agencies for the delivery of health care
services within such state; or
(b) attempt, directly or indirectly, to solicit or entice
(i) any employee or consultant of BMC to terminate his or her
employment or consultancy with BMC or to become employed by or
associated with any person, firm or
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corporation other than BMC, or approach any such employee or associate
of any of the foregoing purposes or authorize or assist in the taking
of any such action by any third party; (ii) any existing customer,
business partner or client of BMC to terminate or reduce its
relationship with BMC; or (iii) any prospective customer, business
partner or client of BMC to refrain from doing business with BMC.
6.3 INTERPRETATION. If Executive violates the restrictive covenant
in Section 6.2 and BMC brings legal action for injunctive or other relief, BMC
shall not, as a result of the time involved in obtaining the relief, be deprived
of the benefit of the full period of the restrictive covenant. Accordingly,
unless Executive contests the alleged violation in a court of law and is the
prevailing party in a nonappealable decision of the applicable court, the
restrictive covenant shall be deemed to have the two-year post- employment
duration specified in Section 6.2 hereof computed from the date the relief is
granted but reduced by the period when the restriction began to run and the date
of the first violation by Executive. Notwithstanding the foregoing, however, to
the extent this provision is invalid or unenforceable under the laws of any
applicable jurisdiction, the remainder of Section 6 shall be interpreted, status
quo ante, as if Section 6.3 had never been included herein and was an absolute
nullity.
6.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges and
agrees that a violation of any of the provisions contained in Section 6.2 will
cause irreparable damage to BMC, the exact amount of which may be impossible to
ascertain and that, for such reason, among others, BMC shall be entitled to
injunctive relief, both pendente lite and permanently, against Executive to
restrain any further violation of such provisions, and Executive hereby (i)
consents to any initiation by BMC in a court of competent jurisdiction of any
action to enjoin immediately any breach of the Agreement, and (ii) hereby
releases BMC from the requirement of posting any bond in connection with
temporary or interlocutory injunctive relief, to the extent permitted by law.
This provision with respect to injunctive relief shall not, however, diminish
the right of BMC to pursue any other rights and remedies BMC may have against
Executive, including, but not limited to, the recovery of damages.
6.5 DURATION. The restrictions contained in this Section 6 shall
inure to the benefit of BMC and each of its Affiliates and shall survive the
termination of the Agreement.
7. TERMINATION OF EMPLOYMENT. The Agreement shall terminate prior to its
expiration upon the earliest to occur of any of the following events:
7.1 FOR CAUSE. Upon written notice by BMC to Executive, which
shall specify the "cause" for termination. For purposes hereof, "cause" shall
include, without
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limitation: Conviction of a felony; habitual drunkenness; and/or material breach
of the Agreement. If thirty (30) days after receipt by Executive of written
notice thereof from BMC, to correct, cease, or otherwise alter any material
breach of the Agreement, or other willful action that recklessly affects BMC's
business, Executive has not reasonably corrected the alleged "cause," the
Agreement may be terminated. If Executive disputes that "cause" exists for the
termination of Executive's employment, the decision with respect to the
existence of "cause" for termination shall be made by an arbitrator selected in
accordance with the rules of the American Arbitration Association.
7.2 DEATH. Upon Executive's death.
7.3 DISABILITY. Upon BMC's written notice, at BMC's sole option,
upon Executive's disability. "Disability" shall have the definition ascribed in
BMC's group disability policy if coverage under the policy is conditioned on
using such definition. If no such policy exists or if coverage is not
conditioned on using such definition, then, for purposes of the Agreement,
"Disability" means the inability of Executive to perform Executive's duties with
reasonable accommodation by BMC for ninety (90) days in any one hundred eighty
(180) consecutive day period.
8. SEVERANCE.
8.1 DEATH. If Executive's employment is terminated pursuant to
Section 7.2 as a result of Executive's death, the following provisions shall
apply:
(a) BMC shall pay to Executive's personal representative
the Base Salary (as adjusted) through the end of the calendar month in
which Executive's death occurs.
(b) BMC shall pay to Executive's personal representative
(i) the earned but unpaid Incentive Compensation for the calculation
period ended prior to the date of Executive's death and (ii) a pro rata
share (based on the number of days in the period during which Executive
was alive) of Executive's Incentive Compensation for the calculation
period in which Executive died provided that more than three (3) months
of such calculation period has elapsed as of Executive's death. If
Executive's death occurs during the first three (3) months of an
Incentive Compensation calculation period, no Incentive Compensation
shall be payable with respect to such period.
8.2 DISABILITY. If Executive's employment is terminated pursuant
to Section 7.3 as a result of Executive's Disability, the following provisions
shall apply:
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(a) BMC shall maintain any health insurance coverage
provided to Executive hereunder until the expiration of the Initial
Term or any applicable renewal term for Executive and Executive's
dependents, or, if BMC's benefit insurer does not permit such
continuation, pay to Executive the amount of the health insurance
premium BMC would have paid to provide such insurance to Executive and
Executive's dependents. Nothing herein shall affect any rights to
continuation coverage of Executive or Executive's dependents with
respect to any insurance coverage as provided by law.
(b) BMC shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's beneficiaries
until the expiration of the Initial Term or any applicable renewal
term.
(c) BMC shall pay to Executive the Base Salary (as
adjusted) through the end of the calendar month immediately prior to
the initiation of periodic payments under BMC's group disability
policy.
(d) BMC shall pay to Executive (i) the earned but unpaid
Incentive Compensation for the calculation period ended prior to the
date of employment termination and (ii) a pro rata share (based on the
number of days in the period during which Executive is not disabled) of
Executive's Incentive Compensation for the calculation period in which
Executive was terminated from employment provided that more than three
(3) months of such calculation period has elapsed as of the date of
termination. If Executive's employment termination occurs during the
first three (3) months of an Incentive Compensation calculation period,
no Incentive Compensation shall be payable with respect to such period.
8.3 TERMINATION FOR CAUSE. If Executive's employment is terminated
for "cause" pursuant to Section 7.1, the following provisions shall apply:
(a) BMC shall pay to Executive the Base Salary (as
adjusted) through the date of termination.
(b) Executive shall forfeit all accrued but unpaid
Incentive Compensation and all unvested options under the Company's
1995 Stock Option Plan. The foregoing sentence is not a penalty, but is
intended to constitute liquidated damages to compensate BMC for
damages, which may be difficult to measure, suffered by BMC as a result
of Executive's conduct. Nothing contained in this Section 8.3 shall be
deemed to limit BMC's ability to obtain equitable relief.
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(c) Health insurance coverage provided to Executive
hereunder for Executive and Executive's dependents and any life
insurance coverage provided to Executive hereunder on Executive's life,
payable to Executive or, as designated by Executive, Executive's
beneficiaries shall terminate as of the last day of the month in which
Executive's employment terminates. Nothing herein shall affect any
rights to continuation coverage of Executive or Executive's dependents
with respect to any insurance coverage as provided by law.
8.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment is
terminated by mutual agreement, the parties hereto shall structure a mutually
acceptable severance benefits program which shall be documented in a Termination
Agreement to be executed by the parties immediately prior to Executive's
resignation from employment.
8.5 OTHER. If Executive's employment is terminated for reasons
other than death, "cause," mutual agreement or Disability, Executive shall be
entitled to receive as severance, the Base Salary, as last adjusted by the Base
Salary Adjustment, for the six (6) month period following Executive's severance
of employment, and all unvested stock options granted pursuant to the Company's
1995 Stock Option Plan shall accelerate and become vested.
9. MISCELLANEOUS.
9.1 GOVERNING LAW. The Agreement shall be deemed to have been
executed in the State of Tennessee and shall be governed and construed as to
both substantive and procedural matters in accordance with the laws of the State
of Tennessee, but excepting (i) any State of Tennessee rule which would result
in judicial failure to enforce the arbitration provisions of Section 9.4 hereof
or any portion thereof and (ii) any State of Tennessee rule which would result
in the application of the law of a jurisdiction other than the State of
Tennessee.
9.2 PRIOR AGREEMENTS. The Agreement, together with any Option
Award Agreement, contains the entire agreement of the parties relating to the
subject matter hereof and supersedes all prior agreements and understandings
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of the
Agreement which are not set forth herein.
9.3 AMENDMENT. The Agreement may not be amended, modified,
superseded, canceled or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived, except by
written instrument executed by the parties hereto or, in the case of a waiver,
by the party to be charged with such waiver.
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9.4 ARBITRATION. Any controversy or claim arising out of or
relating to the Agreement, or the breach hereof, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, in the county in which the principal office of BMC is located, and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction over the parties hereto. The dispute shall be resolved by a
panel of three arbitrators if the dollar amount in question that is being
arbitrated exceeds fifty thousand dollars ($50,000). The parties hereto shall
have full rights to pursue equitable remedies in furtherance of enforcing the
Agreement without interference from any arbitration proceedings.
9.5 SEVERABILITY. To the extent any provision of the Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of the Agreement shall be unaffected and not
in limitation of business activities covered by, any provision of the Agreement
be in excess of that which is valid and enforceable under applicable law, then
such provision shall be construed to cover only that duration, extent or
activities which may validly and enforceably be covered. Executive acknowledges
the uncertainty of the law in this respect and expressly stipulates that the
Agreement be given the construction which renders its provisions valid and
enforceable to the maximum extent possible under applicable law.
9.6 ASSIGNMENT. The Agreement shall not be assignable, in whole or
in part, by either party without the written consent of the other party, except
that BMC may, without the consent of Executive, assign its rights and
obligations under the Agreement to any corporation, firm or other business
entity with or into which BMC may merge or consolidate, or to which BMC may sell
or transfer all or substantially all of its assets, or of which fifty percent
(50%) or more of the equity investment and of the voting control is owned,
directly or indirectly, by, or is under common ownership with BMC. After any
such assignment by BMC,BMC shall be discharged from all further liability
hereunder, and such assignee shall thereafter be deemed to be BMC for the
purposes of all provisions of the Agreement including this Section 9.
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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed as of the day and year first above written.
BIRMAN MANAGED CARE, INC.
a Tennessee corporation
By:_____________________________________
David N. Birman, M.D.
Chairman and Chief Executive Office
[CORPORATE SEAL]
BMC HEALTH PLANS, INC.,
a Tennessee corporation
By:_____________________________________
Vincent W. Wong
President and Chief Executive Officer
EXECUTIVE:
__________________________________(SEAL)
VINCENT W. WONG
12
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EXHIBIT 10.5
AMENDMENT NO. 1
THIS INSTRUMENT, dated as of June 1, 1996, by and between Birman
Managed Care, Inc., a Tennessee corporation (the "Company"), and Douglas A.
Lessard ("Executive"), constitutes a first amendment to that certain Employment
Agreement by and between Executive and the Company dated as of March 1, 1996
(the "Agreement"). The Company and Executive are hereinafter referred to as the
"Parties."
RECITALS:
WHEREAS, the Parties desire to amend the Agreement;
NOW, THEREFORE, for and in consideration of the premises set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged by each of the parties, intending to be legally bound,
agree as follows:
1. The preamble and Section 1 of the Agreement are hereby amended by
deleting "Comptroller/Director of Finance" and by inserting in lieu thereof
"Chief Financial Officer."
2. Section 4.1 is hereby amended by deleting "eighty-five thousand and
no/100 dollars ($85,000) per annum" and by inserting in lieu thereof "ninety
thousand and no/100 dollars ($90,000)."
The Agreement, as above amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
BIRMAN MANAGED CARE, INC.
By:______________________________________
David N. Birman, M.D.,
President and Chief Executive Officer
EXECUTIVE:
_________________________________________
Douglas A. Lessard
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of March, 1996, by and between BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"), and DOUGLAS A. LESSARD, a Tennessee
resident ("Executive").
WITNESSETH:
WHEREAS, the Company and Executive mutually desire that Executive be
employed in accordance with the terms and conditions hereof as the Company's
Comptroller/Director of Finance;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company as Comptroller/Director of Finance.
Executive shall perform services for the Company for the period and upon the
terms and conditions set forth in the Agreement and shall hold such other
positions with the Company or any Affiliate as the Company may specify from time
to time. "Affiliate" means a person that, directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified.
2. TERM. Subject to the provisions for termination set forth herein,
the term of Executive's employment under the Agreement shall commence as of the
date hereof and shall continue up to and including June 30, 2001 (the "Initial
Term"). Following the expiration of the Initial Term, the Company may extend the
Agreement for an additional term of five (5) years.
3. POSITION AND DUTIES.
3.1 SERVICES. During the term of the Agreement, Executive
shall perform such duties as are customary to Executive's office and as
are designated by the Chief Executive Officer or the Board of Directors
from time to time. Executive also shall serve, for any period for which
Executive is elected, as a member of the Board of Directors of the
Company and/or any of its Affiliates without additional compensation.
<PAGE> 3
3.2 PERFORMANCE OF DUTIES. Executive shall serve the Company
faithfully and to the best of Executive's ability and devote such time,
attention, skill and effort as is required to effectively discharge
Executive's duties hereunder. Executive shall provide services to the
Company on an exclusive basis and shall not be employed or otherwise
provide services to any other entity without the prior written consent
of the Company, which consent shall not be unreasonably withheld.
4. COMPENSATION; BENEFITS.
4.1 BASE SALARY. During the Initial Term and any renewal
thereof, the Company shall pay to Executive as compensation for all
personal services to be rendered by Executive under the Agreement, a
base salary ("Base Salary"), in accordance with the Company's customary
payroll practices, reduced by applicable federal, state and local
withholding taxes, of eighty-five thousand and no/100 dollars ($85,000
per annum, subject to the following adjustment (the "Base Salary
Adjustment"): Beginning on July 1, 1997 and each July 1 thereafter
during the term of the Agreement, the Base Salary shall be increased by
the product of (i) a fraction, the numerator of which is the Extension
CPI Index, and the denominator of which is the Beginning CPI Index,
times (ii) the Base Salary. "Beginning CPI Index means the U.S.
Consumer Price Index for all Urban Consumers, U.S. City Average (Base
year 1982-84=100), published most immediately preceding July 1, 1996 by
the U.S. Department of Labor, Bureau of Labor Statistics. Extension CPI
Index" means the CPI Index published most immediately preceding the
July 1, 1997 and each successive July 1st thereafter during the term
hereof. In the event the CPI Index is changed or discontinued, the most
nearly comparable price index of the U.S. government for computing the
foregoing calculation of the Base Salary Adjustment, after converting
said new index so that the same shall correspond with the changed or
discontinued CPI Index. In addition, in reviewing and setting
Executive's Base Salary, the Board or Compensation Committee, as the
case may be, shall consider results of operations, financial condition,
prospects, salary levels for similarly sized companies in the Company's
industry for comparable executive positions, Executive's performance
and other criteria deemed relevant by the Company in assessing
Executive's compensation.
4.2 EXECUTIVE BONUS PLAN AND OTHER COMPENSATION. In addition
to the Base Salary described in Section 4.1, Executive shall be
entitled to participate in the Company's Executive Bonus Plan according
to the terms and conditions thereof, and receive incentive compensation
thereunder ("Incentive Compensation").
4.3 PARTICIPATION IN DEFERRED COMPENSATION AND STOCK OPTION
PLANS. Executive shall be entitled to participate in all employee
qualified and non-qualified deferred compensation plans or supplemental
income plans or programs maintained by the Company, including any
Section 401(k) plan adopted by the Company, according to
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the terms and conditions thereof. Executive shall also be entitled to
participate in Birman's 1995 Stock Option Plan, according to the terms
and conditions of said plan.
4.4 OTHER INSURANCE PLANS. Executive shall be entitled to
participate in any and all plans, arrangements or distributions
maintained by the Company pertaining to or in connection with any
pension, life, health insurance, disability insurance or similar
benefits provided by the Company to its employees, as determined by the
Board of Directors pursuant to the governing instruments which
establish and determine eligibility and other rights of the
participants and beneficiaries under such plans or other benefit
programs. To the extent permitted under any applicable group or
individual disability policy, the premium payable by the Company for
Executive's benefit shall be reported as income to Executive on Forms
W-2 or 1099.
4.5 VACATION AND SICK LEAVE. Executive will be entitled to
participate in the vacation and sick leave benefit program of the
Company to the extent that Executive's position, title, salary and
other qualifications make him eligible to participate. Vacation time
and sick leave may not be accumulated after the end of any year and, to
the extent unused, shall have no economic value to Executive.
Executive's use of vacation time shall be subject to the prior approval
of the Company.
4.6 EXPENSES. The Company will pay or reimburse Executive for
all reasonable and necessary travel and other out-of-pocket expenses
incurred by Executive in the performance of duties under the Agreement,
subject to the presentment of appropriate vouchers in accordance with
the Company's policies and procedures as adopted from time to time.
5. CONFIDENTIALITY; RETURN OF MATERIALS.
5.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges
that (i) Executive's services to the Company and its Affiliates will be
of a special, unique, extraordinary and intellectual character, (ii)
Executive's position with the Company or its Affiliates will place
Executive in a position of confidence, responsibility and trust with
respect to the operations of the Company and its Affiliates, and (iii)
in reliance on Executive's ethical responsibility and loyalty, the
Company and its Affiliates have entrusted and expect to entrust
Executive with highly sensitive, confidential, restricted and
proprietary information involving Trade Secret Information (as
hereinafter defined). Executive acknowledges that Executive is legally
and ethically responsible for protecting and preserving the proprietary
rights of the Company and its Affiliates for use only for the benefit
of the Company and its Affiliates, and these responsibilities may
impose limitations on Executive's ability to pursue some kinds of
business opportunities that might interest Executive after the
termination of Executive's employment.
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5.2 DEFINITION OF "TRADE SECRET INFORMATION". For purposes of
the Agreement, "Trade Secret Information" means information, whether or
not in written or tangible form, in the possession of the Company or
its Affiliates and considered by the Company or its Affiliates to be
proprietary, valuable and confidential, from which the Company or any
of its Affiliates derives economic value, actual or potential, by such
information 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 is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy. Trade
Secret Information includes, without limitation, (a) any data or
information acquired by Executive during Executive's employment by the
Company or its Affiliates relating to the products, services, business
methods, customer accounts or operations of the Company or any
Affiliate or any customer or business partner of the Company or its
Affiliates, and (b) the techniques and business methods for (i)
applying scientific literature to merge resources and clinical language
used in defining medical payments for purposes of quality management,
(ii) utilizing concurrent case review activity to merge resources and
clinical language used in defining medical payments for the purpose of
quality management, (iii) developing and managing health care provider
organizations and providing services thereto, (iv) developing
reimbursement and at-risk systems under capitation, prepayment,
indemnity and other forms of compensatory arrangements, and (v)
managing the delivery, reporting and financing of health care services
in managed care and managed cost settings, including the systems,
techniques, strategies and methods used to compete successfully in
these lines of business and the Managed Care Business generally.
5.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET
INFORMATION. Except as authorized by the Company or any Affiliate,
Executive shall not, during the term of the Agreement and for so long
after the termination of employment as the information or data remains
Trade Secret Information, directly or indirectly divulge, furnish or
make accessible to anyone or use in any way (other than in the ordinary
course of business of the Company or its Affiliates) the Trade Secret
Information.
5.4 RETURN OF MATERIALS. Upon the request of the Company or
any Affiliate and, in any event, upon the termination of Executive's
employment, Executive shall return to the Company and leave at the
disposal of the Company all copies of memoranda, notes, records,
drawings, manuals, computer programs, documentation, diskettes and
other documents or media, in Executive's possession or control,
pertaining in any way to the business, practices or techniques of the
Company or its Affiliates.
5.5 DURATION. The restrictions contained in this Section 5
shall inure to the benefit of the Company and each of its Affiliates
and shall survive the termination of the Agreement.
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6. RESTRICTIONS ON COMPETITION.
6.1 PREMISES. The Company has invested prior to the date hereof
and expects to continue to invest considerable time, effort, and
capital in developing the business of the Company and its Affiliates
and enhancing the value and desirability of the skills of its
executives and technical personnel. This investment, together with the
compensation payable to Executive pursuant to Article 4, reflect the
Company's expectation of receiving a considerable return from the
exclusive use of Executive's services and know-how in the future, free
from any risk that the Company's competitors may attempt to induce
Executive to leave the Company and wrongfully gain the benefit of the
Company's investment. The partial restraint set forth in Section 6.2
hereof does not, and cannot, provide complete protection for the
Company's investment, but the Company and Executive believe that, in
combination with the other provisions of the Agreement, it is a fair
and reasonable measure permitted under applicable law to protect the
Company's interests, giving due regard to both the interests of
Executive and the interests of the Company. Executive hereby (i) agrees
that the restrictions contained within Section 6 are reasonable and
necessary for the protection of the goodwill of the business of the
Company during the term of the Agreement and thereafter and that the
limitations as to period of time and geographic area contained in
Section 6.2 are reasonable and necessary for the protection of the
Company's business; and (ii) acknowledges that the Company would not
have entered into the Agreement but for these restrictions. For
purposes of this Section 6, "Company" means the Company and its
subsidiaries and affiliates.
6.2 COVENANT NOT TO COMPETE; SOLICIT. Subject to receipt by
Executive of the compensation payable pursuant to Article 4 and Section
8.5, during the term of the Agreement and for a period equal to two (2)
years from the earlier of the date of expiration or termination of the
Agreement (at any time for any reason), Executive shall not:
(a) directly or indirectly, for himself, as an owner,
partner, principal, shareholder, officer, director, employee, or
independent contractor engage in the development, management or
operation of any Managed Care Plan (i) within two hundred (200)
miles from any city, town where the Company has established a
Managed Care Plan or (ii) in any state in which a Managed Care
Plan established by the Company has contracted with state Medicaid
agencies for the delivery of health care services within such
state; or
(b) attempt, directly or indirectly, to solicit or entice
(i) any employee or consultant of the Company to terminate his or
her employment or consultancy with the Company or to become
employed by or associated with any person, firm or corporation
other than the Company, or approach any such employee or associate
of any of the foregoing purposes or authorize or assist in the
taking of
5
<PAGE> 7
any such action by any third party; (ii) any existing customer,
business partner or client of the Company to terminate or reduce
its relationship with the Company; or (iii) any prospective
customer, business partner or client of the Company to refrain
from doing business with the Company.
6.3 INTERPRETATION. If Executive violates the restrictive
covenant in Section 6.2 and the Company brings legal action for
injunctive or other relief, the Company shall not, as a result of the
time involved in obtaining the relief, be deprived of the benefit of
the full period of the restrictive covenant. Accordingly, unless
Executive contests the alleged violation in a court of law and is the
prevailing party in a nonappealable decision of the applicable court,
the restrictive covenant shall be deemed to have the two-year
post-employment duration specified in Section 6.2 hereof computed from
the date the relief is granted but reduced by the period when the
restriction began to run and the date of the first violation by
Executive. Notwithstanding the foregoing, however, to the extent this
provision is invalid or unenforceable under the laws of any applicable
jurisdiction, the remainder of Section 6 shall be interpreted, status
quo ante, as if Section 6.3 had never been included herein and was an
absolute nullity.
6.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges
and agrees that a violation of any of the provisions contained in
Section 6.2 will cause irreparable damage to the Company, the exact
amount of which may be impossible to ascertain and that, for such
reason, among others, the Company shall be entitled to injunctive
relief, both pendente lite and permanently, against Executive to
restrain any further violation of such provisions, and Executive hereby
(i) consents to any initiation by the Company in a court of competent
jurisdiction of any action to enjoin immediately any breach of the
Agreement, and (ii) hereby releases the Company from the requirement of
posting any bond in connection with temporary or interlocutory
injunctive relief, to the extent permitted by law. This provision with
respect to injunctive relief shall not, however, diminish the right of
the Company to pursue any other rights and remedies the Company may
have against Executive, including, but not limited to, the recovery of
damages.
6.5 DURATION. The restrictions contained in this Section 6
shall inure to the benefit of the Company and each of its Affiliates
and shall survive the termination of the Agreement.
7. TERMINATION OF EMPLOYMENT. The Agreement shall terminate prior to
its expiration upon the earliest to occur of any of the following events:
7.1 FOR CAUSE. Upon written notice by the Company to Executive,
which shall specify the "cause" for termination. For purposes hereof,
"cause" shall include, without limitation: Conviction of a felony;
habitual drunkenness; and/or material breach
6
<PAGE> 8
of the Agreement. If thirty (30) days after receipt by Executive of
written notice thereof from the Company, to correct, cease, or
otherwise alter any material breach of the Agreement, or other willful
action that recklessly affects the Company's business, Executive has
not reasonably corrected the alleged "cause," the Agreement may be
terminated. If Executive disputes that "cause" exists for the
termination of Executive's employment, the decision with respect to the
existence of "cause" for termination shall be made by an arbitrator
selected in accordance with the rules of the American Arbitration
Association.
7.2 DEATH. Upon Executive's death;
7.3 DISABILITY. Upon the Company's written notice, at the
Company's sole option, upon Executive's disability. "Disability" shall
have the definition ascribed in the Company's group disability policy
if coverage under the policy is conditioned on using such definition.
If no such policy exists or if coverage is not conditioned on using
such definition, then, for purposes of the Agreement, "Disability"
means the inability of Executive to perform Executive's duties with
reasonable accommodation by the Company for ninety (90) days in any one
hundred eighty (180) consecutive day period.
8. SEVERANCE.
8.1 DEATH. If Executive's employment is terminated pursuant to
Section 7.2 as a result of Executive's death, the following provisions
shall apply:
(a) The Company shall pay to Executive's personal
representative the Base Salary (as adjusted) through the end of
the calendar month in which Executive's death occurs.
(b) The Company shall pay to Executive's personal
representative (i) the earned but unpaid Incentive Compensation
for the calculation period ended prior to the date of Executive's
death and (ii) a pro rata share (based on the number of days in
the period during which Executive was alive) of Executive's
Incentive Compensation for the calculation period in which
Executive died provided that more than three (3) months of such
calculation period has elapsed as of Executive's death. Such
amounts shall be payable in accordance with the Executive Bonus
Plan. If Executive's death occurs during the first three (3)
months of an Incentive Compensation calculation period, no
Incentive Compensation shall be payable with respect to such
period.
8.2 DISABILITY. If Executive's employment is terminated pursuant
to Section 7.3 as a result of Executive's Disability, the following
provisions shall apply:
7
<PAGE> 9
(a) The Company shall maintain any health insurance
coverage provided to Executive hereunder until the expiration of
the Initial Term or any applicable renewal term for Executive and
Executive's dependents, or, if the Company's benefit insurer does
not permit such continuation, pay to Executive the amount of the
health insurance premium the Company would have paid to provide
such insurance to Executive and Executive's dependents. Nothing
herein shall affect any rights to continuation coverage of
Executive or Executive's dependents with respect to any insurance
coverage as provided by law.
(b) The Company shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's
beneficiaries until the expiration of the Initial Term or any
applicable renewal term.
(c) The Company shall pay to Executive the Base Salary (as
adjusted) through the end of the calendar month immediately prior
to the initiation of periodic payments under the Company's group
disability policy.
(d) The Company shall pay to Executive (i) the earned but
unpaid Incentive Compensation for the calculation period ended
prior to the date of employment termination and (ii) a pro rata
share (based on the number of days in the period during which
Executive not disabled) of Executive's Incentive Compensation for
the calculation period in which Executive was terminated from
employment provided that more than three (3) months of such
calculation period has elapsed as of the date of termination. Such
amounts shall be payable in accordance with the Executive Bonus
Plan. If Executive's employment termination occurs during the
first three (3) months of an Incentive Compensation calculation
period, no Incentive Compensation shall be payable with respect to
such period.
8.3 TERMINATION FOR CAUSE. If Executive's employment is
terminated for "cause" pursuant to Section 7.1, the following
provisions shall apply:
(a) The Company shall pay to Executive the Base Salary (as
adjusted) through the date of termination.
(b) Executive shall forfeit all accrued but unpaid Incentive
Compensation and all unvested options under the Company's 1995
Stock Option Plan. The foregoing sentence is not a penalty, but is
intended to constitute liquidated damages to compensate the
Company for damages, which may be difficult to measure, suffered
by the Company as a result of Executive's conduct. Nothing
contained in this Section 8.3 shall be deemed to limit the
Company's ability to obtain equitable relief.
8
<PAGE> 10
(c) Health insurance coverage provided to Executive
hereunder for Executive and Executive's dependents and any life
insurance coverage provided to Executive hereunder on Executive's
life, payable to Executive or, as designated by Executive,
Executive's beneficiaries shall terminate as of the last day of
the month in which Executive's employment terminates. Nothing
herein shall affect any rights to continuation coverage of
Executive or Executive's dependents with respect to any insurance
coverage as provided by law.
8.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment
is terminated by mutual agreement, the parties hereto shall structure a
mutually acceptable severance benefits program which shall be
documented in a Termination Agreement to be executed by the parties
immediately prior to Executive's resignation from employment.
8.5 OTHER. If Executive's employment is terminated for reasons
other than death, "cause," mutual agreement or Disability, Executive
shall be entitled to receive the Base Salary, as adjusted by the Base
Salary Adjustment, for the remainder of the Initial Term or the
applicable renewal term and all unvested stock options granted pursuant
to the Company's 1995 Stock Option Plan shall accelerate and become
vested. If Executive's employment is not renewed following expiration
of the Initial Term or the applicable renewal term, Executive shall be
entitled to receive, as severance, the Base Salary, as last adjusted by
the Base Salary Adjustment, for the twelve (12) month period following
Executive's severance of employment.
9. MISCELLANEOUS.
9.1 GOVERNING LAW. The Agreement shall be deemed to have been
executed in the State of Tennessee and shall be governed and construed
as to both substantive and procedural matters in accordance with the
laws of the State of Tennessee, but excepting (i) any State of
Tennessee rule which would result in judicial failure to enforce the
arbitration provisions of Section 9.4 hereof or any portion thereof and
(ii) any State of Tennessee rule which would result in the application
of the law of a jurisdiction other than the State of Tennessee.
9.2 PRIOR AGREEMENTS. The Agreement, together with any Option
Award Agreement and Executive Bonus Plan, contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all
prior agreements and understandings with respect to such subject
matter, and the parties hereto have made no agreements, representations
or warranties relating to the subject matter of the Agreement which are
not set forth herein.
9
<PAGE> 11
9.3 AMENDMENT. The Agreement may not be amended, modified,
superseded, canceled or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived,
except by written instrument executed by the parties hereto or, in the
case of a waiver, by the party to be charged with such waiver.
9.4 ARBITRATION. Any controversy or claim arising out of or
relating to the Agreement, or the breach hereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, in the county in which the principal
office of the Company is located, and judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction over
the parties hereto. The dispute shall be resolved by a panel of three
arbitrators if the dollar amount in question that is being arbitrated
exceeds fifty thousand dollars ($50,000). The parties hereto shall have
full rights to pursue equitable remedies in furtherance of enforcing
the Agreement without interference from any arbitration proceedings.
9.5 SEVERABILITY. To the extent any provision of the Agreement
shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of the Agreement shall
be unaffected and not in limitation of business activities covered by,
any provision of the Agreement be in excess of that which is valid and
enforceable under applicable law, then such provision shall be
construed to cover only that duration, extent or activities which may
validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that
the Agreement be given the construction which renders its provisions
valid and enforceable to the maximum extent possible under applicable
law.
9.6 ASSIGNMENT. The Agreement shall not be assignable, in
whole or in part, by either party without the written consent of the
other party, except that the Company may, without the consent of
Executive, assign its rights and obligations under the Agreement to any
corporation, firm or other business entity with or into which the
Company may merge or consolidate, or to which the Company may sell or
transfer all or substantially all of its assets, or of which fifty
(50%) percent or more of the equity investment and of the voting
control is owned, directly or indirectly, by, or is under common
ownership with the Company. After any such assignment by the Company,
the Company shall be discharged from all further liability hereunder,
and such assignee shall thereafter be deemed to be the Company for the
purposes of all provisions of the Agreement including this Section 9.
10
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
duly executed as of the day and year first above written.
BIRMAN MANAGED CARE, INC.,
a Tennessee corporation
By:______________________________________
David N. Birman, M.D.
Chairman and Chief Executive Officer
[CORPORATE SEAL]
EXECUTIVE:
___________________________________(SEAL)
DOUGLAS A. LESSARD
11
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 1
THIS INSTRUMENT, dated as of October 30, 1995, by and among Birman
Managed Care, Inc., a Tennessee corporation (the "Company"), BMC Health Plans,
Inc., a Tennessee corporation ("Birman"), and Mark C. Wade, an Arizona resident
("Executive"), constitutes a first amendment to that certain Employment
Agreement by and among the Company, Birman and Executive dated as of July 1,
1995 (the "Agreement"). The Company, Birman and Executive are hereinafter
referred to as the "Parties."
RECITALS:
WHEREAS, the Parties desire to amend the Agreement;
NOW, THEREFORE, for and in consideration of the premises set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged by each of the parties, intending to be legally bound,
agree as follows:
1. Section 4.04 of the Agreement is hereby amended by striking the
whole thereof and by substituting in lieu thereof the following:
4.04 PARTICIPATION IN BENEFIT PLAN. Executive shall be entitled to
participate in all employee qualified and non-qualified deferred
compensation plans or supplemental income plans or programs maintained
by the Company or Birman, including any Section 401(k) plan adopted by
the Company or Birman, according to the terms and conditions thereof.
Executive shall also be entitled to participate in Birman's 1995 Stock
Option Plan, according to the terms and conditions of said plan and the
Stock Option Award Agreement attached hereto and shall be granted the
option to purchase five hundred thousand (500,000) shares of the $.001
par value common stock of Birman at a price of one dollar ($1.00) per
share, representing the fair market value of such shares on the date of
grant, exercisable in accordance with the terms of the Stock Option
Award Agreement attached hereto (the "Options").
2. Article 5 of the Agreement is hereby amended by striking Sections
5.01, 5.02 and 5.03 thereof and by substituting in lieu thereof the following:
5. ASSET PURCHASE; SHAREHOLDER AGREEMENT.
5.01 ASSET PURCHASE. The Company shall purchase from Executive,
and Executive shall sell, assign, transfer and deliver to the Company,
all furniture, office equipment, computer hardware systems and computer
software
<PAGE> 2
programs physically located as of the date hereof on the premises of
the Executive's offices at 7550 East McDonald, Suite G, Scottsdale,
Arizona as described at Exhibit A hereto (the "Assets"). The purchase
price for the Assets is fifteen thousand and no/100 dollars
($15,000.00). By execution hereof, Executive acknowledges receipt of
such consideration.
3. Section 5.04 of the Agreement is hereby amended by striking any
references to Class A Stock and by renumbering Section 5.04 as Section 5.02.
4. Article 7 of the Agreement is hereby amended by striking any
references to Class A Stock.
5. The amendments delineated above constitute the sole amendments to
the Agreement. The Agreement and the above amendments contain the entire
agreement of the Parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed as of the date first above written.
BIRMAN MANAGED CARE, INC.
By:______________________________________
David N. Birman, M.D.
President and Chief Executive Officer
BMC HEALTH PLANS, INC.
By:______________________________________
David N. Birman, M.D.
Chairman
_________________________________________
MARK C. WADE
2
<PAGE> 3
EXHIBIT A
2 Brown, Particle Board Desks
2 Grey, Particle Board Desks
1 Grey, Particle Board Desk with Right Return
5 Grey Desk Chairs on Rollers
2 Black, 4 drawers, Legal File Cabinets
1 Black, Particle Board Shelves (36 x 28 x 15)
1 Brown, Particle Board Microwave Cart on Wheels
4 Black, Trash Cans
1 Texas Instruments Travelmate 4000 portable with mouse 486 DX2 50MHZ with
case
1 Hewlett Packard, Laser Jet 4L, Printer
1 Hawlett Packard, Fax -- 900, Fax Machine
Miscellaneous Office Supplies
A-1
<PAGE> 4
BAW, INC.
BIRMAN MANAGED CARE, INC.
EMPLOYMENT AGREEMENT
WITH
MARK C. WADE
DATED AS OF JULY 1, 1995
PREPARED BY:
ROBERT D. ARKIN, ESQ.
SUITE 1800, TOWER PLACE
3340 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
404-848-7767
404-848-7768 (FACSIMILE)
<PAGE> 5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the 1st day of July, 1995, by and among BAW, INC., a Tennessee corporation (the
"Company"), BA-FORUM HEALTH CARE, INC. D/B/A BIRMAN MANAGED CARE, INC., a
Tennessee corporation ("Birman") and MARK C. WADE, an Arizona resident
("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed by the Company as a marketing
specialist;
and
WHEREAS, the Company and Executive desire that Executive be employed in
accordance with the terms and conditions hereof (i) as President of BA-Forum
Health Care, a division of the Company established to market the Company's
products and services, and (ii) as the Company's Executive Vice President -
Sales and Marketing; and
WHEREAS, the Company is a wholly-owned subsidiary of Birman;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive
hereby accepts employment from the Company (i) as President of BA-Forum Health
Care ("BAForum"), and (ii) as the Company's Executive Vice President - Sales and
Marketing. Executive shall perform services for the Company for the period and
upon the terms and conditions set forth in this Agreement and shall hold such
other positions with the Company or its Affiliate (as hereinafter defined) as
may be mutually agreed upon, from time to time. Executive acknowledges receipt
of the separate consideration of four thousand and no/100 dollars ($4,000.00),
the sufficiency of which is hereby acknowledged, for entering into this
Agreement.
2. TERM. Subject to the provisions for termination set forth herein,
the term of Executive's employment under this Agreement shall commence as of the
date hereof and shall continue up to and including June 30, 2001 (the "Initial
Term"). Thereafter, as of July 1 of each year beginning July 1, 2001, the term
of this Agreement shall be extended for an additional one (1) year.
<PAGE> 6
3. POSITION AND DUTIES.
3.1 SERVICE WITH THE COMPANY. During the term of this Agreement,
Executive shall perform such duties as are customarily performed by one holding
such position in the same business as the Company shall, from time to time,
reasonably request. Executive also shall serve, for any period for which he is
elected, as a member of the Company's Board of Directors without additional
compensation.
3.2 PERFORMANCE OF DUTIES. Executive shall serve the Company faithfully
and to the best of his ability devote his full time, attention, skill and effort
exclusively to performing services for the Company pursuant to this Agreement
and shall not be employed or otherwise provide services to any other entity
without the prior written consent of the Company. Executive shall undertake such
reasonable travel to the corporate headquarters of the Company in Cookeville,
Tennessee and to such other locations in which the Company does, or proposes to
do, business as shall be necessary to perform Executive's duties hereunder.
Executive shall receive reimbursement for travel expenses in accordance with
Section 4.7.
4. COMPENSATION; BENEFITS.
4.1 BASE SALARY. The Company shall pay to Executive as compensation for
all services to be rendered by Executive under this Agreement a base salary
("Base Salary"), in accordance with the Company's customary payroll practices,
reduced by applicable federal, state and local withholding taxes, as a draw
against Incentive Compensation. From the date hereof up to and including
December 31, 1995, the Executive's Base Salary shall be one hundred sixty-five
thousand and no/100 dollars ($165,000) per annum. In subsequent years, the Base
Salary payable to Executive shall be reviewed by the Company's Board of
Directors, or the Compensation Committee thereof, at least annually. In
reviewing and setting Executive's Base Salary, the Board or Compensation
Committee, as the case may be, shall consider cost of living, results of
operations, financial condition, prospects, salary levels for similarly sized
companies in the Company's industry for comparable executive positions,
Executive's performance and other criteria deemed relevant by the Company in
assessing Executive's compensation.
4.2 INCENTIVE COMPENSATION. In addition to the Base Salary described in
Section 4.1, the Company shall pay Executive an annual performance-based bonus
("Incentive Compensation"), payable to Executive in cash not later than ninety
(90) days after the audit of the books of the Company for such annual period has
been completed by the Company's independent accountants, determined in
accordance with the following:
(a) On all Adjusted Gross Revenue from Managed Care Business
in Mississippi in the annual fiscal period for which the Incentive
Compensation is being calculated:
2
<PAGE> 7
<TABLE>
<CAPTION>
=============================================================================================================================
ANNUAL
ANNUAL ANNUAL INCENTIVE
INCENTIVE INCENTIVE COMPENSATION
ANNUAL ADJUSTED COMPENSATION COMPENSATION YEAR 3 AND
GROSS REVENUE YEAR 1 YEAR 2 THEREAFTER
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$800,000 to $2,000,000 7% 3.5% 1.75%
- -----------------------------------------------------------------------------------------------------------------------------
On the next $1,000,000 6% 3% 1.5%
- -----------------------------------------------------------------------------------------------------------------------------
On the next $1,000,000 5% 2.5% 1.25%
- -----------------------------------------------------------------------------------------------------------------------------
Above $4,000,000 4% 2% 1%
=============================================================================================================================
</TABLE>
(b) On all Adjusted Gross Revenue from Managed Care Business
(excluding Mississippi Managed Care Business) generated by a New Client
in the initial annual fiscal period for which the Incentive
Compensation is being calculated, Incentive Compensation equal to three
percent (3%) thereof; and
(c) On all Adjusted Gross Revenue from Managed Care Business
(excluding Mississippi Managed Care Business) generated by a Renewal
Client in the following subsequent fiscal periods for which the
Incentive Compensation is being calculated:
<TABLE>
<CAPTION>
==========================================================================================================================
ANNUAL INCENTIVE ANNUAL INCENTIVE
ANNUAL ADJUSTED COMPENSATION COMPENSATION
GROSS REVENUE YEAR 2 YEAR 3 AND THEREAFTER
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 and Above 1.5% .75%
==========================================================================================================================
</TABLE>
Notwithstanding the foregoing, the Incentive Compensation payable in accordance
with Sections 4.2(b) and (c) shall not exceed the aggregate amount of two
hundred fifty thousand and no/100 dollars ($250,000) per annum. For purposes
hereof, "Adjusted Gross Revenue" means all management fee revenue actually
received and booked as a receipt by the Company from the management, sponsorship
or operation of Managed Care Plans less (i) a corporate expense allocation for
Birman general and administrative expenses attributable to the Company of six
percent (6%) of the Company's gross revenue and (ii) any adjustments, credits,
rebates or returns. "Affiliate" means a person that, directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person specified. "Managed Care Business" means
arrangements among health care providers, third-party payors and patients
developed and managed by the Company or an Affiliate that through capitated
payment arrangements or other financial incentives or disincentives and case
management endeavor to eliminate inefficiencies in health care delivery and
reduce unnecessary utilization of services while maintaining or improving
quality of care. "Managed Care Plan"
3
<PAGE> 8
means a health plan offered to plan participants for which the health care
services provided thereunder are paid for in whole or in part by third-party
payors, including commercial insurers, Medicaid, Medicare and self-funded
employers. "New Client" means a Managed Care Plan that has not previously paid
management fees to the Company or its Affiliate for operation and management
services. "Renewal Client" means a Managed Care Plan that has paid management
fees to the Company or its Affiliate for operation and management services
rendered during the previous twelve (12) month period.
4.3 PARTICIPATION IN EXECUTIVE BONUS POOL. Executive shall be entitled
to participate in an executive bonus pool established by the Company ("Executive
Bonus Pool"), to which up to ten percent (10%) of the net pretax profits of the
Company derived from the Managed Care Business is allocable, in such amounts and
under such circumstances as determined from time to time by the Board or the
Compensation Committee thereof, as the case may be.
4.4 PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled to
participate in all employee qualified and non-qualified deferred compensation
plans or supplemental income plans or programs maintained by the Company or
Birman, including any Section 401(k) plan adopted by the Company or Birman,
according to the terms and conditions thereof. Executive shall also be entitled
to participate in Birman's 1995 Stock Option Plan, according to the terms and
conditions of said plan, and shall be granted the option to purchase one hundred
thousand (100,000) shares of the $.001 par value common stock of Birman at a
price of one dollar ($1.00) per share, representing the fair market value of
such shares on the date of grant, exercisable sequentially at the rate of twenty
percent (20%) per year commencing on June 30, 1997 (the "Options").
4.5 BENEFIT PLANS. Executive shall be entitled to participate in any
and all plans, arrangements or distributions maintained by the Company
pertaining to or in connection with any pension, life, health insurance,
disability insurance or similar benefits provided by the Company to its
employees, as determined by the Company's Board of Directors pursuant to the
governing instruments which establish and determine eligibility and other rights
of the participants and beneficiaries under such plans or other benefit
programs.
4.6 VACATION AND SICK LEAVE. Executive will be entitled to participate
in the vacation and sick leave benefit program of the Company to the extent that
his position, title, salary and other qualifications make him eligible to
participate, but not less than twenty-one (21) days per year. Vacation time and
sick leave may not be accumulated after the end of any year and, to the extent
unused, shall have no economic value to Executive. Executive's use of vacation
time shall be subject to the prior approval of the Company.
4.7 EXPENSES. The Company will pay or reimburse Executive for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Executive in the performance of
4
<PAGE> 9
duties under this Agreement, subject to the presentment of appropriate vouchers
in accordance with the Company's policies and procedures as adopted from time to
time.
4.8 OFFICE FACILITIES. The Company shall provide Executive with a
furnished office, together with such staff, equipment and materials as may be
reasonably necessary for Executive to fulfill his duties under this Agreement.
5. PURCHASE AND SALE OF BIRMAN STOCK; SUBSTANTIAL RISKS OF FORFEITURE;
VESTING.
5.1 PURCHASE AND SALE OF STOCK; VESTING. Pursuant to a Proposal and
Stock Subscription submitted to Birman by Executive of even date herewith,
Birman shall sell to Executive, and Executive shall purchase from Birman, four
hundred thousand (400,000) shares of Birman's Class A convertible preferred
stock, $.001 par value, described in the Certificate of Designation attached
hereto (the "Class A Stock"), at a purchase price of $.01 per share (the
"Purchase Price") for a total purchase price of four thousand and no/100 dollars
($4,000.00); provided, however, that Executive's right, title and interest in
and to the Class A Stock shall vest only in the following circumstances:
(a) As to the first increment of one hundred thousand
(100,000) shares, only following recognition by the Company of two
million dollars ($2,000,000) of Adjusted Gross Revenue earned by
BA-Forum;
(b) As to the second increment of one hundred thousand
(100,000) shares, only following (i) June 30, 1997 and (ii) recognition
by the Company in any annual fiscal period of three million dollars
($3,000,000) of Adjusted Gross Revenue earned by BAForum;
(c) As to the third increment of one hundred thousand
(100,000) shares, only following (i) June 30, 1998 and (ii) recognition
by the Company in any annual fiscal period of four million dollars
($4,000,000) of Adjusted Gross Revenue earned by BAForum; and
(d) As to the fourth increment of one hundred thousand
(100,000) shares, only following (i) June 30, 1999 and (ii) recognition
by the Company in any annual fiscal period of five million dollars
($5,000,000) of Adjusted Gross Revenue earned by BAForum.
5.2 SUBSTANTIAL RISK OF FORFEITURE. Any unvested shares of Class A
Stock held by Executive shall automatically revert, and be reconveyed, to the
Company in the following circumstances: If the Company tenders to Executive the
Purchase Price therefor (i) at any time during the 90-day period following the
cessation of Executive's employment with the Company for any reason; or (ii) at
any time during the 90-day period commencing July 1, 2000.
5
<PAGE> 10
5.3 SECTION 83(b) ELECTION. The Company will assist Executive in making
an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended. Executive understands that the purpose of this election is to enable
Executive to avoid taxation on any appreciation in the value of the Class A
Stock that occurs between the date of purchase and sale and the dates the Class
A Stock fully vests.
5.4 SHAREHOLDER AGREEMENT. The Class A Stock and any common stock of
the Company issued to Executive upon exercise of the Options (the "Option
Stock") shall be subject to a Shareholder Agreement which includes provisions
customary to agreements of this type and, after June 30, 2000 if the Company is
not a reporting company under the Securities Exchange Act of 1934, as amended,
permits Executive to put the whole of his vested Class A Stock to the Company
and the Company to call the vested Class A Stock held by Executive at a price
per share based upon (i) the most recent independent valuation of the Company's
then extant qualified Employee Stock Ownership Plan (if available) or (ii) the
fair market value of the Class A Stock and the Option Stock.
6. CONFIDENTIALITY; RETURN OF MATERIALS.
6.1 CONSEQUENCES OF ENTRUSTMENT. Executive hereby acknowledges that (i)
Executive's services to the Company will be of a special, unique, extraordinary
and intellectual character, (ii) Executive's position with the Company will
place Executive in a position of confidence, responsibility and trust with
respect to the operations of the Company, and (iii) in reliance on Executive's
ethical responsibility and loyalty, the Company expects to entrust Executive
with highly sensitive, confidential, restricted and proprietary information
involving Trade Secret Information (as hereinafter defined). Executive
acknowledges that Executive is legally and ethically responsible for protecting
and preserving the Company's proprietary rights for use only for the Company's
benefit, and these responsibilities may impose limitations on Executive's
ability to pursue some kinds of business opportunities that might interest
Executive after Executive's employment.
6.2 DEFINITION OF "TRADE SECRET INFORMATION". It is acknowledged and
agreed that the Executive is experienced in the managed care industry and
possesses significant knowledge and information about the industry. Such
existing knowledge and information is not, for purposes of this Agreement,
"Trade Secret Information." For purposes of this Agreement, "Trade Secret
Information" means information, whether or not in written or tangible form, in
the possession of the Company and considered by the Company to be proprietary,
valuable and confidential, from which the Company derives economic value, actual
or potential, by such information 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 is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Trade Secret
Information includes, without limitation, (a) any data or information acquired
by Executive during his employment by the Company relating to the products,
services, business methods,
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<PAGE> 11
customer accounts or operations of the Company, its Affiliates or its customers,
and (b) the techniques and business methods for (i) applying scientific
literature to merge resources and clinical language used in defining medical
payments for purposes of Medicare diagnostic related group ("DRG") optimization,
(ii) utilizing concurrent case review activity to merge resources and clinical
language used in defining medical payments for the purpose of DRG optimization,
(iii) developing and managing health care provider organizations and providing
services thereto, (iv) developing reimbursement and at-risk systems under
capitation, prepayment, indemnity and other forms of compensatory arrangements,
and (v) managing the delivery, reporting and financing of health care services
in managed care and managed cost settings, including the systems, techniques,
strategies and methods used to compete successfully in these lines of business.
6.3 RESTRICTIONS ON USE AND DISCLOSURE OF TRADE SECRET INFORMATION.
Except as authorized by the Company, Executive shall not, during the term of
this Agreement and for so long after the termination of employment as the
information or data remains Trade Secret Information, directly or indirectly
divulge, furnish or make accessible to anyone or use in any way (other than in
the ordinary course of business of the Company) the Trade Secret Information.
6.4 RETURN OF MATERIALS. Upon the request of the Company and, in any
event, upon the termination of Executive's employment, Executive shall return to
the Company and leave at its disposal all copies of memoranda, notes, records,
drawings, manuals, computer programs, documentation, diskettes and other
documents or media, in Executive's possession or control, pertaining in any way
to the business, practices or techniques of the Company.
7. RESTRICTIONS ON COMPETITION.
7.1 PREMISES. The Company has invested prior to the date hereof and
expects to continue to invest considerable time, effort, and capital in
developing the business of the Company and enhancing the value and desirability
of the skills of its executives and technical personnel. This investment,
together with the Base Salary and Incentive Compensation payable to Executive,
Executive's entitlement to participate in the Executive Bonus Pool, the issuance
to Executive of the Class A Stock and the grant to Executive of the Options,
reflect the Company's expectation of receiving a considerable return from the
exclusive use of Executive's services and know-how in the future, free from any
risk that the Company's competitors may attempt to induce Executive to leave the
Company and wrongfully gain the benefit of the Company's investment. The partial
restraint set forth in Section 7.2 hereof does not, and cannot, provide complete
protection for the Company's investment, but the Company and Executive believe
that, in combination with the other provisions of this Agreement, it is a fair
and reasonable measure permitted under applicable law to protect the Company's
interests, giving due regard to both the interests of Executive and the
interests of the Company. Executive hereby (i) agrees that the restrictions
contained within Section 7 are reasonable and necessary
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<PAGE> 12
for the protection of the goodwill of the business of the Company during the
term of this Agreement and thereafter and that the limitations as to period of
time and geographic area contained in Section 7.2 are reasonable and necessary
for the protection of the Company's business; and (ii) acknowledges that the
Company would not have entered into this Agreement but for these restrictions.
7.2 COVENANT NOT TO COMPETE; SOLICIT. In consideration of Executive's
employment hereunder and the issuance to Executive of the Class A Stock and the
grant to Executive of the Options, during the term of this Agreement and for a
period of three (3) years from the date of expiration or termination of this
Agreement (at any time for any reason) Executive shall not:
(a) directly or indirectly, for himself, as an owner, partner,
principal, shareholder, officer, director, employee, or independent
contractor engage in the development, management or operation of (i)
independent practice associations ("IPAs"), physician-hospital
organizations ("PHOs"), management services organizations ("MSOs"),
preferred provider organizations ("PPOs"), integrated delivery systems
("IDS"), health maintenance organizations ("HMOs"), point of service
("POS") plans, long-term plans or other types of managed care
organizations ("MCOs") that contract with commercial third-party
payors, self-insured employers, health care purchasing cooperatives or
Medicare fiscal intermediaries for the delivery of health care services
within one hundred (100) miles from any city, town where the Company
has established such an IPA, PHO, MSO, PPO, IDS, HMO, POS plan or MCO;
or (ii) IPAs, PHOs, MSOs, PPOs, IDS, HMOs, POS plans, long-term plans
or other MCOs that contract with state Medicaid agencies for the
delivery of health care services within any state in which the Company
has established such an IPA, PHO, MSO, PPO, IDS, HMO, POS plans or MCO;
or
(b) attempt, directly or indirectly, to solicit or entice (i)
any employee of the Company to terminate his or her employment or to
become employed by any person, firm or corporation other than the
Company, or approach any such employee for any of the foregoing
purposes or authorize or assist in the taking of any such action by any
third party; (ii) any existing customer or client of the Company to
terminate or reduce its relationship with the Company; or (iii) any
prospective customer or client of the Company to refrain from doing
business with the Company.
7.3 DURATION. If Employee violates the restrictive covenant in Section
7.2 and the Company brings legal action for injunctive or other relief, the
Company shall not, as a result of the time involved in obtaining the relief, be
deprived of the benefit of the full period of the restrictive covenant.
Accordingly, unless Executive contests the alleged violation in a court of law
and is the prevailing party in a nonappealable decision of the applicable court,
the restrictive covenant shall be deemed to have the three-year post-employment
duration specified in Section 7.2 hereof computed from the date the relief is
granted but reduced by the period when the restriction began to run and the date
of the first violation by Executive. Notwithstanding the
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<PAGE> 13
foregoing, however, to the extent this provision is invalid or unenforceable
under the laws of any applicable jurisdiction, the remainder of Section 7 shall
be interpreted, status quo ante, as if Section 7.3 had never been included
herein and was an absolute nullity.
7.4 NO ADEQUATE REMEDY AT LAW. Executive hereby acknowledges and agrees
that a violation of any of the provisions contained in Section 7.2 will cause
irreparable damage to the Company, the exact amount of which may be impossible
to ascertain and that, for such reason, among others, the Company shall be
entitled to injunctive relief, both pendente lite and permanently, against
Executive to restrain any further violation of such provisions, and Executive
hereby (i) consents to any initiation by the Company in a court of competent
jurisdiction of any action to enjoin immediately any breach of this Agreement,
and (ii) hereby releases the Company from the requirement of posting any bond in
connection with temporary or interlocutory injunctive relief, to the extent
permitted by law. This provision with respect to injunctive relief shall not,
however, diminish the right of the Company to pursue any other rights and
remedies the Company may have against Executive, including, but not limited to,
the recovery of damages.
7.5 ATTORNEYS' FEES. Executive hereby agrees to reimburse the Company
for any legal or other expenses reasonably incurred by the Company in connection
with successfully seeking injunctive relief or other rights and remedies
pursuant to Section 7.4 by reason of Executive's violation of Section 7.2, in a
court of competent jurisdiction. In the event the Executive is found, in a court
of competent jurisdiction, not to have violated Section 7.2, then the Company
shall reimburse Executive's reasonable legal costs or other expenses incurred in
defense thereof.
7.6 SURVIVAL. The restrictions contained in this Section 7 shall inure
to the benefit of the Company and each of its Affiliates and shall survive the
termination of this Agreement.
8. TERMINATION OF EMPLOYMENT. This Agreement shall terminate prior to
its expiration upon the earliest to occur of any of the following events:
8.1 FOR CAUSE. Upon written notice by the Company to Executive
For Cause. "For Cause" means (i) any conduct which constitutes a felony
or another criminal act which involves moral turpitude; (ii) the
commission or participation of Executive in acts of personal
dishonesty; (iii) material breach by Executive of his obligations under
this Agreement, which breach is not cured within fifteen (15) days
after receipt of a notice of the breach; (iv) Executive (a) being
adjudicated as bankrupt or insolvent, (b) filing a voluntary petition
in bankruptcy or a petition or answer seeking a reorganization,
arrangement, composition, readjustment or other relief under any
provision of any insolvency law, (c) making an assignment for the
benefit of creditors, or (d) filing a petition for or consenting to the
appointment of any trustee, receiver or liquidator; (v) the engaging by
Executive in willful misconduct which is injurious to the Company;
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<PAGE> 14
(vi) dependence by Executive upon alcohol, prescription drugs or any
illegal substance; (vii) the failure of Executive to abide by the
Company's policies, procedures or protocols; or (viii) the failure of
Executive to carry out any lawful orders given to him by any officer or
by the Board of Directors of the Company;
8.2 OTHER CIRCUMSTANCES. Upon written notice by the Company to
Executive in the following circumstances: (i) the decision of the Board
of Directors of the Company within sixty (60) days following expiration
of the probationary period imposed upon Executive in connection with
the delivery to Executive of a written performance appraisal; (ii)
after March 31, 1996, the failure of the Company to generate at least
sixty thousand dollars ($60,000) in monthly Adjusted Gross Revenue in
the immediately preceding monthly fiscal period; (iii) after June 30,
1996, the failure of the Company to generate at least seven hundred
fifty thousand dollars ($750,000) of annual Adjusted Gross Revenue in
the immediately preceding twelve (12) month period; (iv) after June 30,
1997, the failure of the Company to generate at least three million
dollars ($3,000,000) of annual Adjusted Gross Revenue in the
immediately preceding twelve (12) month period; (v) after June 30,
1998, the failure of the Company to generate at least four million
dollars ($4,000,000) of annual Adjusted Gross Revenue in the
immediately preceding twelve (12) month period; and (vi) after June 30,
1999, the failure of the Company to generate at least five million
dollars ($5,000,000) of annual Adjusted Gross Revenue in the
immediately preceding twelve (12) month period;
8.3 DEATH. Upon Executive's death;
8.4 DISABILITY. Upon the Company's written notice, at the
Company's sole option, upon Executive's disability. "Disability" shall
have the definition ascribed in Executive's individual disability
policy if coverage under the policy is conditioned on using such
definition. If no such policy exists or if coverage is not conditioned
on using such definition, then, for purposes of this Agreement,
"Disability" means the inability of Executive to perform his duties
with reasonable accommodation by the Company for ninety (90) days in
any one hundred eighty (180) consecutive day period.
9. SEVERANCE.
9.1 DEATH. If Executive's employment is terminated pursuant to Section
8.3 as a result of Executive's death, the following provisions shall apply:
(a) The Company shall pay to Executive's personal
representative the Base Salary through the end of the calendar month in
which Executive's death occurs.
(b) The Company shall pay to Executive's personal
representative (i) the earned but unpaid Incentive Compensation for the
calculation period ended prior to the
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date of Executive's death and (ii) a pro rata share (based on the
number of days in the period during which Executive was alive) of
Executive's Incentive Compensation for the calculation period in which
Executive died provided that more than three (3) months of such
calculation period have elapsed as of Executive's death. Such amounts
shall be payable in accordance with Section 4.2. If Executive's death
occurs during the first three (3) months of an Incentive Compensation
calculation period, no Incentive Compensation shall be payable with
respect to such period.
9.2 DISABILITY. If Executive's employment is terminated pursuant to
Section 8.4 as a result of Executive's Disability, the following provisions
shall apply:
(a) The Company shall maintain any health insurance coverage
provided to Executive hereunder until the expiration of the Initial
Term for Executive and Executive's dependents, or, if the Company's
benefit insurer does not permit such continuation, pay to Executive the
amount of the health insurance premium the Company would have paid to
provide such insurance to Executive and Executive's dependents. Nothing
herein shall affect any rights to continuation coverage of Executive or
Executive's dependents with respect to any insurance coverage as
provided by law.
(b) The Company shall maintain any life insurance coverage
provided to Executive hereunder on Executive's life, payable to
Executive or, as designated by Executive, Executive's beneficiaries
until the expiration of the Initial Term.
(c) The Company shall pay to Executive the Base Salary through
the end of the calendar month in which the employment termination
occurs.
(d) The Company shall pay to Executive (i) the earned but
unpaid Incentive Compensation for the calculation period ended prior to
the date of employment termination and (ii) a pro rata share (based on
the number of days in the period during which Executive was not
disabled) of Executive's Incentive Compensation for the calculation
period in which Executive was terminated from employment provided that
more than three (3) months of such calculation period has elapsed as of
the date of termination. Such amounts shall be payable in accordance
with Section 4.2. If Executive's employment termination occurs during
the first three (3) months of an Incentive Compensation calculation
period, no Incentive Compensation shall be payable with respect to such
period.
9.3 TERMINATION FOR CAUSE. If Executive's employment is terminated For
Cause pursuant to Section 8.1, the following provisions shall apply:
(a) The Company shall pay to Executive the Base Salary through
the date of termination.
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(b) Executive shall forfeit all accrued but unpaid Incentive
Compensation and all unexercised Options. The foregoing sentence is not
a penalty, but is intended to constitute liquidated damages to
compensate the Company for damages, which may be difficult to measure,
suffered by the Company as a result of Executive's conduct. Nothing
contained in this Section 9.3 shall be deemed to limit the Company's
ability to obtain equitable relief.
(c) Health insurance coverage provided to Executive hereunder
for Executive and Executive's dependents and any life insurance
coverage provided to Executive hereunder on Executive's life, payable
to Executive or, as designated by Executive, Executive's beneficiaries
shall terminate as of the last day of the month in which Executive's
employment terminates. Nothing herein shall affect any rights to
continuation coverage of Executive or Executive's dependents with
respect to any insurance coverage as provided by law.
9.4 TERMINATION BY MUTUAL AGREEMENT. If Executive's employment is
terminated by mutual agreement, the parties hereto shall structure a mutually
acceptable severance benefits program which shall be documented in a Termination
Agreement to be executed by the parties immediately prior to Executive's
resignation from employment.
10. MISCELLANEOUS.
10.1 GOVERNING LAW. This Agreement shall be deemed to have been
executed in the State of Tennessee and shall be governed and construed as to
both substantive and procedural matters in accordance with the laws of the State
of Tennessee, but excepting (i) any State of Tennessee rule which would result
in judicial failure to enforce the arbitration provisions of Section 10.4 hereof
or any portion thereof and (ii) any State of Tennessee rule which would result
in the application of the law of a jurisdiction other than the State of
Tennessee.
10.2 PRIOR AGREEMENTS. This Agreement contains the entire agreement of
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, including,
but not limited to, the Employment Agreement dated as of March 1, 1995, between
BAW, Inc. and Executive and the Management Agreement, dated as of March 1, 1995,
between BA-Forum, Inc. and Forum Health Care, Inc. and the parties hereto have
made no agreements, representations or warranties relating to the subject matter
of this Agreement which are not set forth herein.
10.3 AMENDMENT. This Agreement may not be amended, modified,
superseded, canceled or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived, except by
written instrument executed by the parties hereto or, in the case of a waiver,
by the party to be charged with such waiver.
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10.4 ARBITRATION. Any controversy or claim arising out of or relating
to the Agreement, or the breach hereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, in the county in which the principal office of the Company is
located, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction over the parties hereto. The dispute shall be
resolved by a panel of three arbitrators if the dollar amount in question that
is being arbitrated exceeds fifty thousand dollars ($50,000). The parties hereto
shall have full rights to pursue equitable remedies in furtherance of enforcing
this Agreement without interference from any arbitration proceedings.
10.5 SEVERABILITY. To the extent any provision of this Agreement shall
be invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of this Agreement shall be unaffected and not in
limitation of business activities covered by, any provision of this Agreement be
in excess of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, extent or activities
which may validly and enforceably be covered. Executive acknowledges the
uncertainty of the law in this respect and expressly stipulates that this
Agreement be given the construction which renders its provisions valid and
enforceable to the maximum extent possible under applicable law.
10.6 SURVIVAL. The covenants contained in this Agreement shall survive
Executive's termination of employment, regardless of who causes the termination
and under what circumstances.
10.7 ATTORNEYS' FEES. If either party hereto shall be required to
retain the services of an attorney to enforce any of his or its rights
hereunder, the prevailing party shall be entitled to receive from the other
party all costs and expenses including, but not limited to, court costs and
attorneys' or experts' fees (whether in a court of original jurisdiction or one
or more courts of appellate jurisdiction) incurred by him or it in connection
therewith.
10.8 ASSIGNMENT. This Agreement shall not be assignable, in whole or in
part, by either party without the written consent of the other party, except
that the Company may, without the consent of Executive, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets, or of which
fifty percent (50%) or more of the equity investment and of the voting control
is owned, directly or indirectly, by, or is under common ownership with, the
Company. After any such assignment by the Company, the Company and Birman shall
be discharged from all further liability hereunder, and such assignee shall
thereafter be deemed to be the Company for the purposes of all provisions of
this Agreement including this Section 10.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE COMPANY:
BAW, INC., a Tennessee corporation
By:
- ----------------------------- --------------------------------
Unofficial Witness David N. Birman, M.D.
Chairman
Attest:
--------------------------------
Sue D. Birman
Secretary
[CORPORATE SEAL]
BIRMAN:
BA-FORUM HEALTH CARE, INC.,
D/B/A BIRMAN MANAGED CARE,
INC., a Tennessee corporation
By:
- ----------------------------- --------------------------------
Unofficial Witness David N. Birman, M.D.
Chairman
Attest:
--------------------------------
Sue D. Birman
Secretary
[CORPORATE SEAL]
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EXECUTIVE:
(SEAL)
- ----------------------------- ------------------------------
Unofficial Witness MARK C. WADE
For purposes of Section 10.2 only:
FORUM HEALTH CARE, INC., an
Arizona corporation
By:
- ----------------------------- ------------------------------
Unofficial Witness Mark C. Wade
President
Attest:
------------------------------
Secretary
[CORPORATE SEAL]
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the day of
, 1991, by and between BIRMAN & ASSOCIATES, INC., a Tennessee
corporation (the "Company"), and BRAD SEITZINGER, M.D., a resident of
Westerville , Ohio (the "Employee").
1. POSITION AND TERM OF EMPLOYMENT. The Company employs the
Employee as a Physician of the Company for a term commencing on the date of this
Agreement and continuing until terminated in accordance with the terms of this
Agreement.
2. DUTIES AND RESPONSIBILITIES. The Employee shall be the Field
Operations Representative of the Company. The Employee shall have general and
active supervision over the Operations and Program Management of the Company.
The Employee shall have and exercise such rights, powers and privileges as may
be prescribed from time to time by the officers and directors of the Company.
The Employee shall devote the Employee's full time and best efforts to the
performance of such duties.
3. COMPENSATION.
A. SALARY. For the services to be performed by the Employee
hereunder, the Company shall pay the Employee a salary of One Hundred and
Twenty-Five Thousand Dollars ($125,000) per year, payable in equal periodic
installments as agreed upon by the Company and the Employee, but not less than
monthly. The Company shall review the salary of the employee from time to time,
and may increase or decrease the salary of the Employee and authorize additional
compensation by way of salary, bonus, or otherwise, as it deems appropriate, at
any time during the term of this Agreement.
B. SICK PAY. In the event the Employee becomes unable to perform
the Employee's duties under the terms of this Agreement by reason of sickness or
accident, the Employee shall receive the Employee's full salary during the first
thirty (30) days of such incapacity in any period of twelve (12) consecutive
months, but shall receive no salary thereafter until the Employee returns to
work. Sick pay shall be non-cumulative and in no event shall the Employee be
entitled to compensation in lieu of absence due to incapacity.
C. VACATION. The Employee shall be entitled to two (2) weeks paid
vacation during each full year that this Agreement is in force. This period of
vacation shall accrue ratably throughout the year, but shall not be cumulative;
and in the event this Agreement is terminated for any reason other than as the
result of the failure or refusal of the Employee to perform the duties and
responsibilities of the Employee under the terms of this Agreement, the Employee
<PAGE> 2
shall be paid for all accrued and unused vacation time during the year of this
Agreement during which the termination occurs.
D. MEDICAL INSURANCE. The Company shall provide at its expense a
policy of group medical insurance for the benefit of the Employee, and the
spouse and dependents of the Employee, if any, with an annual deductible of not
more than three hundred dollars ($300) per person per year, with co-insurance
not to exceed twenty percent (20%) of the first five thousand dollars ($5,000)
of covered expenses per year, and with an overall policy limit of not less than
one million dollars ($1,000,000) per family. The above terms are subject to
change based on change in deductibles and maximum out of pocket expenses
incurred updating or transferring said medical insurance policies.
E. EXPENSES. The Company will provide the Employee with such
facilities, equipment, and supplies as it deems necessary for the performance of
the Employee's duties. Unless provided by the Company, the Employee shall have
and maintain an automobile and a home telephone to be used in connection with
the Employee's duties under the terms of this Agreement, which shall be
maintained by the Employee and the cost of operating the Employee's personal
automobile in connection with the Employee's duties under this Agreement, shall
be fully reimbursed by the Company upon delivery of itemized vouchers thereof.
Any other expenses incurred by the Employee in connection with the performance
of the Employee's duties under this Agreement shall likewise be fully reimbursed
by the Company upon the presentation of itemized vouchers.
F. PROBATIONARY PERIOD. The Company shall provide the Employee
with the medical insurance described herein immediately upon beginning
employment.
4. TERMINATION. This Agreement shall remain in full force and
effect until terminated upon the occurrence of any of the events or conditions
described below.
A. The term of this Agreement shall automatically terminate
upon the death of the Employee or the cessation of business
operation of the Company.
B. The term of this Agreement may be terminated without notice
at the option of the Company upon the failure or refusal of the
Employee to perform the Employee's duties and responsibilities
under the terms of this Agreement; if the Employee is unable, as
result of any physical, mental, or emotional condition, to
perform the Employee's duties and responsibilities under the
terms of this Agreement for any consecutive period in excess of
thirty (30) days; if the Employee violates any of the terms of
this Agreement; or if in the sole judgement of the Company, or
upon notification by one or more of the customers of the Company
that, in its judgement, the Employee has failed to use the
Employee's best efforts in the performance of the duties and
responsibilities of the Employee as set forth in this Agreement,
has not complied with the work schedule
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<PAGE> 3
of the other rules or requirements of the Company, or has
conducted himself or herself in a manner that is detrimental to
the confidence of the Company's customers in the services of the
Company or the Employee or to the general reputation of the
Company.
C. The term of this Agreement shall be terminated at the
option of the Employee upon the failure of the Company to perform
its obligations under the terms of this Agreement if such failure
is not cured or corrected within a reasonable time after receipt
of written notice of such failure from the Employee.
D. The term of this Agreement shall be terminated upon the
mutual agreement of the Company and the Employee evidenced in
writing and signed by both parties.
E. The term of this Agreement may be terminated at the time of
either party after not less than fourteen (14) days' written
notice to the other party of the effective date of such
termination.
5. RECORDS. All files and records prepared or maintained by the
Employee in the performance of the duties and responsibilities of the Employee
under the terms of this Agreement, and all manuals, lists, books, and other
materials provided for the use of the Employee by the Company, shall be and
remain the property of the Company. Upon the termination of this Agreement for
any reason the Employee shall immediately deliver all such files, records, and
materials to the Company.
6. CONFLICTS OF INTEREST, CONFIDENTIALITY, NONCOMPETITION, AND
INTELLECTUAL PROPERTY.
A. In consideration of the rights acquired by the Employee under
the terms of this Agreement, including the training and experience to be
acquired by the Employee from the Company, the Employee agrees that during the
term of this agreement and for a period of three (3) years thereafter, the
Employee shall not engage directly or indirectly in any activity or business
transaction, for himself, herself, or for others, whether or not for profit
which may in any way result in a conflict of interest with the business of the
Company in the conduct of any business carried on by the Company at any time
during the term of this Agreement; nor shall the Employee become interested in
any way, directly or indirectly, with any business which sells or markets
products or services to, or does any other form of business with, the Company.
B. The Employee realizes that as a consequence of the performance
of the duties of the Employee under the terms of this Agreement, and the
involvement of the Employee with the business and customers of the Company, that
there will be disclosed to the Employee, and the Employee will otherwise become
aware of, certain information concerning matters affecting or relating to the
trade secrets and business operations of the Company, including, but not limited
to, operational procedures, coding guidelines, customer lists, pricing formulas,
sales and
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marketing methods, and other information, the disclosure of which to any
competitor of the Company might give the competitor an advantage over the
Company in the conduct of its business or in the sale of its products and
services, or might otherwise be detrimental to the interests of the Company (the
"Confidential Information"). The Employee recognizes and acknowledges that the
Confidential Information is important material to the Company and must, at the
risk of grave damage to the Company and the operation of its business, be kept
strictly confidential. The Employee, therefore, covenants and agrees that the
Employee will not, at any time during the term of this Agreement or within three
(3) years thereafter, directly or indirectly, by act or omission, divulge,
disclose or communicate to anyone, in any manner whatsoever, any of the
Confidential Information. The Employee agrees, upon request by the Company, the
Employee will surrender to the Company any written or electronic record or copy
of any of the Confidential Information.
C. In consideration of the rights acquired by the Employees under
the terms of this Agreement, including the training and experience to be
acquired by the Employee for the Company, the Employee covenants and agrees that
the Employee will not any time during the term of this Agreement or for a period
of three (3) years after the termination or expiration of the term of this
Agreement for any reason, for himself, herself, or on behalf of any other
person, partnership or corporation, engage in, perform or become interested in
providing, selling, or marketing, directly or indirectly, products or services
similar in design, concept or purpose to the products or services offered by the
Company at any time during the term of this Agreement, nor will the Employee,
during such time, solicit, attempt to solicit, or accept employment or other
means of compensation for the performance, sale, or marketing of products or
services similar in design, concept or purpose to the products or services
offered by the Company at any time during the term of this Agreement, from any
customer of the Company or any other provider of similar or competing products
or services doing business within the Continental United States.
D. The Employee is not to disclose the terms of the compensation
and benefits payable to the Employee under the terms of this Agreement with any
other employee of the Company, or with anyone not associated with the Company,
without the prior written consent of the President of the Company, except that
the Employee may disclose any such information to the attorney, accountant, or
any confidential advisor of the Employee.
E. The Employee hereby sells, assigns, and transfers to the
Company all of the Employee's right, title, and interest in and to any and all
invention, discoveries, concepts, and ideas concerning the products, services,
or activities of the Company developed by or with which the Employee becomes
acquainted as a result of the employment of the Employee under the terms of this
Agreement of within three (3) years thereafter, whether or not protection under
the patent or copyright laws is available, including, without limitation, all
processes, methods, formulas, and techniques, as well as any and all
improvements thereof or know-how related thereto, and whether conceived or
developed by the Employee alone or in conjunction with others and arising out of
the activities of the Employee while in the employment of the Company
4
<PAGE> 5
(the "Intellectual Property"). The Employee agrees to disclose to the officers
of the Company, as promptly as reasonably possible following the conception or
development of the Intellectual Property, all of the details known or available
to the Employee concerning the Intellectual Property, and the Employee agrees
without further remuneration of any kind, to assign and transfer to the Company
any and all patents, copyrights, trademarks, tradenames, and applications
therefor in any way related to the Intellectual Property, and the Employee
agrees to do any other things necessary to vest all right, title, and interest
of the Employee in and to the Intellectual Property in the Company.
F. The breach of any of these restrictions shall constitute cause
for the immediate termination of this Agreement by the Company, and for any
breach of these restrictions by the Employee the Company shall have and be
entitled to take any and all action and remedies available at law or in equity,
specifically including the right to obtain a temporary and permanent restraining
order and/or injunction to prevent or prohibit any violation of these
restrictions by the Employee.
G. The Employee recognizes and acknowledges that these
restrictions are reasonable and necessary to protect the legitimate business
interests of the Company, that, in the event of any breach of these restrictions
by the Employee, the Company would be permanently and irreparably damaged and
that the value or extent of such damages would be difficult or impossible to
establish or determine, and that these restrictions have been expressly
bargained for and given in consideration of the Employee's employment by the
Company under the terms of this Agreement, and the execution of this Agreement
by the Company; and the Employee agrees that, in any action to enforce these
restrictions by the Company, including any request for injunctive or other
extraordinary relief, the Employee will not offer as a defense to such action a
claim that the Company has an adequate remedy at law.
7. REMEDIES. In addition to any remedies available to either
party to this Agreement under the terms of this Agreement under the terms of
this Agreement, at law or in equity, any party who defaults in its obligations
under this Agreement, or who breaches this Agreement in any manner, shall, in
addition to any other costs or damages, pay to or reimburse the other party for
all costs and expenses incurred in connection with the enforcement of this
Agreement, including court costs and attorney's fees.
8. BINDING EFFECT. This Agreement shall be binding upon and
enforceable by the parties and their respective heirs, successors, legal
representatives, and permitted assigns.
9. AMENDMENT. This Agreement may not be amended except by the
mutual agreement of the Company and the Employee evidenced in writing and signed
by both parties.
10. WAIVER. No delay or failure on the part of any party to this
Agreement to exercise any right or remedy available under the terms of this
Agreement or at law or in equity
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<PAGE> 6
shall constitute a waiver of any such rights or remedies, or of any other rights
or remedies. No waiver of any of the terms or conditions of this Agreement shall
be valid or effective unless made in writing and signed by the party making a
waiver. The waiver of any breach, term, or condition of this Agreement by any
party shall not be deemed to be a waiver of any other or further breach of such
term or condition, or of any other term or condition of this Agreement.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
12. GOVERNING LAW. The terms, conditions, and provisions of this
Agreement shall be governed by and interpreted and enforced in accordance with
the laws of the State of Tennessee.
IN WITNESS WHEREOF, the parties have executed and delivered this
agreement as of the date and year first above written.
_____________________________
EMPLOYEE
_____________________________
BIRMAN & ASSOCIATES, INC.
SUBSCRIBED AND SWORN to before me, this _______ day of_______,
19____.
_____________________________
NOTARY PUBLIC
My Commission Expires:
_____________________________
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<PAGE> 7
COVENANT FOR NON-COMPETITION
I,_______________________ , covenant with Birman & Associates,
Inc., that I will not directly, indirectly, immediately, solely or jointly as
principal, agent, manager or otherwise, be concerned or interested in the same
character of business, heretofore carried on with said Birman & Associates,
Inc., within the continental United States for a period of three (3) years from
the date hereof, nor permit it to be done in my name.
In testimony with hereof, I have hereunto set my signature, this
the _________ day of ____________________ , 19 ____.
_____________________________
EMPLOYEE
_____________________________
BIRMAN & ASSOCIATES, INC.
SUBSCRIBED AND SWORN to before me, this _______ day of_______,
19____.
_____________________________
NOTARY PUBLIC
My Commission Expires:
_____________________________
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
(FULL TIME)
THIS AGREEMENT is made and entered into as of the 1st day of
November , 1993, by and between BIRMAN & ASSOCIATES, INC., a Tennessee
corporation (the "Company"), and BILL BARENKAMP , a resident of Tennessee (the
"Employee").
1. POSITION AND TERM OF EMPLOYMENT. The Company employs the
Employee as Director of Marketing of the Company for a term commencing on the
date of this Agreement and continuing until terminated in accordance with the
terms of this Agreement.
2. DUTIES AND RESPONSIBILITIES. The Employee shall be the
Director of Marketing for the Company. The Employee shall have general and
active supervision over the Marketing and Operations for the Company. The
Employee shall have and exercise such rights, powers and privileges as may be
prescribed from time to time by the officers and directors of the Company. The
employee understands that proper performance of Employee's duties will require
continuous special training and the Company has incurred and will incur expense
in Employee's training.
3. COMPENSATION.
A. SALARY. For the services to be performed by the Employee
hereunder, the Company shall pay the Employee a salary of Dollars
($ ) per year, payable in equal periodic installments as agreed upon by
the Company and the Employee, but not less than monthly. The Company shall
review the salary of the Employee from time to time, and may increase or
decrease the salary of the Employee and authorize additional compensation by way
of salary, bonus, or otherwise, as it deems appropriate, at any time during the
term of this Agreement.
B. SICK PAY. In the event the Employee becomes unable to perform
the Employee's duties under the terms of this Agreement by reason of sickness or
accident, the Employee shall receive the Employee's full salary during the first
thirty (30) days of such incapacity in any period of twelve (12) consecutive
months, but shall receive no salary thereafter until the Employee returns to
work. Sick pay shall be non-cumulative and in no event shall the Employee be
entitled to compensation in lieu of absence due to incapacity.
C. VACATION. The Employee shall be entitled to two (2) weeks paid
vacation during each fiscal year, which may be taken at any time and upon prior
approval of the Company. This period of vacation shall accrue ratably throughout
the year, but shall not be cumulative.
<PAGE> 2
D. MEDICAL INSURANCE. The Company shall provide at its expense a
policy of group medical insurance for the benefit of the Employee, and the
spouse and dependents of the Employee, if any, with an annual deductible of not
more than three hundred dollars ($300) per person per year, with co-insurance
not to exceed twenty percent (20%) of the first five thousand dollars ($5,000)
of covered expenses per year, and with an overall policy limit of not less than
one million dollars ($1,000,000) per family. The above terms are subject to
change based on change in deductibles and maximum out of pocket expenses
incurred updating or transferring said medical insurance policies.
E. EXPENSES. During the period of employment, the Employee will
be reimbursed for reasonable expenses in accordance with the general policy of
the Company as adopted by the Company's Board of Directors, from time to time,
or, in the absence of such formal policy, in accordance with Company's practice.
F. PROBATIONARY PERIOD. The Company shall provide the Employee
with the medical insurance described herein only after the Employee has
completed ninety (90) days of consecutive service for the Company.
4. TERMINATION. This Agreement shall remain in full force and
effect until terminated upon the occurrence of any of the events or conditions
described below.
The Company may terminate this Agreement for cause without prior
notice because of the Employee's fraud, embezzlement or material willful
misconduct against the Company, disability or death. The term "disability" as
used in the preceding sentence shall mean the Employee shall have become
permanently disabled due to ill health, physical or mental impairment or for
other causes which result in Employee's being unable to substantially perform
Employee's duties under this Agreement for thirty (30) consecutive days.
Either party may terminate this Agreement without prior notice
based upon material breach of the terms of this Agreement by the other.
5. COVENANTS REGARDING NON-COMPETITION AND NON- SOLICITATION.
Employee hereby expressly covenants and agrees that Employee will not, directly
or indirectly for any person, persons, partnership, or corporation engaged in
the offer or sale of products or services of the same or similar kind as those
offered or sold by the Company at any time during the term of employment
hereunder nor for a period of one (1) year following the termination of
employment hereunder, whether such termination is voluntary or involuntary: (i)
be engaged within the Territory (as defined in Paragraph 9 below) in any type of
activity which poses a conflict of interest or is in competition with the
Company or perform services similar to those performed for the Company
hereunder; (ii) induce, persuade, or encourage any person who was employed by
the Company at any time during the term of Employee's employment hereunder, to
terminate such employee's position with the Company.
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<PAGE> 3
Employee represents that the provisions of this Paragraph 3 will
not prevent Employee from earning a livelihood and that the duration,
geographical coverage and general terms of this Paragraph 3 are reasonable and
necessary to protect the interest of the Company.
6. NON-DISCLOSURE AND CONFIDENTIALITY COVENANT. Employee hereby
covenants and agrees that Employee will not at any time, during the term of this
Agreement nor following the termination of employment hereunder, whether such
termination is voluntary or involuntary, for or on behalf of Employee or any
person, persons, partnership or corporation (except the Company) directly or
indirectly use for Employee's own benefit or disclose to any other party any
confidential information. "Confidential Information" as used herein means
information relating to the Company's business which derives economic value,
actual or potential, from not being generally known to other persons and is the
subject of efforts that are reasonable under the circumstances to maintain its
secrecy or confidentiality, including, but not limited to, any technical or
nontechnical data, formula, pattern, compilation, program, device, method,
technique, drawing, process, financial data, or list of actual or potential
customers or suppliers. Confidential information does not include information
which is not a trade secret three (3) years after termination of Employee's
employment with the Company.
7. TERRITORY. For the purpose of this Agreement, the "Territory"
shall refer to the geographic area consisting of a Three Hundred Fifty (350)
mile radius from the city limits of the facility in which the Employee works.
8. CONTINUED EMPLOYMENT. Nothing in this Agreement is intended,
and shall not be construed, as the creation of any contractual right to, or
obligation of, continued employment on the part of either the Company or the
Employee.
9. RELATIONSHIP BETWEEN THE PARTIES. The relationship between
Company and Employee is that of an employer and an employee. Nothing in this
Agreement shall be construed to give the Employee any interest in the tangible
or intangible assets of the Company.
10. ENFORCEMENT. The Employee agrees and acknowledges that any
violation or threat of violation of this Agreement will result in irreparable
harm to the Company for which damages may be an inadequate remedy. Therefore, in
addition to its respective rights and remedies otherwise available at law, the
Company shall be entitled to equitable relief, including both temporary and
permanent injunctions, to restrain such violation or threat thereof and to such
other equitable relief as a court may deem proper under the circumstances.
11. NOTICE. Notice shall be deemed delivered when delivered in
person or, when mailed, when deposited in the United States mails, correctly
addressed and postage prepaid. Notice to the Company shall be delivered to the
Dr. David N. Birman, 502 Gould Drive, Cookeville, Tennessee 38501. Notice to
Employee shall be delivered at that same address.
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<PAGE> 4
Either or both parties can change the address to which notice is to be given by
mailing or delivering written notice of such change of address to the other
party.
12. MISCELLANEOUS.
A. BINDING EFFECT. This Agreement shall be binding upon the
parties hereto and upon their respective executors, administrators, successors,
and assigns.
B. SEVERABILITY. Each of the parties hereto agrees that this
Agreement is severable and if, for any reason, any portion or paragraph of this
Agreement shall be declared void or unenforceable, it shall affect only such
particular portion or paragraph of this Agreement and the balance of the
Agreement shall remain in full force and effect and be binding upon the parties
hereto.
C. WAIVER. Any waiver by the Company of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver of
any such breach of the same or any other provision by Employee.
D. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
of the parties as to the subject matter hereof and supersedes any previous
understandings, either oral or written, between the parties.
E. GOVERNING LAW. This Agreement shall be governed by,
interpreted and construed in accordance with the laws of the State of Tennessee.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 19 .
___________________________
EMPLOYEE
SUBSCRIBED AND SWORN to before me, this ________ day of
_____________________________, 19 ____.
___________________________
NOTARY PUBLIC
4
<PAGE> 5
BIRMAN & ASSOCIATES, INC.
________________________________________
SUBSCRIBED AND SWORN to before me, this ________ day of
_____________________________, 19 ____.
___________________________
NOTARY PUBLIC
5
<PAGE> 1
EXHIBIT 10.9
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into as of
the 1st day of September, 1996, by and among BIRMAN MANAGED CARE, INC., a
Tennessee corporation (the "Company"); RRCG, L.L.C., an Arizona limited
liability company, ("Consultant") and RICHARD M. ROSS, an Arizona resident
("Principal").
W I T N E S S E T H:
WHEREAS, Principal is as of the date hereof the legal and beneficial
owner of the majority of the outstanding membership units of Consultant
(including its economic interests); and is Consultant's sole employee devoted
to the engagement described herein; and
WHEREAS, the Company, Consultant and Principal mutually desire that
Consultant be engaged in accordance with the terms and conditions hereof;
NOW, THEREFORE, in consideration of the foregoing, the payment of $1.00
and other good and valuable consideration and the mutual covenants and
agreements contained herein, the receipt and sufficiency whereof the parties
hereby acknowledge, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Engagement. The Company hereby engages Consultant and
Consultant hereby accepts engagement from the Company as a consultant.
Consultant shall perform services for the Company for the period and upon the
terms and conditions set forth in this Agreement. The term "Company" as used
herein shall mean the Company and its Affiliates. "Affiliate" means an entity
or person that, directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified, including the holder of five percent (5%) or more of the beneficial
ownership of the Company.
2. Term. The term of this Agreement shall commence as of the date
hereof and, unless terminated sooner as provided in Article 7 herein, shall
continue up to and including August 31, 1997 (the "Initial Term"). Following
the expiration of the Initial Term, this Agreement shall automatically be
renewed for one or more (but not more than five (5)) successive one (1) years
terms, unless this Agreement has been sooner terminated in accordance with
Section 7.
3. Scope of Engagement.
3.01 Services. During the term of this Agreement, Consultant shall
consult with and advise the Company as to business development; corporate
strategies; opportunities for mergers and acquisitions and other ventures
related to the Company's business, all as reasonably requested by the Board of
Directors or the Chief Executive Officer from time to time.
<PAGE> 2
3.02 Performance of Services. (A) Consultant and Principal shall
serve the Company faithfully and to the best of its and his ability and devote
such time, attention, skill and effort as is required to effectively discharge
its and his duties hereunder, consistent with the standards of conduct and
professionalism applicable to the health care industry. Principal shall make
himself available to the Company during business hours on business days, and
may be required to expend up to, but not in excess of, seventy-five (75) hours
per month (non-cumulative) on Company matters. The manner, means and methods
of conducting the Services are under the sole control of Consultant so long as
they are lawful and consistent with the terms of this Agreement.
(B) Neither Consultant nor Principal shall provide services on behalf
of or with respect to any business which is competitive with any of the
Company's plans, programs or products ("Competing Business"). Subject to the
foregoing, and subject further to the provisions of Articles 5 and 6 hereof,
Consultant may, with the consent of the Company (which shall not unreasonably
be withheld), provide services to entities which engage in a Competing
Business. Consultant shall receive reimbursement for travel and other business
expenses of Principal in accordance with Section 4.02. The consent referred to
above shall be deemed to have been given by the Company if the Company fails to
respond in writing to a Notice of Proposed Services given by Ross within ten
(10) days after receipt of such Notice by the Company. The term "Notice of
Proposed Service" shall mean a writing signed by Ross and sent by certified
mail, return receipt requested, to (i) the Company's Chief Executive Officer
and (ii) the Company's Chief Financial Officer, describing in reasonable detail
the entity for whom services will be performed, the nature of the services
proposed, and the amount of time which Ross expects to expend.
3.03 Independent Contractor. The parties intend that an independent
contractor relationship be created by this Agreement. None of the benefits
provided by the Company to its employees will be provided to Consultant or
Principal, except as specifically set forth in this Agreement. Neither
Consultant nor Principal shall be deemed to be the employee of the Company, or
as an agent of the Company except as otherwise specifically agreed upon by the
parties. Consultant shall have no authority to bind the Company unless
specifically authorized by an executive officer of the Company.
4. Compensation.
4.01 Fee. During the Initial Term and any Renewal Terms, the
Company shall pay to Consultant as compensation for all services to be rendered
by Consultant and Principal under this Agreement a consulting fee ("Fee") as
follows:
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<PAGE> 3
One Hundred Eighty Six Thousand Dollars ($186,000), to be paid in
monthly installments of $15,500.00, mid-month, with the first installment due
on September 15, 1996 and with each subsequent installment due on the
fifiteenth (15th) day of the month next following.
4.02 Expenses. The Company will pay or reimburse Consultant for all
reasonable and necessary travel and other out-of-pocket expenses incurred by
Principal in the performance of duties under this Agreement (except as provided
in Section 4.03 below), subject to the presentment of appropriate vouchers in
accordance with the Company's policies and procedures as adopted from time to
time. Notwithstanding the foregoing, the Company must pre-approve any single
expense which exceed $500.00 and any expenses in excess of an aggregate of
$1500.00 per month. Payments will be made to Consultant within twenty (20)
days after presentment of invoice.
The Company will make all travel arrangements for Consultant for
airline travel outside Maricopa County, Arizona on Company business.
4.03 Office Facilities. Consultant shall be responsible for its
office facilities as well as such staff, equipment and materials as may
Consultant may deem necessary for Consultant to fulfill its duties under this
Agreement.
5. Confidentiality; Return of Materials.
5.01 Consequences of Entrustment. Consultant and Principal hereby
acknowledge that (i) the services to the Company will be of a special, unique,
extraordinary and intellectual character, (ii) Consultant's engagement by the
Company will place Consultant and Principal in a position of confidence,
responsibility and trust with respect to the operations of the Company, and
(iii) in reliance on Consultant's and Principal's ethical responsibility and
loyalty, the Company have entrusted and expect to entrust Consultant and
Principal with highly sensitive, confidential, restricted and proprietary
information involving Trade Secret Information (as hereinafter defined).
Consultant and Principal acknowledge that Consultant and Principal are legally
and ethically responsible for protecting and preserving the proprietary rights
of the Company for use only for the benefit of the Company, and these
responsibilities may impose limitations on Consultant's and Principal's ability
to pursue some kinds of business opportunities that might interest Consultant
after the termination of Consultant's and Principal's employment.
5.02 Definition of "Trade Secret Information". For purposes of this
Agreement, "Trade Secret Information" means information, whether or not in
written or tangible form, in the possession of the Company and considered by
the Company to be proprietary, valuable and confidential, from which the
Company derives economic value, actual or potential, by such information 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
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. Trade Secret Information includes, without limitation,
(a) any data or information acquired by Consultant and Principal during their
engagement by the Company relating to the products, services, business methods,
customer accounts or operations of the Company or any customer or business
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<PAGE> 4
partner of the Company, and (b) the techniques and business methods for (i)
applying scientific literature to merge resources and clinical language used in
defining medical payments for purposes of quality management and utilization
review, (ii) developing and managing health care provide organizations and
providing services thereto, (iii) developing reimbursement and at-risk systems
under capitation, prepayment, indemnity and other forms of compensatory
arrangements, and (iv) managing the delivery, reporting and financing of health
care services in managed care and managed cost settings, including the systems,
techniques, strategies and methods used to compete successfully in these lines
of business and the managed care business of the Company generally.
5.03 Restrictions on Use and Disclosure of Trade Secret Information.
Except as authorized by the Company, neither Principal or Consultant shall
during the term of this Agreement and for so long after the termination of this
Agreement as the information or data remains Trade Secret Information, directly
or indirectly divulge, furnish or make accessible to anyone or use in any way
(other than in the ordinary course of business of the Company) the Trade Secret
Information.
5.04 Return of Materials. Upon the request of the Company and, in
any event, upon the termination of Consultant's engagement, Consultant and
Principal shall return to the Company and leave at the disposal of the Company
all copies of memoranda, notes, records, drawings, manuals, computer programs,
documentation, diskettes and other documents or media, in Consultant's or
Principal's possession or control, pertaining in any way to the business,
practices or techniques of the Company.
6. Restrictions on Competition.
6.01 Premises. The Company has invested prior to the date hereof
and expects to continue to invest considerable time, effort and capital in
developing the business of the Company and enhancing the value and desirability
of the skills of its executives, technical personnel and consultants. This
investment, together with the Fee, reflect the Company's expectation of
receiving a considerable return from the exclusive use of Consultant's services
and know-how in the future, free from any risk that the Company's competitors
may attempt to induce Consultant or Principal to leave the Company and
wrongfully gain the benefit of the Company's investment. The partial restraint
set forth in Section 6.02 hereof does not, and cannot, provide complete
protection for the Company's investment, but the Company, on the one hand, and
Consultant and Principal, on the other hand, believe that, in combination with
the other provisions of this Agreement, it is a fair and reasonable measure
permitted under applicable law to protect the Company's interests, giving due
regard to both the interests of Consultant and Principal and the interests of
the Company. Consultant and Principal hereby (i) agree that the restrictions
contained within Section 6 are reasonable and necessary for the protection of
the goodwill of the business of the Company during the term of this Agreement
and thereafter and that the limitations as to period of time and geographic
area contained in Section 6.02 are reasonable and necessary for the protection
of the Company's business; and (ii) acknowledge that the Company would not have
entered into this Agreement but for these restrictions.
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<PAGE> 5
6.02 Covenant Not to Compete; Solicit. In consideration of
Consultant's engagement hereunder, together with the Fee payable to Consultant,
during the term of this Agreement and for a period equal to the two (2) years
from the termination of this Agreement for any reason, neither Consultant nor
Principal shall:
(a) directly or indirectly, for itself, himself, as an owner,
partner, principal, shareholder, officer, director, employee, or independent
contractor engage in the development, management or operation of any Managed
Care Plan within fifty (50) miles from any city or town where the Company has
engaged in the development, management or operation of a Managed Care Plan; or
(b) attempt, directly or indirectly, to solicit or entice (i) any
employee or consultant of the Company to terminate his or her employment or
consultancy with the Company or to become employed by or associated with any
person, firm or corporation other than the Company, or approach any such
employee or associate of any of the foregoing purposes or authorize or assist
in the taking of any such action by any third party; (ii) any existing
customer, business partner or client of the Company to terminate or reduce its
relationship with the Company; or (iii) any prospective customer, business
partner or client of the Company to refrain from doing business with the
Company.
(c) a "Managed Care Plan" shall be defined as independent practice
associations ("IPAs"), physician-hospital organizations ("PHOs"), management
services organizations ("MSOs"), preferred provide organizations ("PPOs"),
integrated delivery systems ("IDS"), health maintenance organizations ("HMOs"),
point of service ("POS") plans, long-term plans, third-party administrators
("TPAs") or other types of managed care organizations ("MCOs") that contract
with commercial third-party payors, self-insured employers, health care
purchasing cooperatives or Medicare fiscal intermediaries for the delivery of
health care services, engage in the development, management or operation of any
such IPAs, PHOs, MSOs, PPOs, IDS, HMOs, POS plans, long-term plans, TPAs or
other MCOs;
6.03 Interpretation. If Consultant or Principal violates the
restrictive covenant in Section 6.02 and the Company brings legal action for
injunctive or other relief, the Company shall not, as a result of the time
involved in obtaining the relief, be deprived of the benefit of the full period
of the restrictive covenant. Accordingly, unless Consultant or Principal
contests the alleged violation in a court of law and is the prevailing party in
a nonappealable decision to the applicable court, the restrictive covenant
shall be deemed to have the three-year post-employment duration specified in
Section 6.02 hereof computed from the date the relief is granted but reduced by
the period when the restriction began to run and the date of the first
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<PAGE> 6
violation by Consultant or Principal. Notwithstanding the foregoing, however,
to the extent this provision is invalid or unenforceable under the laws of any
applicable jurisdiction, the remainder of Section 6 shall be interpreted,
status quo ante, as if Section 6.03 had never been included herein and was an
absolute nullity.
6.04 No Adequate Remedy at Law. Consultant and Principal hereby
acknowledge and agree that a violation of any of the provisions contained in
Section 6.02 will cause irreparable damage to the Company, the exact amount of
which may be impossible to ascertain and that, for such reason, among others,
the Company shall be entitled to seek injunctive relief, both pendente lite and
permanently, against Consultant and Principal to restrain any further violation
of such provisions, and Consultant and Principal hereby consents to any
initiation by the Company in a court of competent jurisdiction of any action to
enjoin immediately any breach of this Agreement. This provision with respect
to injunctive relief shall not, however, diminish the right of the Company to
pursue any other rights and remedies the Company may have against Consultant,
including, but not limited to, the recovery of damages.
6.05 Duration. The restrictions contained in this Section 6 shall
insure to the benefit of the Company and shall survive the termination of this
Agreement.
7. Termination of Engagement. This Agreement shall terminate
prior to the expiration of its term upon the occurrence of any of the following
events:
(A) (i) A breach of Articles 5 or 6 of this Agreement which is not
cured (to the extent curable) within three (3) business days after notice by
the Company of such breach is received by Consultant or Principal; or (ii) a
material breach of any other provision contained in this Agreement which is not
cured within thirty (30) days after written notice by the Company of such
breach is received by Consultant, provided that the Company shall not be
required to give Consultant an opportunity to cure in the event Consultant or
Principal breaches this Agreement in a material manner twice in any six (6)
month period;
(B) Principal's death;
(C) by mutual agreement of the parties; or
(D) upon ten (10) day's notice to the Company given by Consultant.
In the event of a termination of this Agreement hereunder, unless
otherwise agreed in writing, the Company will have no further obligation to
Consultant or Principal, except the obligation to pay the prorated Fee due
Consultant through the period ending as of the effective date of termination.
Notwithstanding the foregoing, if Consultant's engagement is terminated as a
result of Principal's death, the Company shall pay to Consultant the prorated
Fee through the sixtieth (60th) day following the date on which Consultant's
death occurs.
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<PAGE> 7
8 Miscellaneous.
8.01 Governing Law. This Agreement shall be deemed to have been
executed in the State of Arizona and shall be governed and construed as to both
substantive and procedural matters in accordance with the laws of the State of
Arizona, but excepting (i) any State of Arizona rule which would result in the
application of the law of a jurisdiction other than the State of Arizona.
8.02 Prior Agreements. This Agreement contains the entire agreement
of the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings with respect to such subject matter, and the
parties hereto have made no agreements, representations or warranties relating
to the subject matter of this Agreement which are not set forth herein.
8.03 Amendment. This Agreement may not be amended, modified,
superseded, canceled or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived, except by
written instrument executed by the parties hereto or, in the case of a waiver,
by the party to be charged with such waiver.
8.04 Severability. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom and
the remainder of such provision and of this Agreement shall be unaffected and
not in limitation of business activities covered by, any provision of this
Agreement be in excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only that duration, extent
or activities which may validly and enforceably be covered. Consultant
acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement be given the construction which renders its
provisions valid and enforceable to the maximum extent possible under
applicable law.
8.05 Attorney's Fees. If either party hereto shall be required to
retain the services of an attorney to enforce any of his or its rights
hereunder, the prevailing party shall be entitled to receive from the other
party all costs and expenses including, but not limited to, court costs and
attorneys' or experts' fees (whether in a court of original jurisdiction or one
or more courts of appellate jurisdiction) incurred by him or it in connection
therewith.
8.06 Assignment. This Agreement shall not be assignable, in whole
or in part, by either party without the written consent of the other party,
except that the Company may, without the consent of Consultant or Principal,
assign its rights and obligations under this Agreement to any corporation, firm
or other business entity with or into which the Company may merge or
consolidate, or to which the Company may sell or transfer all or substantially
all of its assets, or of which fifty (50%) percent or more of the equity
investment and of the voting control is owned, directly or indirectly, by, or
is under common ownership with the Company; provided, however, that such
corporation, firm or business entity has a financial net worth comparable to or
greater than the Company as of the date of such transaction, and provided
further, that the Company remains liable to Consultant for its obligations
hereunder.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
The Company
BIRMAN MANAGED CARE, INC.,
a Tennessee corporation
By:/s/ David Birman, M.D.
------------------------------
David N. Birman, M.D.
Chairman and Chief Executive
Officer
[signatures continued on following page]
8
<PAGE> 9
PRINCIPAL
---------------------- (SEAL)
Richard M. Ross
CONSULTANT
RRCG, L.L.C.
By:
-------------------------
Manager
9
<PAGE> 1
EXHIBIT 10.10
BIRMAN MANAGED CARE, INC.
1995 STOCK OPTION PLAN
<PAGE> 2
BIRMAN MANAGED CARE, INC.
1995 STOCK OPTION PLAN
This Stock Option Plan is dated as of October 31, 1995.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
(a) "Alternate Rights" shall have the meanings ascribed in
Section 3.7.
(b) "Award" shall mean an Option, which may be designated as a
Nonqualified Stock Option or an Incentive Stock Option granted under this Plan.
(c) "Award Agreement" shall mean, as the case may be, the
Incentive Stock Option Award Agreement substantially in the form of Exhibit A
attached hereto and made a part herewith, setting forth the terms of an Award,
or the Non-Qualified Stock Option Award Agreement substantially in the form of
Exhibit B attached hereto and made a part herewith setting forth the terms of an
Award.
(d) "Award Date" shall mean the date upon which the Committee
took the action granting an Award or such later date as is prescribed by the
Committee.
(e) "Award Period" shall mean the period beginning on an Award
Date and ending on the expiration date of such Award.
(f) "Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified under this Plan in the event of a Participant's death.
(g) "Board" shall mean the Board of Directors of the Corporation.
(h) "Change in Control," "Control Transaction," "Group," and
"Just Cause" shall have the meaning ascribed in Section 3.8.
(i) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(j) "Common Stock" shall mean the Common Stock, $.001 par value,
of the Corporation.
<PAGE> 3
(k) "Commission" shall mean the Securities and Exchange
Commission.
(l) "Committee" shall mean the committee appointed by the Board
and consisting of three or more members or if no such committee has been
appointed, the Board.
(m) "Corporation" shall mean Birman Managed Care, Inc. a
Tennessee corporation, and its successors.
(n) "Eligible Employee" shall mean an officer or key employee of
the Company.
(o) "Event" shall mean approval by the shareholders of the
Corporation of (i) the dissolution or liquidation of the Corporation; (ii) an
agreement to merge or consolidate, or otherwise reorganize, with or into one or
more entities which are not Subsidiaries, as a result of which less than 50% of
the outstanding voting securities of the surviving or resulting entity are, or
are to be, owned by former shareholders of the Corporation; (iii) the sale of
substantially all of the Corporation's business and/or assets to a person or
entity which is not a Subsidiary; (iv) the sale by a controlling shareholder or
group thereof to a third party of voting securities of the Corporation that
results in the transfer of a controlling interest in the Corporation,
effectuates a Change of Control or constitutes a Control Transaction; or (v) a
tender offer pursuant to which the offeror acquires a controlling interest in
the Corporation.
(p) "Fair Market Value" shall mean (i) the closing sales price of
the stock first preceding the time at which Fair Market Value is to be
determined on the national securities exchange having the greatest volume of
trading in the stock during the 30-day period immediately preceding that time as
reported in The Wall Street Journal; (ii) if the stock is not listed or admitted
to trade on any national securities exchange, the closing sales price of the
stock first preceding the time at which Fair Market Value is to be determined,
as quoted in the National Association of Securities Dealers Automated Quotation
(NASDAQ) National Market Reporting System, or any successor system, as reported
in The Wall Street Journal; (iii) if the stock is not listed or admitted to
trade on any national securities exchange and is not quoted on the NASDAQ
National Market Reporting System, the average of the closing bid and asked sales
prices of the stock on the over-the-counter market first preceding the time at
which Fair Market Value is to be determined, as quoted on NASDAQ or such other
national reporting service, as reported in The Wall Street Journal; or (iv) if
the stock is not listed or admitted to trade on a national securities exchange,
is not quoted on the NASDAQ National Market Reporting System and if the bid and
asked sales prices for the stock are not furnished by the National Association
of Securities Dealers, Inc. or a similar organization, the Fair Market Value
established by the Committee for purposes of granting Options under the Plan
based on such relevant facts, which may include opinions of independent experts,
as may be available to the Committee.
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<PAGE> 4
(q) "Incentive Stock Option" shall mean an option which is
designated as an incentive stock option within the meaning of Section 422 of the
Code, the award of which contains such provisions as are necessary to comply
with that section.
(r) "Limited Rights" shall have the meaning ascribed in Section
3.8.
(s) "Nonqualified Stock Option" shall mean an option which is
designated as a Nonqualified Stock Option.
(t) "Option" shall mean an option to purchase Common Stock under
this Plan. An Option shall be designated by the Committee as a Nonqualified
Stock Option or an Incentive Stock Option.
(u) "Participant" shall mean an Eligible Employee who has
received an Award.
(v) "Personal Representative" shall mean the person or persons
who, upon the disability or incompetence of a Participant, shall have acquired
on behalf of the Participant by legal proceeding or otherwise the power to
exercise the rights and receive the benefits specified in this Plan.
(w) "Plan" shall mean the Birman Managed Care, Inc. 1995 Stock
Option Plan as amended from time to time in accordance herewith.
(x) "Reload Options" shall have the meaning ascribed in Section
3.6.
(y) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(z) "Subsidiary" shall mean any corporation or other entity a
majority or more of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
ARTICLE II
THE PLAN
2.1 PURPOSE. The purpose of this Plan is to promote the success
of the Corporation by providing an additional means to attract and retain key
personnel through added long term incentives for high levels of performance and
for significant efforts to improve the financial performance of the Corporation
by granting Awards.
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<PAGE> 5
2.2 ADMINISTRATION.
(a) This Plan shall be administered by the Committee. Action of
the Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or the written consent of a majority of its members.
In the event action by the Committee is taken by written consent, the action
shall be deemed to have been taken at the time specified in the consent or, if
none is specified, at the time of the last signature. The Committee may delegate
administrative functions to individuals who are officers or employees of the
Corporation.
(b) Subject to the express provisions of this Plan, the Committee
shall have the authority to construe and interpret this Plan and any agreements
defining the rights and obligations of the Corporation and Participants under
this Plan, to further define the terms used in this Plan, to prescribe, amend
and rescind rules and regulations relating to the administration of this Plan,
to determine the duration and purposes of leaves of absence which may be granted
to Participants without constituting a termination of their employment for
purposes of this Plan and to make all other determinations necessary or
advisable for the administration of this Plan. The determinations of the
Committee on the foregoing matters shall be conclusive.
(c) Any action taken by, or inaction of, the Corporation, any
Subsidiary, the Board or the Committee relating to this Plan shall be within the
absolute discretion of that entity or body and shall be conclusive and binding
upon all persons. No member of the Board or Committee, or officer of the
Corporation or Subsidiary, shall be liable for any such action or inaction of
the entity or body, of another person or, except in circumstances involving bad
faith, of himself or herself. Subject only to compliance with the express
provisions hereof, the Board and Committee may act in their absolute discretion
in matters related to this Plan.
2.3 PARTICIPATION. Awards may be granted only to Eligible
Employees. An Eligible Employee who has been granted an Award may, if otherwise
eligible, be granted additional Awards if the Committee shall so determine.
Members of the Board who are not officers or employees of the Corporation shall
not be eligible to receive Awards. In making selections of Eligible Employees,
the Committee shall consider any factors deemed relevant, including the
individual's functions, responsibilities, value of services to the Corporation
and past and potential contributions to the Corporation's profitability and
sound growth.
2.4 STOCK SUBJECT TO THE PLAN. The stock to be offered under this
Plan shall be shares of the Corporation's authorized but unissued Common Stock.
The aggregate amount of Common Stock that may be issued or transferred pursuant
to Awards granted under this Plan shall not exceed 2,000,000 shares, subject to
adjustment as set forth in Section 4.2. If any Option shall lapse or terminate
(either by its terms or as a result of the repurchase by the Corporation of such
Option) without having been exercised in full, the unpurchased shares subject
thereto shall again be available for purposes of this Plan.
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<PAGE> 6
2.5 GRANT OF OPTIONS. Subject to the express provisions of the
Plan, the Committee shall determine from the class of Eligible Employees those
individuals to whom Options under the Plan shall be granted, the terms of
Options (which need not be identical) and the number of shares of Common Stock
subject to each Option. Each Option shall be subject to the terms and conditions
set forth in the Plan and such other terms and conditions established by the
Committee as are not inconsistent with the purpose and provisions of the Plan.
The grant of an Option is made on the Award Date.
2.6 EXERCISE OF OPTIONS. An Option shall be deemed to be
exercised when the Secretary or Assistant Secretary of the Corporation receives
written notice of such exercise from the Participant, together with payment of
the purchase price made in accordance with Section 3.2(a). Participants may
elect, upon reasonable notice to the Corporation, to pay for such Options in the
form of promissory notes as described in Section 3.2. Notwithstanding any other
provision of this Plan, the Committee may impose, by rule or in Award
Agreements, such conditions upon the exercise of Options (including, without
limitation, vesting of exercise rights and conditions limiting the time of
exercise to specified periods) as may be required to satisfy applicable
regulatory requirements or as may be deemed necessary or advisable by the
Committee.
ARTICLE III
OPTIONS
3.1 GRANTS. One or more Options may be granted to any Eligible
Employee. Each Option so granted shall be designated by the Committee as either
a Nonqualified Stock Option or an Incentive Stock Option. In addition,
Participants may be eligible to exercise Reload options, as described in Section
3.6 or in Alternate Rights as described in Section 3.7 herein.
3.2 OPTION PRICE. The purchase price per share of the Common
Stock covered by each Option shall be determined by the Committee, but in no
event shall be less than 85% of the Fair Market Value of the Common Stock on the
date of grant and in the case of Incentive Stock Options shall not be less than
100% (110% in the case of a participant who owns more than 10% of the total
combined voting power of all classes of stock of the Corporation) of the Fair
Market Value of the Common Stocks on the date the Incentive Stock Option is
granted. The purchase price of any shares purchased shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash, or by certified or cashier's check payable to the order of the
Corporation, (ii) if authorized by the Committee or specified in the Option
being exercised, by a promissory note made by the Participant in favor of the
Corporation, upon the terms and conditions determined by the Committee, and
secured by the Common Stock issuable upon exercise in compliance with applicable
law (including, without limitation, state corporate law and federal margin
requirements), or (iii) by shares of Common
5
<PAGE> 7
Stock of the Corporation already owned by the Participant; provided, however,
the Committee may in its absolute discretion limit the Participant's ability to
exercise an Option by delivering shares, and any shares delivered which were
individually acquired upon exercise of a stock option must have been owned by
the Participant at least six months as of the date of delivery. Shares of Common
Stock used to satisfy the exercise price of an Option shall be valued at their
Fair Market Value on the date of exercise.
3.3 OPTION PERIOD. Each Option and all rights or obligations
thereunder shall expire on such date as shall be determined by the Committee,
but not later than 10 years after the Award Date in the case of an Incentive
Stock Option (five years in the case of a person described in Section 3.5(c)),
and shall be subject to earlier termination as hereinafter provided or as
provided in any Award Agreement.
3.4 EXERCISE OF OPTIONS. Except as otherwise provided in Section
4.4, an Option may become exercisable, in whole or in part, on the date or dates
specified in the Award Agreement which date(s) shall not be earlier than six
months after the Award Date and thereafter shall remain exercisable until the
expiration or earlier termination of the Participant's Option. The Committee
may, at any time after grant of the Option and from time to time, increase the
number of shares purchasable at any time so long as the total number of shares
subject to the Option is not increased. No Option shall be exercisable except in
respect of whole shares, and fractional share interests shall be disregarded.
Not less than 1,000 shares of Common Stock may be purchased at one time unless
the number purchased is the total number at the time available for purchase
under the terms of the Option.
3.5 LIMITATIONS ON GRANT OF INCENTIVE STOCK OPTIONS.
(a) There shall be imposed in the Award Agreement relating to
Incentive Stock Options such terms and conditions as are required in order that
the Option be an "incentive stock option" as that term is defined in Section 422
of the Code.
(b) No Incentive Stock Option may be granted to any person who,
at the time the Incentive Stock Option is granted, owns shares of outstanding
Common Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation, unless the exercise price of such Option is
at least 110% of the Fair Market Value of the stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five years
from the date such Option is granted.
3.6 RELOAD OPTIONS.
(a) Concurrently with the award of Stock Options and/or the award
of Incentive Stock Options to any participant in the Plan, the Committee may
authorize reload options ("Reload Options") to purchase for cash or shares a
number of shares of Common Stock. The number
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<PAGE> 8
of Reload Options shall equal (i) the number of shares of Common Stock used to
exercise the underlying Stock Options or Incentive Stock Options and (ii) to the
extent authorized by the Committee, the number of shares of Common Stock used to
satisfy any tax withholding requirement incident to the exercise of the
underlying Stock Options or incentive Stock Options. The grant of a Reload
Option will become effective upon the exercise of underlying Stock Options,
Incentive Stock Options or Reload Options through the use of shares of Common
Stock held by the optionee for at least 12 months. Notwithstanding the fact that
the underlying option may be an Incentive Stock Option, a Reload Option is not
intended to qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986.
(b) Each Stock Option Agreement and Incentive Stock Option
Agreement shall state whether the Committee has authorized Reload Options with
respect to the underlying Stock Options and/or Incentive Stock Options. Upon the
exercise of an underlying Stock Option, Incentive Stock Option or other related
Reload Option, the Reload Option will be evidenced by an amendment to the
underlying Stock Option Agreement or Incentive Stock Option Agreement.
(c) The option price per share of Common Stock deliverable upon
the exercise of a Reload Option shall be the fair market value of a share of
Common Stock on the date the grant of the Reload Option becomes effective.
(d) Each Reload Option is fully exercisable six months from the
effective date of the grant. The term of each Reload Option shall be equal to
the remaining option term of the underlying Stock Option and/or Incentive Stock
Option.
(e) No additional Reload Options shall be granted to optionees
when Stock Options, Incentive Stock Options and/or Reload Options are exercised
pursuant to the terms of this Plan following termination of the optionee's
employment.
(f) Sections 2.5, Manner of Payment; 2.6, Restrictions on Certain
Shares; 2.7, Death of Optionee; 2.8, Retirement or Disability; 2.9, Termination
for Other Reasons; and 2.10, Effect of Exercise, applicable to Stock Options,
shall apply equally to Reload Options. Said Sections are incorporated by
reference in this Section 3.6 as though fully set forth herein.
3.7 ALTERNATE APPRECIATION RIGHTS.
(a) Concurrently with the award of any Stock Option, Incentive
Stock Option or Reload Option to purchase one or more shares of Common Stock,
the Committee may, subject to the provisions of the Plan and such other terms
and conditions as the Committee may prescribe, award to the optionee with
respect to each share of Common Stock, a related alternate appreciation right
("Alternate Right"), permitting the optionee to be paid in appreciation on the
option in lieu of exercising the option. Such Alternate Right shall be evidenced
in such form as the Committee may from time to time determine.
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<PAGE> 9
(b) An optionee who has been granted Alternate rights may, from
time to time, in lieu of the exercise of an equal number of options, elect to
exercise one or more Alternate Rights and thereby become entitled to receive
from the Corporation payment in Common Stock the number of shares determined
pursuant to Sections 3.7(c) and 3.7(d). Alternate Rights shall be exercisable
only to the same extent and subject to the same conditions as the options
related thereto are exercisable, as provided in this Plan. The Committee may, in
its discretion, prescribe additional conditions to the exercise of any Alternate
Rights.
(c) The amount of payment to which an optionee shall be entitled
upon exercise of each Alternate Right shall be equal to 100% of the amount, if
any, by which the fair market value of a share of Common Stock on the exercise
date exceeds the fair market value of a share of Common Stock on the date the
option related to said Alternate Rights was granted or became effective, as the
case may be.
(d) The number of shares to be paid shall be determined by
dividing the amount of payment determined pursuant to Section 3.7(c) by the fair
market value of a share of Common Stock on the exercise date of such Alternate
Rights. As soon as practicable after exercise, the Corporation shall deliver to
the optionee a certificate or certificates for such shares of Common Stock. All
such shares shall be issued with the rights and restrictions specified in
Section 2.6.
(e) The exercise of any Alternate Rights shall cancel an equal
number of Stock Options, Incentive Stock Options, Reload Options and Limited
Rights, if any, related to said Alternate Rights.
(f) Upon termination of optionee's employment (including
employment as a director of the Corporation after an optionee terminates
employment as an officer or key employee of the Corporation) by reason of
permanent disability or retirement (as each is determined by the Committee), the
optionee may, within six months from the date of such termination, exercise any
Alternate Rights to the extent such Alternate Rights are exercisable during such
six month period.
(g) Except as provided in 3.7(f) herein, or except as otherwise
determined by the Committee all Alternate Rights shall terminate upon the
termination of optionee's employment or upon the death of the optionee.
3.8 LIMITED RIGHTS.
(a) Concurrently with or subsequent to the award of any Stock
Option, Incentive Stock Option, Reload Option or Alternate Right, the Committee
may, subject to the provisions of the Plan and such other terms and conditions
as the Committee may prescribe, award to the optionee with respect to each share
of Common Stock, a related limited right permitting the optionee, during a
specified limited time period, to be paid the appreciation on the option in lieu
of exercising the option ("Limited Right").
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<PAGE> 10
(b) Limited Rights granted under the Plan shall be evidenced by
written agreements in such form as the Committee may from time to time
determine.
(c) Limited Rights are exercisable in full for a period of seven
months following a "Change in Control" of the Corporation (the "exercise
period"); provided, however, that Limited Rights may not be exercised under any
circumstances until the expiration of the six-month period following the date of
grant. As used in the Plan, a "Change in Control" shall be deemed to have
occurred if individuals who were directors of the Corporation immediately prior
to a Control Transaction shall cease, within one year of such Control
Transaction, to constitute a majority of the Board of Directors of any successor
to the Corporation or to the purchaser of all or substantially all of its
assets. As used herein, "Control Transaction" shall be (i) any tender offer for
or acquisition of capital stock of the Corporation or (ii) any merger,
consolidation or sale of all or substantially all of the assets of the
Corporation which has been approved by the shareholders. As used herein, "Group"
shall mean persons who act in concert as described in Sections 13(d)(3) and/or
14(d)(2) of the Securities Exchange Act of 1934, as amended.
(d) The amount of payment to which an optionee shall be entitled
upon the exercise of each Limited Right shall be equal to 100% of the amount, if
any, which is equal to the difference between the price per share of Common
Stock covered by the related option on the date the option was granted and the
Market Value of such Common Stock. Market Price is defined to be the greater of
(i) the highest price per share of the Corporation's Common Stock paid in
connection with any Change in Control and (ii) the Fair Market Value during the
60-day period prior to the Change in Control.
(e) Payment of the amount to which an optionee is entitled upon
the exercise of Limited Rights, as determined pursuant to Section 3.8(d), shall
be made solely in cash.
(f) If Limited Rights are exercised, the Stock Options, Incentive
Stock Options, Reload Options and Alternate Rights, if any, related to such
Limited Rights cease to be exercisable to the extent of the number of shares
with respect to which the Limited Rights were exercised. Upon the exercise or
termination of the options, and Alternate Rights, if any, related to such
Limited Rights, the Limited Rights granted with respect thereto terminate to the
extent of the number of shares as to which the related options and Alternate
Rights were exercised or terminated.
(g) Upon termination of the optionee's employment (including
employment as a director of the Corporation after an optionee terminated
employment as an officer or key employee of the Corporation) by reason of
permanent disability or retirement (as each is determined by the Committee), the
optionee may, within six months from the date of termination, exercise any
Limited Right to the extent such Limited Right is exercisable during such
six-month period.
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(h) Except to the extent provided in Sections 3.8(g) and 3.8(i),
or except as otherwise determined by the Committee, all Limited Rights granted
under the Plan shall terminate upon the termination of optionee's employment or
upon the death of the optionee.
(i) The requirement that an optionee be terminated by reason of
retirement or permanent disability or be employed by the Corporation at the time
of exercise pursuant to Sections 3.8(g) and 3.8(h), respectively, is waived
during the Exercise Period as to any optionee who was employed by the
Corporation at the time of the Change in Control and is subsequently terminated
by the Corporation other than for Just Cause or who voluntarily terminates if
such termination was the result of a good faith determination by the optionee
that as a result of the Change in Control he is unable to effectively discharge
his present duties or the duties of the position which he occupied just prior to
the Change in Control. As used herein, "Just Cause" shall mean conviction of or
failure to contest prosecution for a felony or excessive absenteeism (unrelated
to illness or to an approved leave of absence).
ARTICLE IV
OTHER PROVISIONS
4.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.
(a) Status as an Eligible Employee shall not be construed as a
commitment that any Award will be made under this Plan to an Eligible Employee
or to Eligible Employees generally.
(b) Nothing contained in this Plan (or in Award Agreements or in
any other documents related to this Plan or to Options) shall confer upon any
Eligible Employee or Participant any right to continue in the employ of the
Corporation or constitute any contract or agreement of employment, or interfere
in any way with the right of the Corporation to reduce such person's
compensation or to terminate the employment of such Eligible Employee or
Participant, with or without cause, but nothing contained in this Plan or any
document related thereto shall affect any other contractual right of any
Eligible Employee or Participant.
(c) Other than by will or the laws of descent and distribution,
no interest in this Plan or in any Option shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any such attempted action shall be void and no such benefit or
interest shall be, in any manner, liable for, or subject to, debts, contracts,
liabilities, engagements or torts of any Eligible Employee, Participant or
Beneficiary. The Committee shall disregard any attempted transfer, assignment or
other alienation prohibited by the preceding sentence and shall pay or deliver
such cash or shares of Common Stock in accordance with the provisions of this
Plan.
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(d) No Participant, Beneficiary or other person shall have any
right, title or interest in any fund or in any specific asset (including shares
of Common Stock) of the Corporation by reason of any Option granted hereunder.
Neither the provisions of this Plan (or of any documents related hereto), nor
the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Corporation and any Participant,
Beneficiary or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive an Option hereunder, such right shall
be no greater than the right of any unsecured general creditor of the
Corporation.
4.2 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) If the outstanding shares of Common Stocks are increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Corporation through a reorganization or merger in
which the Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, rights offering, stock split, stock
dividend, stock consolidation or any other change in the corporate structure or
shares of capital stock of the Corporation, an appropriate adjustment shall be
made in the number and kind of shares that may be issued pursuant to Options. A
corresponding adjustment to the consideration payable with respect to Options
granted prior to any such change shall also be made. Any such adjustment,
however, shall be made without change in the total payment, if any, applicable
to the portion of the Option not exercised but with a corresponding adjustment
in the price for each share.
(b) Upon the dissolution or liquidation of the Corporation, or
upon a reorganization, merger or consolidation of the Corporation with one or
more corporations as a result of which the Corporation is not the surviving
corporation, the Plan shall terminate, and any outstanding Options shall,
subject to the provisions of Section 4.4, terminate and be forfeited.
Notwithstanding the foregoing, the Committee may provide in writing in
connection with, or in contemplation of, any such transaction for any or all of
the following alternatives (separately or in combinations): (i) for the
assumption by the successor corporation of the Options theretofore granted or
the substitution by such corporation for such Options or Options covering the
stock of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; (ii) for
the continuance of the Plan by such successor corporation in which event the
Plan and the Options shall continue in the manner and under the terms so
provided; or (iii) for the payment in cash or shares of Common Stock in lieu of
and in complete satisfaction of such Awards.
(c) In adjusting Options to reflect the changes described in this
Section 4.2, or in determining that no such adjustment is necessary, the
Committee may rely upon the advice of independent counsel and accountants of the
Corporation, and the determination of the Committee shall be conclusive. No
fractional shares of stock shall be issued under this Plan on account of any
such adjustment.
11
<PAGE> 13
4.3 TERMINATION OF EMPLOYMENT.
(a) If the Participant's employment by the Corporation terminates
as a result of disability, the Participant or Participant's Personal
Representative may exercise any Option to the extent it shall have become
exercisable.
(b) If the Participant's employment by the Corporation terminates
as a result of death while the Participant is employed by the Corporation (or in
the case of Incentive Stock Options was last employed by the Corporation within
three months before his death), the Participant's Option shall be exercisable by
the Participant's Beneficiary as to all or any part of the shares of Common
Stock covered thereby to the extent exercisable on the date of death (or earlier
termination).
(c) In the event of termination of employment with the
Corporation for any reason, other than discharge for Just Cause, the Committee
may, in its discretion, increase the portion of the Participant's Option
available to the Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, upon such terms as the Committee shall
determine.
(d) If an entity ceases to be a Subsidiary, such action shall be
deemed for purposes of this Section 4.3 to be a termination of employment of
each employee of that entity.
(e) Any requirement that an optionee be terminated by season of
retirement or permanent disability or be employed by the Corporation at the time
of exercise of an Option shall be waived during the Exercise Period as to any
optionee who (i) was employed by the Corporation at the time of the Change in
Control and (ii) is subsequently terminated by the Corporation other than for
Just Cause or who voluntarily terminates if such termination was the result of a
good faith determination by the optionee that as a result of the Change in
Control he is unable to effectively discharge his present duties or the duties
of the position which he occupied just prior to the Change in Control.
4.4 ACCELERATION OF OPTIONS. Unless prior to an Event the Board
determines that, upon its occurrence, there shall be no acceleration of Options
or determines those Options which shall be accelerated and the extent to which
they shall be accelerated, upon the occurrence of an Event each Option shall
become immediately exercisable to the full extent theretofore not exercisable;
provided, however, that Options shall not in any event be so accelerated to a
date less than six months after the Award Date. Acceleration of Options shall
comply with applicable regulatory requirements, including, without limitation,
Section 422 of the Code. For purposes of this Section 4.4 only, the Board shall
mean the Board as constituted immediately prior to the Event.
4.5 GOVERNMENT REGULATIONS. This Plan, the granting of Options
under this Plan and the issuance or transfer of shares of Common Stock (and/or
the payment of money) pursuant
12
<PAGE> 14
thereto are subject to all applicable federal and state laws, rules and
regulations and to such approvals by any regulatory or governmental agency
(including without limitation "no action" positions of the Commission) which
may, in the opinion of counsel for the Corporation, be necessary or advisable in
connection therewith. Without limiting the generality of the foregoing, no
Options may be granted under this Plan, and no shares shall be issued by the
Corporation, pursuant to any such Option, unless and until, in each such case,
all legal requirements applicable to the issuance have, in the opinion of
counsel to the Corporation, been complied with. In connection with any stock
issuance or transfer, the person acquiring the shares shall, if requested by the
Corporation, give assurances satisfactory to counsel to the Corporation in
respect of such matters as the Corporation may deem desirable to assure
compliance with all applicable legal requirements.
4.6 TAX WITHHOLDING. Upon the disposition by a Participant or
other person of shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option prior to satisfaction of the holding period requirements
of Section 422 of the Code, or upon the exercise of a Nonqualified Stock Option,
the Corporation shall have the right to require such Participant or such other
person to pay by cash, or certified or cashier's check payable to the
Corporation, the amount of any taxes which the Corporation may be required to
withhold with respect to such transactions. The above notwithstanding, in any
case where a tax is required to be withheld in connection with the issuance or
transfer of shares of Common Stock under this Plan, the Participant may elect,
pursuant to such rules as the Committee may establish, to have the Corporation
reduce the number of such shares issued or transferred by the appropriate number
of shares to accomplish such withholding; provided, the Committee may impose
such conditions on the payment of any withholding obligation as may be required
to satisfy applicable regulatory requirements.
4.7 AMENDMENTS, TERMINATION, AND SUSPENSION.
(a) The Board may, at any time, terminate or, from time to time,
amend, modify or suspend this Plan (or any part hereof). In addition, the
Committee may, from time to time, amend or modify any provision of this Plan
except Section 4.4 and, with the consent of the Participant, make such
modifications of the terms and conditions of such Participant's Option as it
shall deem advisable. The Committee, with the consent of the Participant, may
also amend the terms of any Option to provide that the Option price of the
shares remaining subject to the original Option shall be reestablished at a
price not less than 100% of the Fair Market Value of the Common Stock on the
effective date of the amendment. No modification of any other term or provision
of any Option which is amended in accordance with the foregoing shall be
required, although the Committee may, in its discretion, make such further
modifications of any such Option as are not inconsistent with or prohibited by
the Plan. No Options may be granted during any suspension of this Plan or after
its termination.
(b) If an amendment would (i) increase the aggregate number of
shares which may be issued under this Plan, or (ii) modify the requirements of
eligibility for participation in this
13
<PAGE> 15
Plan, the amendment shall be approved by the Board or the Committee and by a
majority of the shareholders.
(c) In the case of Options issued before the effective date of
any amendment, suspension or termination of this Plan, such amendment,
suspension or termination of the Plan shall not, without specific action of the
Board and consent of the Participant, in any way modify, amend, alter or impair
any rights or obligations under any Option previously granted under the Plan.
4.8 PRIVILEGES OF STOCK OWNERSHIP; NONDISTRIBUTIVE INTENT. A
Participant shall not be entitled to the privilege of stock ownership as to any
shares of Common Stock not actually issued to him. Upon the issuance and
transfer of shares to the Participant, unless a registration statement is in
effect under the Securities Act, relating to such issued and transferred Common
Stock and there is available for delivery a prospectus meeting the requirements
of Section 10 of the Securities Act, the Common Stock may be issued and
transferred to the Participant only if he represents and warrants in writing to
the Corporation that the shares are being acquired for investment and not with a
view to the resale or distribution thereof. No shares shall be issued and
transferred unless and until there shall have been full compliance with any the
applicable regulatory requirements (including those of exchanges upon which any
Common Stock of the Corporation may be listed).
4.9 EFFECTIVE DATE OF THE PLAN. This Plan shall be effective upon
its approval by the Board, subject to approval by the shareholders of the
Corporation within 12 months from the date of such Board approval.
4.10 TERM OF THE PLAN. Unless previously terminated by the Board,
this Plan shall terminate at the close of business on the tenth anniversary of
the date the Plan is approved by the Board (i.e., October 31, 2005), and no
Options shall be granted under it thereafter, but such termination shall not
affect any Option theretofore granted.
4.11 GOVERNING LAW. This Plan and the documents evidencing
Options and all other related documents shall be governed by, and construed in
accordance with, the laws of the State of Tennessee. If any provision shall be
held by a court of competent jurisdiction to be invalid and unenforceable, the
remaining provisions of this Plan shall continue to be fully effective.
14
<PAGE> 1
EXHIBIT 10.11
1996 DIRECTORS NONQUALIFIED STOCK OPTION PLAN
BIRMAN MANAGED CARE, INC., a Delaware corporation (the "Company"),
shall grant to each director who is not an officer or employee of the Company
("Non-Employee Director") an option to purchase Six Thousand (6,000) shares of
the Company's common stock, $0.001 par value (the "Common Stock"), on or before
August 31, 2006 (the "Plan"), on the date he or she is first elected to the
Board of Directors. Thereafter, on the date of each annual meeting of the
Company's shareholders, beginning with the annual meeting to be held in 1997,
each Non-Employee Director re-elected to the Board of directors at such meeting
will automatically receive an option to purchase Three Thousand (3,000) shares
of Common Stock. Provided, however, if a director is not a Non-Employee Director
upon his or her first election or subsequent re-election to the Board of
Directors, such options under the Plan shall be granted to such director on the
date he or she becomes a Non-Employee Director. All options granted under this
Plan shall accrue in three substantially equal annual installments commencing
the first day of the twelfth month following the date of grant and continuing on
the next two anniversaries thereof. The aggregate number of shares of Common
Stock which may be sold to all optionees pursuant to the Plan shall not exceed
One Hundred Thousand (100,000) shares. The purchase price per share to be
specified in each option granted pursuant to the Plan shall be the fair market
value per share of Common Stock on the date such option is granted and may be
paid in cash, in shares of Common Stock of the Company or in any combination
thereof and each option granted under the Plan shall be granted on and subject
to the terms and conditions of the form of option attached as Exhibit A.
At any time when an optionee is required to pay to the Company an
amount required to be withheld under applicable income tax laws in connection
with the exercise of this option, the optionee may satisfy this obligation in
whole or in part by electing (the "Election") to have the Company withhold
shares of Common Stock having a value equal to the amount required to be
withheld. The value of the shares to be withheld shall be based on the fair
market value of such shares on the date that the amount of tax to be withheld
shall be determined ("Tax Date"). Each Election must be made prior to the Tax
Date. The Board may disapprove of any Election or may suspend or terminate the
right to make Elections. An Election is irrevocable. The Election is subject to
the following additional restrictions:
(a) No Election shall be effective for a Tax Date which occurs
within six months of the grant of the option.
(b) The Election must be made either six months prior to the
Tax Date or must be made during a period beginning on the third
business day following the date of release for publication of the
Company's quarterly or annual summary statements of sales and earnings
and ending on the twelfth business day following such date.
<PAGE> 2
In the event of a stock dividend, stock split, or combination or other
reduction in the number of issued shares of Common Stock, the Board of Directors
may make such adjustments in the number of unpurchased shares subject to this
Plan, the number of shares subject to options outstanding in this Plan, and the
exercise price specified in options outstanding under this Plan as it may
determine to be appropriate and equitable. In the event of a merger,
consolidation, reorganization or dissolution of the Company, or the sale or
exchange of substantially all of the Company's assets, the rights under options
outstanding hereunder shall terminate, except to the extent and subject to such
adjustments as may be provided by the Board of Directors or by the terms of the
plan or agreement of merger, consolidation, reorganization, dissolution or sale
or exchange of such assets.
The Board of Directors may, in its discretion, prescribe such
provisions and interpretations not inconsistent herewith as it shall deem
necessary or desireable for the implementation of this Plan. The Board of
Directors may, without shareholder consent, amend this Plan; provided, however,
any amendment that would (i) materially increase the benefits accruing to
optionees hereunder, (ii) materially increase the number of shares which may be
issued hereunder, (iii) materially modify the requirements as to eligibility for
participation hereunder, or (iv) modify the payment structure for the exercise
of any options granted hereunder, must be approved by a vote of the shareholders
of the Company.
2
<PAGE> 3
EXHIBIT A TO 1996 DIRECTORS NONQUALIFIED STOCK OPTION PLAN
[LETTERHEAD OF BIRMAN MANAGED CARE, INC.]
______________, ____
Dear __________________:
Pursuant to the Birman Managed Care, Inc. Directors Nonqualified Stock
Option Plan (the "Plan"), you are hereby granted the option to purchase, at the
price of $______________1 per share, upon and subject to the provisions and
conditions hereafter set forth, a total of ______2 shares of Birman Managed
Care, Inc. common stock, $0.001 par value per share (the "Common Stock"), in the
installments for the number of shares and to accrue on the dates show below.
NUMBER OF SHARES ACCRUAL DATE
---------------- ------------
(3) (4) 1, (5)
--- ------------- ------
(3) (4) 1, (5)
----- ------------- ------
(3) (4) 1, (5)
----- ------------- ------
You may purchase all or any of the shares subject to this option, on or
after the accrual date and not later than the expiration date hereinafter set
forth by making payment in full at the
- --------
(1) 100% of fair market value on date of grant.
(2) Insert 6,000 if grant date is date of initial election to the Company's
Board of Directors; otherwise, insert 3,000.
(3) Insert one-third of the total number of shares with respect to which
the option is granted.
(4) Month of grant in twelfth month following date of grant.
(5) Beginning with the first year subsequent to the year of grant, insert
in chronological order three years.
A-1
<PAGE> 4
office of the Treasurer of the Company set forth above or as shall from time to
time be designated to you, for the shares which you so elect to purchase, at the
price per share herein prescribed, whereupon you will receive a stock
certificate representing the shares for which you have made payment, except that
the Company shall not be obligated to deliver any shares unless and until (i)
there has been compliance with any federal or state laws or regulations or
national securities exchange requirements which the Company may deem applicable;
and (ii) all legal matters in connection with the sale and delivery of the
shares have been approved by the Company's counsel.
Upon the exercise of an option, the purchase price shall be paid in
cash or, in the sole discretion of the Company, in shares of Common Stock or a
combination thereof. Each share of Common Stock received by the Company in
payment of all or a portion of the purchase price specified in this option shall
be valued at its fair market value on the date of exercise.
The Chairman of the Board of Directors or President of the Company (or
any Vice President of the Company in the absence or unavailability of the
President) may suspend or postpone the receipt of shares in payment of the
purchase price specified in this stock option if at any time (i) he has
knowledge of information concerning the Company which upon disclosure to the
public might, in his opinion, materially affect the market price of shares of
the Common Stock, (ii) outside events of an extraordinary nature occur which, in
his opinion, may not have been effectively reflected in the market, or (iii)
such suspension or postponement for any other reason would, in his opinion, be
in the best interests of the Company.
The Board of Directors hereby reserves and shall have the right, by
written notice to you, to change the provisions of this option in any manner
that it may deem necessary or advisable to carry out the purpose of this grant
as a result of, or to comply with, any change in applicable regulations,
interpretations or statutory enactment, provided that any such change shall be
applicable only to shares for which payment shall not then have been made as
herein provided.
Except as otherwise provided herein, if you cease to be a director of
the Company, this option shall terminate as to the shares for which you shall
not then have made payment as provided herein; provided, however, that within
three months after the date you cease to be a director, but in no event later
than the expiration date of this option, you may pay for and receive all or any
of the shares constituting any installment or installments under this option
that shall have accrued at the date you cease to be a director and for which you
shall not then have made payment as provided herein.
If you cease to be a director of the Company by reason of your
permanent disability (as defined in Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended), then within one year after the date you become
permanently disabled but in no event later than the expiration date of this
option, you may pay for and receive all or any of the shares constituting any
installment or installments hereunder for which you shall not then have made
payment as provided herein. In the event of your death while a director, the
executor or administrator of
A-2
<PAGE> 5
your estate may, within one year after the day of your death, but in no event
later than the expiration date of this option, pay for and receive all or any of
the shares included in any installment or installments hereunder for which you
shall not then have made payment as provided herein.
In the event of a stock dividend, stock split, combination or reduction
in the number of issued shares of Common Stock, the Board of Directors may make
such adjustments in the number of unpurchased shares subject to this option and
in the exercise price per share as it may determine to be appropriate and
equitable.
In the event of a merger, consolidation, reorganization, or a sale or
exchange of substantially all assets, or dissolution of the Company, your rights
under this option shall terminate as to shares not theretofore purchased except
to the extent and subject to such adjustments as may be provided by the Board of
Directors or in the terms of the merger, consolidation, reorganization, plan of
dissolution or sale of the assets.
At any time when you are required to pay to the Company an amount
required to be withheld under applicable income tax laws in connection with the
exercise of this option, you may satisfy this obligation in whole or in part by
electing (the "Election") to have the Company withhold shares of Common Stock
having a value equal to the amount required to be withheld. The value of the
shares to be withheld shall be based on the fair market value of such shares on
the date that the amount of tax to be withheld shall be determined ("Tax Date").
Each Election must be made prior to the Tax Date. The Board may disapprove of
any Election or may suspend or terminate the right to make Elections. An
Election is irrevocable. The Election must be made either six months prior to
the Tax Date or must be made during a period beginning on the third business day
following the date of release for publication of the Company's quarterly or
annual summary statements of sales and earnings and ending on the twelfth
business day following such date.
This option shall be exercisable during your lifetime only by you and
shall not be transferable by you, expressly or by operation of law, except in
the event of your death, and then only to the extent and subject to the
provisions and conditions herein set forth. Any attempted transfer or other
disposition thereof by you shall be void and shall constitute valid grounds for
cancellation of this option by the Company.
The term "fair market value" with respect to shares of Common Stock
shall have the meaning herein as defined in resolutions adopted from time to
time under the Plan.
A-3
<PAGE> 6
This option and all your rights hereunder shall, unless sooner
terminated in accordance with the provisions hereof, cease and terminate on
______________________(6) (the "expiration date"), at 5:00 p.m., Cookeville,
Tennessee time.
This option and all your rights hereunder shall also terminate at such
time as the Company has sold 100,000 shares of Common Stock pursuant to the
Plan.
Please acknowledge receipt of this option and insert your social
security number at the bottom of the duplicate copy herewith enclosed and return
the same within 30 days from the date hereof to the office of the Treasurer of
the Company.
BIRMAN MANAGED CARE, INC., a
Delaware corporation
By:_______________________________________
President
I hereby acknowledge receipt of the
foregoing option.
___________________________________
Signature
Social Security No.________________
- ----------
(6) Last day of month preceding date ten years after date of grant.
A-4
<PAGE> 1
EXHIBIT 10.12
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
BIRMAN MANAGED CARE, INC.,
CANTON MANAGEMENT GROUP, INC.
AND
WESLEY PRATER, M.D., LARRY COOPER, M.D., CALVIN
RAMSEY, M.D., L.C. TENNIN, M.D., LOUIS SADDLER, M.D.,
JAMES GOODMAN, PH.D., VIC CARACCI, MICHAEL T.
CARACCI, ROBERT TEAGUE, M.S.W., VINCENT CARACCI,
CHARLIE HILLS, HAROLD WHEELER, M.D., STEPHANIE
TUCKER, WINIFRED FULGHAM AND JOYCE JOHNSON
AND
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
BIRMAN MANAGED CARE, INC.
AND
MEDSOUTH, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
I. REDEMPTION, PURCHASE AND SALE OF SHARES ............................... 4
A. Agreement to Purchase and Sell Between Birman, Canton
and the Shareholders............................................. 4
B. Agreement to Purchase and Sell between Birman and MedSouth.......... 4
C. Closing............................................................. 4
II. PAYMENT TERMS.......................................................... 5
A. Issuance of Preferred Stock......................................... 5
B. Payment of Preferred Stock.......................................... 5
C. Birman/Canton Note.................................................. 5
D. Redemption of Common Stock.......................................... 5
E. Payment for Redeemed Shares......................................... 5
F. Canton/Shareholder Note............................................. 5
G. Guaranty of Canton/Shareholder Note................................. 6
H. Purchase and Sale of Common Stock................................... 6
I. Payment for Common Stock............................................ 6
J. Birman/Shareholder Note............................................. 6
K. Purchase and Sale of Common Stock between Birman and MedSouth....... 6
III. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND CANTON.......... 7
A. Organization, Standing and Corporate Authority of Canton............ 7
B. Qualification....................................................... 7
C. Capital Structure of Canton......................................... 7
D. Title to Shares..................................................... 8
E. Subsidiaries........................................................ 8
F. Financial Statements................................................ 8
G. Events Subsequent to the Closing.................................... 8
H. Liabilities......................................................... 9
I. Accounts and Notes Receivable....................................... 9
J. Real Property....................................................... 9
K. Compliance with Law................................................. 9
L. Inventory and Tangible Personal Property............................ 10
M. Litigation.......................................................... 11
N. Consents............................................................ 11
O. Taxes............................................................... 11
P. Contracts........................................................... 11
Q. Intellectual Property............................................... 13
R. Employees........................................................... 13
S. Insurance........................................................... 13
T. Accounts............................................................ 14
U. Brokers, Finders and Investment Advisors............................ 14
V. No Restrictions Upon the Shareholders............................... 14
W. Computer Software................................................... 14
IV. REPRESENTATIONS AND WARRANTIES OF MEDSOUTH............................. 14
A. Organization, Standing and Corporate Authority of MedSouth.......... 14
B. Brokers, Finders and Investment Advisors............................ 14
C. No Restrictions on MedSouth......................................... 14
D. Investment.......................................................... 15
E. Familiarity......................................................... 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
F. Compliance with Law............................................... 15
G. Litigation........................................................ 15
H. Consents.......................................................... 15
I. Taxes............................................................. 15
J. Acknowledgement................................................... 15
V. REPRESENTATIONS AND WARRANTIES OF BIRMAN............................. 15
A. Organization, Standing and Corporate Authority of Birman.......... 15
B. No Restrictions Upon Birman....................................... 15
C. Brokers, Finders and Investment Advisors.......................... 15
D. MedSouth's Purchase of Common Stock............................... 16
VI. COVENANTS OF CANTON AND THE SHAREHOLDERS............................. 16
A. Redemption of Shares.............................................. 16
B. MedSouth Services Agreement....................................... 16
C. Conduct of Canton Pending Closing................................. 16
D. Access Pending Closing............................................ 16
E. Consents of Third Parties......................................... 16
F. Shareholders Agreement............................................ 17
G. Closing........................................................... 17
H. Form A Order...................................................... 17
I. Books and Records................................................. 17
VII. COVENANTS OF BIRMAN.................................................. 17
A. Closing........................................................... 17
B. Sale to Physicians................................................ 17
C. Name Change....................................................... 17
VIII. RESTRICTIVE COVENANTS................................................ 17
A. Restrictive Covenant.............................................. 17
B. Confidentiality................................................... 18
IX. DELIVERY OF CLOSING DOCUMENTS........................................ 19
A. Officer's Certificate............................................. 19
B. Shareholders' Consents............................................ 19
C. Books and Records................................................. 19
D. Certificates...................................................... 19
E. Officer's Certificate............................................. 19
F. Preferred Stock Certificates...................................... 19
G. Redeemed Shares Certificates...................................... 19
H. Common Stock Certificates......................................... 20
I. Preferred Stock Consideration..................................... 20
J. Redeemed Shares Consideration..................................... 20
K. Birman/Canton Note................................................ 20
L. Canton/Shareholder Note........................................... 20
M. Birman/Shareholder Note........................................... 20
N. Common Stock Consideration........................................ 20
O. MedSouth Services Agreement....................................... 20
P. Officer's Certificate............................................. 20
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
Q. Directors' Consents..................................................... 20
R. Certificates............................................................ 20
S. Shareholders Agreement.................................................. 20
T. List of Shareholders.................................................... 20
U. Resignations............................................................ 20
V. Additional Documents.................................................... 20
X. CONDITIONS TO OBLIGATION OF BIRMAN TO CLOSE................................ 20
A. Representations and Warranties.......................................... 20
B. Form A Order............................................................ 20
C. Performance............................................................. 20
D. Redemption of Common Stock.............................................. 20
E. Issuance of Preferred Stock............................................. 20
F. Corporate Books......................................................... 20
G. Resignations............................................................ 22
H. Proof of Good Standing.................................................. 22
I. Certificates of Canton and the Shareholders............................. 22
J. Schedules............................................................... 22
K. Exhibits................................................................ 22
L. MedSouth Services Agreement............................................. 22
M. Proof of Good Standing.................................................. 22
O. Shareholders Agreement.................................................. 22
P. Receipt of Documents.................................................... 22
XI. CONDITIONS TO OBLIGATION OF CANTON AND THE SHAREHOLDERS TO CLOSE........... 23
A. Representations and Warranties.......................................... 23
B. Performance............................................................. 23
C. Certificate of Birman................................................... 23
XII. TERMINATION................................................................ 23
A. Termination due to Legislation.......................................... 23
B. Termination by the Parties.............................................. 23
XIII. INDEMNIFICATION AND SURVIVAL............................................... 24
A. Indemnification of Canton............................................... 24
B. Indemnification of the Shareholders..................................... 35
C. Procedure for Indemnification........................................... 35
D. Survival................................................................ 26
XIV. MISCELLANEOUS.............................................................. 27
A. Written Agreement to Govern............................................. 27
B. Severability............................................................ 27
C. Notices................................................................. 27
D. Survival................................................................ 28
E. Assignment.............................................................. 28
F. Counterparts............................................................ 28
G. Law to Govern........................................................... 28
H. Successors and Assigns.................................................. 28
I. Further Assurances...................................................... 28
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
J. Gender, Number and Headings.............................................. 28
K. Schedules and Exhibits................................................... 28
L. Waiver of Provisions..................................................... 29
M. Expenses................................................................. 29
N. Recitals................................................................. 29
</TABLE>
iv
<PAGE> 6
LIST OF SCHEDULES AND EXHIBITS
I. Schedules
Schedule III.A. Canton's Articles of Incorporation,
Bylaws, Shareholders and Officers and Directors
Schedule III.B. Foreign Jurisdiction
Schedule III.F. Financial Statements
Schedule III.H. Liabilities
Schedule III.I. Accounts and Notes Receivable
Schedule III.J. Real Property
Schedule III.K. Compliance with Law
Schedule III.L. Inventory and Tangible Personal Property
Schedule III.M. Litigation
Schedule III.P. Contracts and Offers
Schedule III.Q. Intellectual Property
Schedule III.R. List of Employees and Contractors
Schedule III.R.1. Data Bank Reports
Schedule III.S. Insurance
Schedule III.T. Accounts
Schedule III.W. Computer Software
Schedule IV.A. MedSouth's Articles of Incorporation
II. Exhibits
Exhibit II.C. Birman/Canton Note
Exhibit II.F. Canton/Shareholder Note
Exhibit II.J. Birman/Shareholder Note
Exhibit VI.B. MedSouth Services Agreement
Exhibit VI.F. Shareholders Agreement
Exhibit XIV.C. List of Shareholders' Addresses
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into this
____ day of ______________ 1996, by and among BIRMAN MANAGED CARE, INC., a
Tennessee corporation ("Birman"), CANTON MANAGEMENT GROUP, INC., a Mississippi
health maintenance organization ("Canton"); and WESLEY PRATER, M.D. ("Prater"),
LARRY COOPER, M.D. ("Cooper"), CALVIN RAMSEY, M.D. ("Ramsey"), L.C. TENNIN, M.D.
("Tennin"), LOUIS SADDLER, M.D. ("Saddler"), JAMES GOODMAN, PH.D. ("Goodman"),
VIC CARACCI ("Caracci"), MICHAEL T. CARACCI ("M. Caracci"), ROBERT TEAGUE,
M.S.W. ("Teague"), VINCENT CARACCI ("V. Caracci"), CHARLIE HILLS ("Hills"),
HAROLD WHEELER, M.D. ("Wheeler"), STEPHANIE TUCKER ("Tucker"), WINIFRED FULGHAM
("Fulgham") and JOYCE JOHNSON ("Johnson"), (Prater, Cooper, Ramsey, Tennin,
Saddler, Goodman, Caracci, M. Caracci, Teague, V. Caracci, Hills, Wheeler,
Tucker, Fulgham and Johnson are sometimes collectively referred to herein as the
"Shareholders" and individually referred to as a "Shareholder").
W I T N E S E T H:
WHEREAS, Progressive Health Management, Inc. ("Progressive") was
incorporated in Mississippi on October 3, 1993, for the purpose of providing
health services to Mississippi Medicaid enrollees and, on February 15, 1994,
obtained a certificate of authority (the "Certificate of Authority") to transact
the business of a health maintenance organization in Mississippi;
WHEREAS, pursuant to the Certificate of Authority, on April 17, 1995,
the Mississippi State Department of Health allowed Progressive to provide health
care services in Madison, Attala, Carroll, Grenada, Holmes, Humphreys, Leake,
Leflore, Montgomery and Yazoo Counties in Mississippi;
WHEREAS, on May 6, 1994, Progressive was merged with and into Canton;
WHEREAS, Canton has authorized One Hundred Thousand (100,000) shares of
Class A voting capital stock (the "Common Stock"), all of which Class A Common
Stock is issued and outstanding;
WHEREAS, Canton has authorized One Hundred Thousand (100,000) shares of
Class B non-voting capital stock, none of which are issued or outstanding;
WHEREAS, Canton has authorized One Million (1,000,000) shares of
non-voting Preferred Stock (the "Preferred Stock"), none of which are issued or
outstanding;
WHEREAS, as of the date first written above, the Shareholders are the
record and beneficial owners of all of the issued and outstanding shares of
Common Stock as follows:
<PAGE> 8
SHAREHOLDERS SHARES OF COMMON STOCK
Prater 10,000
Cooper 10,000
Ramsey 10,000
Tennin 10,000
Saddler 10,000
Goodman 10,000
Caracci 10,000
M. Caracci 10,000
Teague 5,500
V. Caracci 4,500
Hills 4,000
Wheeler 2,000
Tucker 2,000
Fulgham 1,000
Johnson 1,000
WHEREAS, Canton does not have any contracts with the State of
Mississippi, any payor or any consumer of health care services to provide any
services for any patients or enrollees;
WHEREAS, Canton meets the State of Mississippi minimum cash insolvency
reserve requirements of Two Hundred Fifty Thousand Dollars ($250,000.00) as of
December 31, 1995, and Five Hundred Thousand Dollars ($500,000.00) as of June
30, 1996;
WHEREAS, Canton has obtained, maintains and intends to maintain a valid
license to operate a health maintenance organization in Mississippi;
WHEREAS, Birman has submitted or intends to submit to the Mississippi
State Department of Insurance (the "MSDI") all forms and documents required in
connection with MSDI's approval of Birman's proposed acquisition of ninety-five
percent (95%) of the Common Stock that remain outstanding subsequent to the
redemption of certain shares of Common Stock as described in Section I. below
and one hundred percent (100%) of the Preferred Stock of Canton and Birman's
subsequent sale of Common Stock to MedSouth, Inc., a Mississippi corporation
("MedSouth") representing twenty-six percent (26%) of the then outstanding
Common Stock (the "Form A Order"), such that MSDI:
A. Allows Birman to acquire Thirty-Two Thousand Seven Hundred
Fifty-Eight and Sixty-Two One-Hundredths (32,758.62) shares of Common
Stock from the Shareholders and One Million (1,000,000) shares of
Preferred Stock from Canton;
B. States that Canton's right to transact the business of
insurance pursuant to the Certificate of Authority will continue to be
in compliance with the requirements to operate a health maintenance
organization in Mississippi immediately after the Closing (as defined
below); and
C. Approves a name change of Canton to Care3, Inc. ("Care3").
WHEREAS, at or prior to the Closing, Canton will redeem from the
Shareholders Sixty-Five Thousand Five Hundred Seventeen and Twenty-Four
One-Hundredths (65,517.24) shares of Common Stock
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<PAGE> 9
free and clear of any and all liens, claims, equities, restrictions or
limitations on voting rights or encumbrances of any nature whatsoever;
WHEREAS, at the Closing, Canton shall issue to Birman and Birman shall
purchase from Canton One Million (1,000,000) shares of Preferred Stock, which
shall constitute all of the issued and outstanding Preferred Stock;
WHEREAS, at the Closing, the Shareholders shall sell to Birman, in the
aggregate, and Birman shall purchase from the Shareholders, Thirty-Two Thousand
Seven Hundred Fifty-Eight and Sixty-Two One-Hundredths (32,758.62) shares of
Common Stock;
WHEREAS, immediately following the Closing, Birman shall sell to
MedSouth and MedSouth shall purchase from Birman Eight Thousand Nine Hundred
Sixty-Five and Fifty-One-Hundredths (8,965.51) shares of Common Stock;
WHEREAS, after the Closing and subject to the approval of the Board of
Directors of Care3 and the terms and conditions of the Shareholders Agreement
attached hereto as Exhibit VI.F., Birman agrees to sell up to Three Thousand One
Hundred Three and Forty-Five One-Hundredths (3,103.45) shares of Common Stock
owned by Birman to one or more physicians or an entity formed by such physicians
to hold the Common Stock, who enter into agreements to provide medical services
to Care3 (the "Physicians");
WHEREAS, after the consummation of all of the transactions contemplated
under this Agreement, and assuming the consummation of the sale of up to Three
Thousand One Hundred Three and Forty-Five One-Hundredths (3,103.45) shares of
Common Stock owned by Birman to the Physicians, the parties anticipate that the
shares of outstanding Common Stock will be owned as follows:
SHAREHOLDERS SHARES PERCENTAGE
------------ ------ ----------
Birman 20,689.66 60%
MedSouth 8,965.51 26%
Physicians 3,103.45 9%
Shareholders 1,724.14 5%
Total 34,482.76 100%
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
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SECTION I.
REDEMPTION, PURCHASE AND SALE OF SHARES
A. AGREEMENT TO PURCHASE AND SELL BETWEEN BIRMAN, CANTON AND THE
SHAREHOLDERS. At the Closing (as defined below), in reliance upon the
representations, warranties, covenants and agreements contained herein and
subject to all of the terms and conditions hereof:
1. Canton shall sell, assign, transfer and deliver to Birman
and Birman shall purchase One Million (1,000,000) shares of Preferred
Stock from Canton for an aggregate purchase price of One Million
Dollars ($1,000,000.00), payable as set forth in Section II.
2. The Shareholders shall sell, assign, transfer and deliver
to Canton and Canton shall redeem Sixty-Five Thousand Five Hundred
Seventeen and Twenty-Four One-Hundredths (65,517.24) shares of Common
Stock from the Shareholders for an aggregate purchase price of One
Million Dollars ($1,000,000.00), payable as set forth in Section II.
3. The Shareholders shall sell, assign, transfer and deliver
to Birman and Birman shall purchase Thirty-Two Thousand Seven Hundred
Fifty Eight and Sixty-Two One-Hundredths (32,758.62) shares of Common
Stock from the Shareholders for a purchase price of Five Hundred
Thousand Dollars ($500,000.00), payable as set forth in Section II.
The transaction contemplated in this Paragraph A. of Section I. shall
result in Birman's purchase from the Shareholders consisting of ninety-five
percent (95%) of the then outstanding Common Stock and Birman's purchase of one
hundred percent (100%) of the Preferred Stock. In consideration for Birman's
purchase of Common Stock and Preferred Stock herein, Birman shall pay an
aggregate purchase price equal to One Million Five Hundred Thousand Dollars
($1,500,000.00), payable as set forth in Section II.
B. AGREEMENT TO PURCHASE AND SELL BETWEEN BIRMAN AND MEDSOUTH. At the
Closing, and after consummation of the transaction contemplated in Paragraph A.
of this Section I., in reliance upon the representations, warranties, covenants
and agreements contained herein and subject to all of the terms and conditions
hereof, MedSouth shall purchase from Birman and Birman shall sell to MedSouth,
Eight Thousand Nine Hundred Sixty-Five and Fifty-One-Hundredths (8,965.51)
shares of Common Stock then issued and outstanding for a purchase price equal to
Eight Hundred Ninety-Six and Fifty-Five One-Hundredths Dollars ($896.55) and
other valuable consideration.
C. CLOSING. The consummation of all of the transactions described in
this Section I. shall commence at 10:00 a.m. on __________, 1996 at the offices
of ____________________, or at such other time, date and place as the parties
hereto shall mutually agree (the "Closing").
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<PAGE> 11
SECTION II.
PAYMENT TERMS
A. ISSUANCE OF PREFERRED STOCK. At the Closing, Canton shall issue to
Birman, and Birman shall purchase from Canton, One Million (1,000,000) shares of
Preferred Stock having the terms set forth below, which shall constitute all of
the issued and outstanding Preferred Stock. Each share of the Preferred Stock
shall have a par value of One Dollar ($1.00). Upon a liquidation of Canton, no
distributions shall be made in respect of Common Stock until the holder of each
share of the Preferred Stock has received the par value thereof. Canton shall
have the right at any time to redeem all or any portion of the Preferred Stock
in exchange for the sum of the par value of the shares of Preferred Stock being
redeemed. Canton shall not pay any dividends or make any other distributions of
any kind in respect of the Common Stock of Canton unless and until all of the
outstanding shares of Preferred Stock have been redeemed as provided above.
B. PAYMENT OF PREFERRED STOCK. In exchange for the Preferred Stock, at
Closing, Birman shall deliver to Canton: (1) cash or other immediately available
funds in the aggregate amount of Seven Hundred Thousand Dollars ($700,000.00);
and (2) a promissory note in the initial principal amount of Three Hundred
Thousand Dollars ($300,000.00) and having the terms described in Paragraph C. of
this Section II. (the "Birman/Canton Note").
C. BIRMAN/CANTON NOTE. The Birman/Canton Note shall: (1) provide that
the principal amount thereof shall be payable in two installments, the first
installment in the amount of Two Hundred Thousand Dollars ($200,000.00) payable
upon the first anniversary of the Closing and the second installment in the
amount of One Hundred Thousand Dollars ($100,000.00) payable upon the second
anniversary of the Closing; (2) shall provide for the payment of simple interest
at the rate of two percent (2%) per annum on the outstanding principal balance
from time to time, such interest, to the extent accrued, to be paid concurrently
with the payments of principal as described above; and (iii) shall otherwise be
in the form attached hereto as Exhibit II.C. and incorporated herein by this
reference. Upon the issuance of the Preferred Stock and the delivery of the
payment provided above in Paragraph B. of this Section II., the Preferred Stock
shall be fully paid and non-assessable for all purposes, and Birman shall not be
obligated to make any additional payment or transfer any further consideration
in exchange for the Preferred Stock.
D. REDEMPTION OF COMMON STOCK. At or prior to the Closing, the
Shareholders shall sell, assign, transfer and deliver to Canton, an aggregate of
Sixty-Five Thousand Five Hundred Seventeen and Twenty-Four One-Hundredths
(65,517.24) shares of Common Stock of Canton (the "Redeemed Shares"), free and
clear of any and all liens, claims, equities, restrictions or limitations on
voting rights or encumbrances of any nature whatsoever.
E. PAYMENT FOR REDEEMED SHARES. In exchange for the Redeemed Shares, at
or prior to Closing, Canton shall deliver to the Shareholders: (1) cash or other
immediately available funds in the aggregate amount of Seven Hundred Thousand
Dollars ($700,000.00); and (2) one or more promissory notes having an aggregate
initial principal amount of Three Hundred Thousand Dollars ($300,000.00) and
having the terms described below (individually and collectively referred to as
the "Canton/Shareholder Note").
F. CANTON/SHAREHOLDER NOTE. The Canton/Shareholder Note shall: (1)
shall provide that the principal amount thereof shall be payable in two
installments, the first installment in the aggregate amount of Two Hundred
Thousand Dollars ($200,000.00) payable upon the first anniversary of the Closing
and the second installment in the aggregate amount of One Hundred Thousand
Dollars ($100,000.00) payable upon the second anniversary of the Closing; (2)
shall provide for the payment of simple interest at the rate of two (2) percent
(2%) per annum on the outstanding principal balance from time to time, such
interest, to the extent
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<PAGE> 12
accrued, to be paid concurrently with the payments of principal as described
above; and (3) shall otherwise be in the form attached hereto as Exhibit II.F.
and incorporated herein by this reference. Canton shall deliver and allocate the
payment for the Redeemed Shares described above among the Shareholders in such
proportion as the Shareholders may direct in a written notice signed by each
Shareholder and delivered to Canton not less than fifteen (15) days prior to the
Closing. Upon the redemption of the Redeemed Shares and the delivery of the
payment provided above in Paragraph E. of this Section II., the consideration
for the Redeemed Shares shall be fully paid and non-assessable for all purposes,
and Canton shall not be obligated to make any additional payment or transfer any
further consideration in exchange for the Redeemed Shares.
G. GUARANTY OF CANTON/SHAREHOLDER NOTE. The payment of the
Canton/Shareholder Note shall be secured by a guaranty by Birman, pursuant to
which Birman shall guaranty the performance of Canton's obligations under each
Canton/Shareholder Note, for so long as the Birman/Canton Note shall remain due
and payable.
H. PURCHASE AND SALE OF COMMON STOCK. The Shareholders shall sell,
assign, transfer and deliver to Birman an aggregate of Thirty-Two Thousand Seven
Hundred Fifty-Eight and Sixty-Two One-Hundredths (32,758.62) shares of Common
Stock, free and clear of any and all liens, claims, equities, restrictions or
limitations on voting rights or encumbrances of any nature whatsoever.
I. PAYMENT FOR COMMON STOCK. As consideration for the Common Stock, at
Closing, Birman shall deliver to the Shareholders one or more promissory notes
having an aggregate initial principal amount of Five Hundred Thousand Dollars
($500,000.00) and having the terms described in Paragraph J. of this Section II.
(individually or collectively referred to as the "Birman/Shareholder Note").
J. BIRMAN/SHAREHOLDER NOTE. The Birman/Shareholder Note shall: (1)
provide for the payment of principal in three installments, the first
installment in the aggregate amount of One Hundred Thousand Dollars
($100,000.00) payable on the second anniversary of the date of Closing, and the
second and third installments in the aggregate amounts of Two Hundred Thousand
Dollars ($200,000.00) payable on each of the third and fourth anniversaries of
the Closing; (2) shall provide for the payment of simple interest on the
principal balance outstanding from time to time at the rate of two percent (2%)
per annum, payable, to the extent accrued, concurrently with the payments of
principal as described above; and (3) shall otherwise be in the form attached
hereto as Exhibit II.J. and incorporated herein by this reference. Birman shall
deliver and allocate the payment for the Common Stock described above in
Paragraph I. of this Section II. among the Shareholders in such proportion as
the Shareholders may direct in a written notice signed by each Shareholder and
delivered to Birman not less than fifteen (15) days prior to the Closing. Upon
the purchase of the Common Stock and the satisfaction of the Birman/Shareholder
Note, the Common Stock shall be fully paid and non-assessable for all purposes
and Birman shall not be obligated to make any additional payment or transfer any
further consideration in exchange for the Common Stock.
K. PURCHASE AND SALE OF COMMON STOCK BETWEEN BIRMAN AND MEDSOUTH. At
Closing and after completion of the transactions contemplated in Paragraphs A.
through K. of this Section II., subject to the representations and warranties
contained in Section III and Section IV hereto, Birman shall sell to MedSouth,
and MedSouth shall purchase from Birman, Eight Thousand Nine Hundred Sixty-Five
and Fifty-One One-Hundredths (8,965.51) shares of Common Stock, free and clear
of any and all liens, claims, equities, restrictions or limitations on voting
rights or encumbrances of any nature whatsoever. As consideration for the shares
of Common Stock, at Closing, MedSouth shall deliver to Birman Eight Hundred
Ninety-Six and
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<PAGE> 13
Fifty-Five One-Hundredths Dollars ($896.55). Upon the purchase of Common Stock
and MedSouth's delivery of the payment provided for in this Paragraph K., the
Common Stock shall be fully paid and non-assessable for all purposes and
MedSouth shall not be obligated to make any additional payment or transfer any
further consideration in exchange for the Common Stock.
SECTION III.
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS AND CANTON
The Shareholders and Canton hereby jointly and severally represent and
warrant to Birman, as of the date hereof and as of the Closing, as follows:
A. ORGANIZATION, STANDING AND CORPORATE AUTHORITY OF CANTON. The
Shareholders and Canton represent and warrant that Canton is a corporation which
is duly organized, validly existing and in good standing under the laws of the
State of Mississippi. Schedule III.A. hereto contains a complete and correct
copy of Canton's Articles of Incorporation, as amended, and By-Laws, as amended.
Canton's execution and delivery of this Agreement, and Canton's performance of
its obligations hereunder, have been duly authorized by all necessary corporate
action. Pursuant to the requirements of Section 79-4-7.28 of the Mississippi
Business Corporation Act, Canton's Articles of Incorporation shall deny
cumulative voting for the election of directors of Canton. This Agreement is a
valid and binding agreement of Canton enforceable against Canton in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws and except as may be limited by the
unavailability of equitable remedies. Canton has all necessary corporate power
and authority to engage in the business in which it is presently engaged, to
enter into any contractual arrangement to which it is presently subject, to own
any and all property now owned by it, and to lease any and all of the property
used by it under any lease. In addition, Canton is not subject to any
restriction, agreement, law, judgment or decree which would prohibit or be
violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby, or which could result in the acceleration of
any indebtedness of Canton. Fifteen (15) days prior to the Closing, Canton shall
have made Canton's corporate minutes and stock transfer records available to
Birman, which shall contain minutes and consents for all actions taken by the
Shareholders and directors for which such consent or approval is required.
Schedule III.A. hereto also contains a complete and accurate list of the
officers and directors of Canton.
B. QUALIFICATION. Except as described on Schedule III.B., Canton is not
qualified to do business as a foreign corporation in any jurisdiction. Any
ownership and leasing of property and maintenance of offices and conduct of
business activities by Canton does not require Canton to qualify to do business
as a foreign corporation in any jurisdiction in which the failure to so qualify
could have a material adverse effect on the properties, assets, results of
operations or financial condition of Canton taken as a whole.
C. CAPITAL STRUCTURE OF CANTON. Canton has authorized and issued One
Hundred Thousand (100,000) issued and outstanding shares of Class A voting
Common Stock, all of which is owned by the Shareholders, and One Hundred
Thousand (100,000) shares of Class B non-voting common stock, none of which is
issued or outstanding. Upon the Shareholders redemption of the Redeemed Shares
as set forth in Paragraph D of Section II, Thirty-Four Thousand Four Hundred
Eighty-Two and Seventy-Six Hundredths (34,482.76) shares of Common Stock shall
be issued and outstanding. Prior to the Closing, Canton shall have
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<PAGE> 14
authorized One Million (1,000,000) shares of Preferred Stock. Except as
otherwise specifically provided herein, there is no obligation, option or
warrant which is or may be binding upon Canton to issue, sell, redeem, purchase
or exchange any of its capital stock or any right relating thereto, and no
obligation, debt or liability of Canton is convertible into capital stock of
Canton.
D. TITLE TO SHARES. Except for the Shareholders, no other person or
entity owns any shares of stock in Canton. Each Shareholder is the legal and
beneficial owner and holder of the number of shares of Common Stock owned by
such Shareholder as set forth in the recitals hereto, and has good title to such
shares of Common Stock. Each Shareholder has full voting power over such shares
of Common Stock without restriction by any proxy, shareholders agreement, voting
agreement or voting trust, and, has full right, power and authority to sell such
shares of Common Stock and to deliver such shares of Common Stock in the manner
provided for in this Agreement free and clear of any and all liens, claims,
inequities, security interests or encumbrances whatsoever. The Shareholders are
not subject to any restriction, law, judgment, order of court or decree which
could prohibit or be violated by the execution and delivery of this Agreement or
by the consummation of the transactions contemplated herein.
E. SUBSIDIARIES. Canton does not have any subsidiaries and does not own
stock in any other corporation.
F. FINANCIAL STATEMENTS. Schedule III.F. hereto contains a complete
copy of each of Canton's balance sheets, statements of operations and retained
earnings, statements of operating expenses, and statements of changes in
financial position of Canton as of the Closing and for the fiscal years ending
in 1994 and 1995, including the notes thereto and the accountant's reports
thereon. The financial statements identified above, together with any interim
financial statements delivered to Birman are collectively referred to herein as
the "Financial Statements." Except as otherwise disclosed in Schedule III.F.,
each of the Financial Statements has been prepared in accordance with generally
accepted accounting principles consistently applied, and fairly presents the
financial condition of Canton as at the dates thereof and for the periods then
ended, subject, in the case of such interim Financial Statements, to normal
year end adjustments. All Financial Statements have been or will be prepared by
certified public accountants.
G. EVENTS SUBSEQUENT TO THE CLOSING. Except as expressly contemplated
by the terms hereof, or agreed to by Birman in writing, there has not been:
1. Any damage, destruction, loss or forfeiture (whether or not
covered by insurance) which has or which Canton reasonably expects to
have a material adverse effect on the assets, results of operations or
financial condition of Canton;
2. Any direct or indirect redemption, purchase or other
acquisition by Canton of any capital stock of Canton or any
declaration, setting aside or payment of any dividend or distribution
on any capital stock of Canton;
3. Any increase in the compensation or benefits payable or to
become payable by Canton to any of its directors, officers or
employees, other than increases in the ordinary course of Canton's
business;
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<PAGE> 15
4. Any assumption by Canton of any indebtedness for borrowed
money or of any other indebtedness or of any liability in respect
thereof, or any commitment by Canton for such assumption;
5. Any contractual commitment by Canton to any third party,
other than as provided in this Agreement relating to the provision of
health care services;
6. Any transaction, other than in the ordinary course of
business, involving payments between or among: (a) Canton, (b) the
Shareholders, (c) any officer or director of Canton, (d) any relative
of any Shareholder, officer or director of Canton, or (d) any person,
firm, trust, partnership or corporation controlling, controlled by, or
under common control with any Shareholder, officer or director of
Canton;
7. Any waiver or surrender by Canton of any valuable right or
property;
8. Any change in any accounting procedures or practices by
Canton;
9. Any oral or written notice received by Canton from any of
its providers, enrollees, contracted payors, suppliers or customers
indicating their intention to curtail or terminate, to allow to expire
or not to renew its relationship with Canton, which curtailment or
termination has or may reasonably be expected to have a material
adverse effect on the properties, assets, results of operations or
financial condition of Canton; or
10. Any material or potentially material adverse change
occurring with respect to the properties, assets, results of
operations, financial condition or prospects of Canton.
H. LIABILITIES. Except as disclosed in Schedule III.H. hereto, or
otherwise expressly disclosed herein or in the Financial Statements, including
any notes thereto, Canton has no material or potentially material liabilities of
any kind whatsoever, whether absolute or contingent and whether or not currently
determinable.
I. ACCOUNTS AND NOTES RECEIVABLE. Other than as provided for in
Exhibits II.C, II.F. and II.J., all accounts receivable and notes receivable of
Canton are set forth on Schedule III.I. hereto and arose in the ordinary course
of Canton's business. The accounts receivable comply with all applicable
federal, state and local laws and no assignment of such accounts receivable has
been made in violation of the Social Security Act.
J. REAL PROPERTY. Schedule III.J. hereto lists any and all real
property owned or leased by Canton or any of its Shareholders, and used in the
conduct of Canton's business, including copies of any and all leases, deeds,
title insurance policies, survey, mortgage documents, environmental reports or
investigations, zoning defects, building code violations or any other matter
relating to any real property.
K. COMPLIANCE WITH LAW. Except as disclosed on Schedule III.K. hereto,
Canton is not in violation or potential violation of any applicable statute,
law, ordinance, decree, order, rule, regulation, franchise, permit,
qualification, certification, authorization or license of any governmental body
which may result in a material adverse effect on the business properties,
assets, results of operations or financial condition of Canton. Without limiting
the generality of the foregoing, except as disclosed on Schedule III.K. hereto:
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1. There is no pending or threatened claim, action,
proceeding, hearing, lawsuit or investigation concerning Canton arising
out of or based upon any statute, ordinance or regulation which could
have a material adverse effect on the properties, assets, results of
operations or financial condition of Canton and which relates to: (a)
the provision of medical or health care related services, (b) the
referral of medical or health care related services, (c)
anti-competitive behavior, including but not limited to price fixing,
group boycotts or tying arrangements, (d) fee splitting, (e) physician
incentive plans, (f) submission of claims for reimbursement, (g)
accounts receivable, (h) the Medicaid or Medicare programs, (i)
utilization review, (j) credentialing, (k) medical records, (l)
discrimination in employment, (m) employment practices, (n)
occupational safety, (o) health standards, or (p) energy or
environmental matters;
2. There are no permits, licenses, authorizations,
certifications, qualifications or notices which have not been obtained
and/or filed and which are required to be obtained and/or filed for the
operation of the business of Canton under federal, state or local laws
relating to insurance or the provision of medical care, the failure of
which to obtain and/or file could have a material adverse effect on the
properties, assets, results of operations or financial condition of
Canton taken as a whole, and Canton is in compliance with all terms and
conditions of such required permits, licenses and authorizations,
certifications, qualifications or notices;
3. There is no pending or, to Canton's knowledge, proposed
change in any law, regulation, code, ordinance or industry standard
specifically regulating the health care insurance industry of which
Canton is a part which could have a material adverse effect on the
properties, assets, results of operation or financial condition of
Canton taken as a whole;
4. There is no contract or agreement with the State of
Mississippi, the Health Care Financing Administration or other
governmental payor or consumer of health care services to provide any
services for any enrollees nor is there any participant enrolled in a
health plan offered by Canton for the provision of health services;
5. Canton has met the State of Mississippi minimum cash
insolvency reserve requirements of Two Hundred Fifty Thousand Dollars
($250,000.00) as of December 31, 1995, and Five Hundred Thousand
Dollars ($500,000.00) as of June 30, 1996, and Canton has obtained and
maintained a valid license to operate a health maintenance organization
in Mississippi effective as of the Closing and to Canton's knowledge
there is no reason for any subsequent non-renewal, suspension or
termination of such license; and
6. Canton agrees to cooperate with all necessary steps to
cause MSDI to issue a Form A Order approving the transactions
contemplated pursuant to this Agreement.
L. INVENTORY AND TANGIBLE PERSONAL PROPERTY. Canton has good and
marketable title to any inventory and tangible personal property including any
equipment, fixtures or furniture, as listed on Schedule III.L. hereto, used by
Canton in the ordinary conduct of its business and in good and usable condition,
all of which is, except as set forth on Schedule III.L. hereto, free and clear
at the Closing of any liens, claims, security interests, options, leases,
restrictions or encumbrances which adversely affect the marketability of title
thereto. Canton does not hold any property to which any third party has title,
nor does Canton hold title to any property in the possession of others (other
than as contemplated by this Agreement and other than goods in
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transit from suppliers or to customers in the ordinary course of business, and
other than machinery and equipment in the possession of others for repair or
modification).
M. LITIGATION. Except as disclosed on Schedule III.M. hereto, there is
no suit, arbitration, claim, action, investigation or proceeding now pending or
threatened, against Canton before any court, arbitrator, administrative or
regulatory body or governmental agency, which could result in a judgment, award,
order, decree, liability or other determination which could have a material
adverse effect on the business, properties, assets, results of operations or
financial condition of Canton or which would prevent or interfere with the
consummation of any transaction contemplated hereby or declare the same to be
unlawful or cause the rescission thereof. No judgment, award, order, decree or
other determination has been made or entered by any court, arbitrator,
administrative or regulatory body or governmental agency which remains
unsatisfied and which could have a material adverse effect on the properties,
assets, results of operations or financial condition of Canton or which could
prevent or interfere with the consummation of any transaction contemplated
hereby. The provisions of this Paragraph M. of this Section III. shall include
any claim of malpractice or professional liability, stop order, audit, inquiry,
professional review action, claim of breach of contract, consent decree,
administrative action, quality assurance review, licensure denial, licensure
suspension or licensure non-renewal or otherwise related to the provision of
medical services, operation as a health maintenance organization, or
reimbursement by the Medicare or Medicaid programs. Schedule III.M. shall
include a detailed description of the factual context, status and extent of any
actual or potential liability, action or proceeding.
N. CONSENTS. Other than the Form A Order, Canton is not required to
obtain any consent, certification, authorization, consent, license, clearance or
order of, declaration or notification to, or filing or registration with, any
governmental or regulatory authority or body, court or other person (including
any lessor, customer, supplier or lender) to permit the consummation of the
transactions contemplated hereby. In addition, Canton has obtained each
governmental license, certification, qualification and permit required for the
conduct of the business of Canton, the failure of which to obtain could have a
material adverse effect on the properties, assets, results of operations or
financial condition of Canton. Such licenses and permits are valid and in full
force and effect, and none of such licenses or permits will be terminated or
impaired or become terminable as a result of the transactions contemplated
hereby, which termination or impairment could have a material adverse effect on
the properties, assets, results of operations or financial condition of Canton.
O. TAXES. Canton has properly and accurately filed all required
federal, state and local tax returns or reports relating to its businesses, and
have paid all taxes due with respect thereto other than for taxes not yet due
and duly accrued on the Financial Statements. Canton does not have any federal,
state or local tax liabilities other than those reflected on the aforesaid tax
returns with respect to the periods covered by said tax returns. Canton has not,
directly or indirectly, received any notice that any audit of any federal, state
or local tax return of Canton is in progress or pending, and no waiver of any
statute of limitations has been given and is in effect with respect to the
assessment of any taxes against Canton, or any of its properties or assets.
True, correct and complete copies of the federal and state income tax returns
for Canton for the years 1993, 1994 and 1995, along with proof of the payments
of the taxes due as reflected therein, have been delivered to Birman.
P. CONTRACTS. Except as set forth in Schedule III.P. hereto, there is
no contract, agreement, commitment or arrangement ("Contract"), or any
outstanding unaccepted offer which provides for a term of one (1) year or
longer, has a value of Five Thousand Dollars ($5000.00) or more, and is not
cancellable within
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sixty (60) days ("Offer"), whether written or oral, express or implied, fixed or
contingent, to which Canton is a party or by which it or any property or asset
of Canton is bound:
1. which pertains to the provision of any medical services for
or on behalf of any person or entity, including, but not limited to any
group enrollment agreement, individual enrollment agreement, evidence
of coverage or enrollee handbooks;
2. which pertains to any governmental entity, including but
not limited to any entity which oversees the Medicare or Medicaid
programs;
3. which pertains to agreement to provide any medical service
by any provider, supplier or vendor of medical or health care related
services, including the method of compensation;
4. which pertains to any indebtedness for borrowed money of
Canton or indebtedness of any other person which is guaranteed by
Canton or secured by the assets of Canton (including, but not limited
to loan agreements, financing agreements, lease-purchase arrangements,
security agreements, guarantees, agreements to purchase goods or
services on terms other than customary payment terms of the vendor
thereof, and agreements to loan funds to, or make investments in, any
other party);
5. which is a conditional sales contract, chattel mortgage,
equipment lease agreement, or other security or lease arrangement with
respect to personal property owned or used by Canton;
6. which is an agreement with or for the benefit of Canton,
exclusive of any such agreements which were concluded on an arms-length
basis in the ordinary course of business;
7. which contains covenants or other provisions limiting the
right of Canton to compete in any line of business or with any person
or in any area;
8. which is a license agreement, either as licensor or
licensee;
9. which is between Canton and the Shareholders, including but
not limited to a shareholders agreement;
10. which provides for the lease of any property used in or
related to Canton's business, included, but not limited to, leases of
computer systems and telephone systems;
11. which provides for the sale of any assets of Canton other
than in connection with the ordinary course of business; or
12. which is a purchase commitment for equipment, capital
improvements, repairs, materials, supplies or inventory in magnitude or
quantities in excess of the reasonable requirements of the Canton's
business, or at a price in excess of the current reasonable market
price.
The Shareholders and Canton have delivered to Birman true, correct and
complete copies of all written Contracts and Offers required to be disclosed in
Schedule III.P. hereto, presently in effect or containing any
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continuing obligations. All Contracts to which Canton is a party or by which it
or any of its property or assets is bound are valid and binding obligations of
Canton and are enforceable against Canton in accordance with their terms and are
enforceable against the other parties thereto in accordance with their terms and
are in full force and effect. Neither Canton nor any other party is in default
in the payment of any obligation under, or in the performance of any covenant or
obligation to be performed by it pursuant to, any Contract, which default could
have a material adverse effect on the properties, assets, results of operations
or financial condition of Canton. The execution, delivery and performance of
this Agreement by the parties hereto will not cause Canton to be in default
under any Contract, which default could have a material adverse effect on the
properties, assets, results of operations or financial condition of Canton.
Q. INTELLECTUAL PROPERTY. Schedule III.Q. hereto correctly identifies
any and all issued domestic and foreign patents, patent applications pending,
patent applications in process, written or oral employee invention disclosures,
trademarks, trademark registrations, trademark registration applications,
copyright registrations, inventions, know-how, trade secrets, copyright
registration applications, service marks, service mark registrations, service
mark registration applications, logos, tradenames, and slogans used in the
conduct of the business of Canton, as presently conducted or as presently
planned to be conducted ("Intellectual Property") and all Intellectual Property
currently owned by Canton or licensed to Canton. Canton has not granted any
license to any person with respect to any Intellectual Property, and any
agreements and/or arrangements licensing the Intellectual Property to Canton are
in full force and effect, and the rights of Canton thereunder are free and clear
of all adverse claims, options, liens, charges, security interests, covenants,
conditions, agreements, restrictions, encumbrances and defenses and no default
exists thereunder.
R. EMPLOYEES.
1. Schedule III.R. hereto lists all employees and independent
contractors directly or indirectly retained by Canton and includes
copies of any and all employment agreements and independent contractor
agreements entered into, directly or indirectly, between Canton and any
employee or contractor; any employee manuals, handbooks or similar
materials distributed by Canton; and any licenses and certifications of
any employees or contractors. Canton has properly credentialed all
employed and contracted health care providers, including but not
limited to querying the National Practitioner Data Bank (the "Data
Bank"). Any reports on any employees or contractors are included in
Schedule III.R.1. hereto.
2. Canton does not maintain or otherwise contribute to, and
within the preceding five (5) taxable years Canton has not maintained
or contributed to, any "employee benefit plan" as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), which covers or covered any employee of Canton. Canton
therefore has no liability under ERISA, the Internal Revenue Code or
any other applicable law with respect to any employee benefit plan.
S. INSURANCE. Schedule III.S. hereto correctly identifies all insurance
programs, insurance policies and bonds owned or maintained by Canton and
covering Canton, its business or any assets, properties, operations or personnel
of Canton including, but not limited to all professional liability, casualty,
business interruption, life, disability, managed care liability, health and
workers compensation and fidelity bonds. Such programs, policies and bonds are
in full force and effect. Canton has not received any written notice of
cancellation, termination or non-renewal or denial of liability with respect to
any program, policy or bond. Schedule III.S. shall also include copies of all
claims in respect to such programs or policies.
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T. ACCOUNTS. Schedule III.T. hereto correctly identifies each bank,
securities, commodities or other brokerage or similar account and safe deposit
box or other depository maintained by, or on behalf of, or for the benefit of
Canton, and the name of each person with any power or authority to act with
respect thereto.
U. BROKERS, FINDERS AND INVESTMENT ADVISORS. Canton has not engaged or
authorized any investment advisor, broker, finder or other third party to act on
its behalf, either directly or indirectly, in connection with the transactions
contemplated herein.
V. NO RESTRICTIONS UPON THE SHAREHOLDERS. None of the Shareholders is
subject to any restriction, agreement, law, judgment or decree which would
prohibit or be violated by the execution and delivery hereof or the consummation
of the transactions contemplated hereby, or which could result in the
acceleration of any indebtedness of Canton. This Agreement has been duly
executed and delivered by each Shareholder and constitutes a legal, valid and
binding obligation, enforceable against each Shareholder in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws, and except as may be limited by the
unavailability of equitable remedies.
W. COMPUTER SOFTWARE. Schedule III.W. hereto lists all computer
software used in connection with Canton's business or licensed by Canton, and
includes such software function, maintenance, support, upgrades and any software
license agreement.
SECTION IV.
REPRESENTATIONS AND WARRANTIES OF MEDSOUTH
In connection with MedSouth's purchase of Eight Thousand Nine Hundred
Sixty-Five and Fifty-One One-Hundredths (8,965.51) shares of Common Stock from
Birman, MedSouth and Richard L. Peden, D.O. ("Peden"), the sole shareholder of
MedSouth, hereby represent and warrant to Birman, as of the date hereof and as
of the Closing, as follows:
A. ORGANIZATION, STANDING AND CORPORATE AUTHORITY OF MEDSOUTH. MedSouth
is a corporation which is duly organized, validly existing and in good standing
under the laws of the State of Mississippi. Schedule IV.A. hereto contains a
complete and correct copy of MedSouth's Articles of Incorporation. Peden is the
sole shareholder of MedSouth. MedSouth's execution and delivery of this
Agreement, and MedSouth's performance of its obligations hereunder, have been
duly authorized by all necessary corporate action. This Agreement is a valid and
binding agreement of MedSouth enforceable against MedSouth in accordance with
its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws and except as may be limited by the
unavailability of equitable remedies.
B. BROKERS, FINDERS AND INVESTMENT ADVISORS. MedSouth has not engaged
or authorized any other investment advisor, broker, finder or other third party
to act on its behalf, either directly or indirectly, in connection with the
transactions contemplated herein.
C. NO RESTRICTIONS ON MEDSOUTH. MedSouth is not subject to any
restriction, agreement, law, judgment or decree which would prohibit or be
violated by the execution and delivery hereof or the con-
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summation of the transactions contemplated hereby, or which could result in the
acceleration of any indebtedness of MedSouth.
D. INVESTMENT. MedSouth is purchasing shares of Common Stock solely for
investment and for its own account, and not with a view toward resale,
fractionalization or distribution thereof.
E. FAMILIARITY. MedSouth is fully familiar with the financial
condition, operation, capitalization and prospects of Canton.
F. CONSENTS. MedSouth is not required to obtain any consent,
certification, authorization, consent, license, clearance or order of,
declaration or notification to, or filing or registration with, any governmental
or regulatory authority or body, court or other person (including any lessor,
customer, supplier or lender) to permit the consummation of the transactions
contemplated hereby.
G. ACKNOWLEDGEMENT. MedSouth understands and acknowledges that because
the shares of Common Stock have not been registered under the Securities and
Exchange Act of 1934, as amended (the "Securities Act"), for certain applicable
state security laws, the economic risk of the investment must be borne
indefinitely by MedSouth and the shares of Common Stock cannot be sold unless
subsequently registered under the Securities Act and such state laws or an
exemption from such registration is available; such registration under the
Securities Act and such state laws is unlikely at any time in the future; and it
is not anticipated that there will be any market for resale of the Common Stock.
SECTION V.
REPRESENTATIONS AND WARRANTIES OF BIRMAN
Birman hereby represents and warrants to the Shareholders, Canton and
MedSouth, as of the date hereof, as follows:
A. ORGANIZATION, STANDING AND CORPORATE AUTHORITY OF BIRMAN. Birman is
a corporation which is duly organized, validly existing and in good standing
under the laws of the State of Tennessee. Birman's execution and delivery of
this Agreement, and Birman's performance of its obligations hereunder, has been
duly authorized by all necessary corporate action. This Agreement is a valid and
binding agreement of Birman enforceable against Birman in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws and except as may be limited by the
unavailability of equitable remedies.
B. NO RESTRICTIONS UPON BIRMAN. Birman is not subject to any
restriction, agreement, law, judgment or decree which would prohibit or be
violated by the execution and delivery hereof or the consummation of the
transactions contemplated hereby.
C. BROKERS, FINDERS AND INVESTMENT ADVISORS. Birman has not engaged or
authorized any other investment advisor, broker, finder or other third party to
act on its behalf, either directly or indirectly, in connection with the
transactions contemplated herein.
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D. MEDSOUTH'S PURCHASE OF COMMON STOCK. In respect to MedSouth's
purchase of Eight Thousand Nine Hundred Sixty-Five and Fifty-One One-Hundredths
(8,965.51) shares of Common Stock pursuant to Section II. herein, Birman has
relied on the representations and warranties contained in Section III. of this
Agreement. MedSouth acknowledges that Birman has relied on representations and
warranties made by the Shareholders and Canton to Birman set forth in Section
III.
SECTION VI.
COVENANTS OF CANTON AND THE SHAREHOLDERS
A. REDEMPTION OF SHARES. At or prior to the Closing, Canton shall
redeem Sixty-Five Thousand Five Hundred Seventeen and Twenty-Four One-Hundredths
(65,517.24) shares of Common Stock from the Shareholders and the validly issued
and outstanding shares of Common Stock shall consist solely of Thirty-Four
Thousand Four Hundred Eighty-Two and Seventy-Six One-Hundredths (34,482.76)
shares of Common Stock. As of the Closing, no other class or series of capital
stock of Canton, besides the Common Stock and the Preferred Stock or otherwise
authorized under Canton's Articles of Incorporation attached hereto as Schedule
III.A., is or has been authorized or issued.
B. MEDSOUTH SERVICES AGREEMENT. Canton agrees to enter into or, if an
agreement is currently in effect, maintain its agreement for the provision of
medical services or the arrangement for the provision of medical services by
MedSouth to Canton in the form attached hereto as Exhibit VI.B. (the "MedSouth
Services Agreement").
C. CONDUCT OF CANTON PENDING CLOSING. From the date hereof to and
including the Closing, Canton shall operate its business only in the usual and
ordinary course, consistent with past practice, and shall not (1) mortgage,
pledge or assume any lien, charge or encumbrance, or agree to do so, with
respect to any of its assets; (2) make capital expenditures or enter into
commitments for capital expenditures; (3) purchase or commit to purchase goods
or services other than in the ordinary course of business; (4) agree to render
any services; (5) pay or discharge any long-term liability other than in
accordance with its terms; (6) pay any bonus compensation to any director,
officer or employee; (7) pay any dividend or other distribution with respect to
the Common Stock and shall not declare any such dividend; or (8) take or omit to
take any action the effect of which could render inaccurate any of Canton's
representations and warranties set forth herein as of the Closing.
D. ACCESS PENDING CLOSING. From the date hereof to and including the
Closing, Canton shall provide Birman and its accountants, shareholders,
officers, directors and other representatives the right of full and complete
access to the books, records, offices and other facilities of Canton, during
normal business hours, for the purpose of making such investigation of the
financial condition and operations of Canton as Birman may reasonably deem
necessary.
E. CONSENTS OF THIRD PARTIES. Prior to the Closing, Canton, at its
expense, shall obtain all consents and other approvals required to be obtained
by Canton as a result of the transactions contemplated by this Agreement.
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F. SHAREHOLDERS AGREEMENT. At the Closing, Canton and the Shareholders,
or a corporation formed by such Shareholders, shall execute the form of
Shareholders Agreement attached hereto as Exhibit VI.F. hereto.
G. CLOSING. The Shareholders and Canton shall use their best efforts to
cause the conditions specified in Section X. hereof which requires satisfaction
by Canton to be satisfied at or as soon as practical after the date hereof.
H. FORM A ORDER. Canton covenants and agrees that it will take such
action as is required under applicable law to ensure compliance with the Form A
Order.
I. BOOKS AND RECORDS. In connection with (1) any tax audit of Canton,
(2) the preparation of any tax return of Canton, or (3) any other proper
purpose, Canton shall make available to Birman for inspection or copying at any
reasonable time within five (5) years after the Closing, at Birman's request and
expense, all books and records relating to Canton's business which existed as of
the Closing or relate to any period prior to the Closing.
SECTION VII.
COVENANTS OF BIRMAN
A. CLOSING. Birman shall use all reasonable efforts to cause the
conditions specified in Sections IX. and XI. hereof which require satisfaction
by Birman to be satisfied at or as soon as practical after the date hereof.
B. SALE TO PHYSICIANS. At any time after the Closing, subject to
applicable state and federal laws, including but not limited to securities laws,
insurance laws, and laws governing the operation of the Company, as well as the
terms and conditions of the Shareholders Agreement attached hereto as Exhibit
VI.F., Birman agrees to offer to sell up to Three Thousand One Hundred Three and
Forty-Five One-Hundredths (3,103.45) shares of Common Stock to one or more
Physicians.
C. NAME CHANGE. Canton covenants and agrees that, immediately following
the Closing, it take all necessary steps to cause Canton to change its name to
"Care3, Inc." and that such successor entity shall utilize Canton's federal
employer identification number.
SECTION VIII.
RESTRICTIVE COVENANTS
A. RESTRICTIVE COVENANT. Each of the Shareholders and MedSouth
acknowledges and agrees that, through association with Canton and Birman, each
has and will gain access and introduction to hospitals, health care providers,
payors, managed care companies, insurers, preferred provider organizations,
medical groups and other persons with whom Canton or Birman has contracts and
agreements, with whom Canton and Birman in part depend upon for the continued
maintenance of such contracts and agreements. The Shareholders acknowledge and
agree that Birman has agreed to purchase shares of the Common Stock and the
Preferred Stock from Canton and the Shareholders in part based upon the
Shareholders agreement to abide by
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the restrictive covenants set forth in this Section VIII. In addition, MedSouth
acknowledges and agrees that Birman has agreed to sell shares of Common Stock
representing a twenty-six percent (26%) interest in the then issued and
outstanding Common Stock based in part upon MedSouth's agreement to abide by the
restrictive covenants set forth in this Section VIII. As such, each of the
Shareholders and MedSouth covenants and agrees that, neither MedSouth nor any
Shareholder, while an owner of shares of Common Stock and for a five (5) year
period thereafter, shall, within a ten (10) mile radius of any office or
facility of Canton or Birman (the "Territory"), either directly or indirectly,
on MedSouth's or any Shareholder's own account or as an employee, contractor,
consultant, partner, sole proprietor, officer, director or shareholder of any
other person, or in any other capacity, procure a license to operate or
otherwise actively engage in the operation of a health maintenance organization
in the State of Mississippi (the "Territory").
Each of the Shareholders and MedSouth acknowledges and agrees that the
periods of time, geographical area and business activities described in this
Paragraph A. of Section VIII. are reasonably necessary to protect the legitimate
business interests of Canton, Birman and their successors and assigns. Each of
the Shareholders and MedSouth acknowledges and agrees that neither the public in
general nor individual patients will be adversely affected by the enforcement of
the restrictive covenants contained herein because other similar providers of
professional medical services are readily available within the Territory. Each
of the Shareholders and MedSouth further acknowledges and agrees that damages
could not adequately compensate Canton, Birman and their successors and assigns
if a Shareholder or MedSouth breaches any restrictive covenant. Accordingly,
each of the Shareholders and MedSouth agrees that if a Shareholder or MedSouth
breaches any restrictive covenant, then Canton, Birman and their successors and
assigns shall be entitled to obtain injunctive relief, without bond but upon due
notice, in addition to any other applicable relief at law or in equity.
Obtainment of any such injunction shall not be deemed an election of remedies or
a waiver of any right to assert any other available remedy at law or in equity
against a party who breaches this Paragraph A. of Section VIII. The time period
for which any Shareholder or MedSouth is to be restricted will abate during the
time that such Shareholder or MedSouth violates the terms hereof, and the
remaining period of time for which the restriction applies will thereafter
recommence on the date that MedSouth is no longer in violation.
If the aforesaid restrictive covenant shall be deemed unenforceable
because of its scope in terms of time, geographical area or business activities,
then each of the Shareholders and MedSouth agrees that such restrictive covenant
shall be made enforceable by reductions thereof or limitations thereon so as to
be enforceable to the fullest extent permissible under the laws and public
policies of the jurisdiction in which such enforcement is sought. The
restrictive covenant set forth herein shall be construed as an agreement which
is independent of all other provisions of this Agreement or of any other
understanding or agreement among the parties hereto, and the existence of any
claim or cause of action of any party hereto against Canton, Birman or their
successors or assigns, of whatever nature, shall not constitute a defense to the
enforcement of such restrictive covenant.
B. CONFIDENTIALITY. During the time prior to and including the Closing,
each party to this Agreement shall maintain in confidence, and shall cause its
directors, officers, employees, agents, representatives and advisors to maintain
in confidence any information obtained in confidence from another party to this
Agreement in connection with the transactions contemplated hereby, unless (1)
the use of such information is necessary or appropriate in obtaining any consent
or approval required for the consummation of the transactions contemplated
hereby; (2) such information is already known to such party or to others not
bound by a duty of confidentiality or such information becomes publicly
available through no fault of such
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party; or (3) the furnishing or use of such information is required by
applicable law or regulation or by judicial or regulatory process.
SECTION IX.
DELIVERY OF CLOSING DOCUMENTS
The following documents shall be delivered at the Closing:
A. OFFICER'S CERTIFICATE. Delivery by Birman of a Certificate
signed by an officer of Birman, dated as of the Closing,
certifying without qualification or exception to the effect
that the representations and warranties of Birman contained
herein and in any certificate delivered by Birman pursuant
hereto are true and correct in all material respects on and as
of the Closing and Birman shall have duly performed or
complied in all material respects with the covenants, acts and
obligations to be performed or complied with by Birman
hereunder at or prior to the Closing;
B. SHAREHOLDERS' CONSENTS. Delivery by Canton of certified copies
of minutes of unanimous written consents of the Shareholders
and of Canton's board of directors approving the execution of
this Agreement and the consummation of the transaction
contemplated hereby;
C. BOOKS AND RECORDS. Delivery by Canton to Birman of Canton's
corporate seal, corporate minute books and stock transfer
records;
D. CERTIFICATES. Delivery by Canton of (1) a certified copy of
the Articles of Incorporation, and all amendments thereto, of
Canton; (2) a Certificate of Good Standing with respect to
Canton, dated within fifteen (15) days of the Closing, for
Mississippi; and (3) a letter from the MSDI certifying
Canton's authority to operate a health maintenance
organization in the State of Mississippi and the subsequent
renewal of such authority after January 1, 1997;
E. OFFICER'S CERTIFICATE. Delivery by Canton of a certificate,
signed by an officer of Canton, dated as of the Closing,
certifying without qualification or exception to the effect
that the representations and warranties of Canton and the
Shareholders contained herein and in any certificate delivered
by Canton or the Shareholders pursuant hereto are true and
correct in all material or potentially material respects on
and as of the Closing and that Canton and the Shareholders
have duly performed or complied in all material respects with
the covenants, acts and obligations to be performed or
complied with by Canton and the Shareholders hereunder at or
prior to the Closing;
F. PREFERRED STOCK CERTIFICATES. Delivery by Canton of
certificates for One Million (1,000,000) shares of Preferred
Stock to Birman;
G. REDEEMED SHARES CERTIFICATES. Delivery by Canton of
certificates representing the Redeemed Shares, which shall
have been duly endorsed for transfer or accompanied by an
assignment document with respect thereto which has been duly
endorsed for transfer;
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H. COMMON STOCK CERTIFICATES. Delivery by the Shareholders of
certificates representing Thirty-Two Thousand Seven Hundred
Fifty-Eight and Sixty-Two One-Hundredths (32,758.62) shares of
Common Stock, together with executed stock powers therefor;
I. PREFERRED STOCK CONSIDERATION. Delivery by Birman of a
certified or cashier's check in the amount of Seven Hundred
Thousand Dollars ($700,000.00) to Canton representing partial
consideration for Birman's purchase of Preferred Stock from
Canton;
J. REDEEMED SHARES CONSIDERATION. Delivery by Canton of a
certified or cashier's check in the amount of Seven Hundred
Thousand Dollars ($700,000.00) representing partial
consideration for the Shareholders redemption of the Redeemed
Shares;
K. BIRMAN/CANTON NOTE. Delivery by Birman of the Birman/Canton
Note in favor of Canton in the principal amount of Three
Hundred Thousand Dollars ($300,000.00) representing partial
consideration for Birman's purchase of Preferred Stock from
Canton;
L. CANTON/SHAREHOLDER NOTE. Delivery by Canton of the
Canton/Shareholder Note in favor of the Shareholders in the
principal amount of Three Hundred Thousand Dollars
($300,000.00) representing partial consideration of the
Shareholders' redemption of the Redeemed Shares;
M. BIRMAN/SHAREHOLDER NOTE. Delivery by Birman of the
Birman/Shareholder Note in favor of the Shareholders in the
principal amount of Five Hundred Thousand Dollars
($500,000.00) representing consideration of Birman's purchase
of Thirty-Two Thousand Seven Hundred Fifty-Eight and Sixty-Two
One-Hundredths (32,758.62) shares of Common Stock from the
Shareholders;
N. COMMON STOCK CONSIDERATION. Delivery by MedSouth of a
certified or cashier's check in the amount of Eight Hundred
Ninety-Six and Fifty-Five One-Hundredths Dollars ($896.55)
representing partial consideration of MedSouth's purchase of
Eight Thousand Sixty-Five and Fifty-One One- Hundredths
(8,965.51) shares of Common Stock from Birman;
O. MEDSOUTH SERVICES AGREEMENT. Delivery by MedSouth of the
MedSouth Services Agreement executed by MedSouth and Canton
for MedSouth's provision of medical services to Canton, in the
form attached hereto as Exhibit VI.B.;
P. OFFICER'S CERTIFICATE. Delivery by MedSouth of a certificate,
signed by an officer of MedSouth, dated as of the Closing,
certifying without qualification or exception to the effect
that the representations and warranties of MedSouth contained
herein and in any certificate delivered by MedSouth pursuant
hereto are true and correct in all material or potentially
material respects on and as of the Closing and that MedSouth
has duly performed or complied in all material respects with
the covenants, acts and obligations to be performed or
complied with by MedSouth hereunder at or prior to the
Closing;
Q. DIRECTORS' CONSENTS. Delivery by MedSouth of certified copies
of minutes of unanimous written consents of the Board of
Directors of MedSouth approving the execution of this
Agreement and the consummation of the transaction contemplated
hereby;
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<PAGE> 27
R. CERTIFICATES. Delivery by MedSouth of (1) a certified copy of
the Articles of Incorporation, and all amendments thereto, of
MedSouth; and (2) a Certificate of Good Standing of MedSouth,
current within ten (10) days of the Closing;
S. SHAREHOLDERS AGREEMENT. Delivery of the Shareholders Agreement
executed by Canton, the Shareholders, MedSouth and Birman,
substantially in the form attached hereto as Exhibit VI.F.;
T. LIST OF SHAREHOLDERS. Delivery by the Shareholders of a list
of the Shareholders' addresses, to be attached hereto as
Exhibit XIV.C.;
U. RESIGNATIONS. Delivery by Canton of the written resignations,
effective as of the Closing of all of the officers, directors
and executive employees of Canton; and
V. ADDITIONAL DOCUMENTS. Such other documents as Birman, its
counsel or any lender to Birman may reasonably request in
order to effectuate the transactions contemplated under this
Agreement.
SECTION X.
CONDITIONS TO OBLIGATION OF BIRMAN TO CLOSE
The obligations of Birman hereunder to proceed with the Closing are
subject to the satisfaction on or before the Closing of each of the following
conditions, unless otherwise waived, in writing, by Birman:
A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Canton, the Shareholders and MedSouth contained herein, and in any
certificate delivered pursuant hereto, shall be true and correct in all material
respects on and as of the Closing.
B. FORM A ORDER. At or prior to the Closing, the MSDI shall have
issued, and Birman shall have received from the MSDI, the Form A Order.
C. PERFORMANCE. Canton, the Shareholders and MedSouth shall have duly
performed or complied with all of the covenants, acts and obligations to be
performed or complied with by them hereunder at or prior to the Closing.
D. REDEMPTION OF COMMON STOCK. Canton shall have redeemed the Redeemed
Shares.
E. ISSUANCE OF PREFERRED STOCK. Canton shall have authorized and issued
One Million (1,000,000) shares of Preferred Stock.
F. CORPORATE BOOKS. Canton shall have delivered to Birman possession of
the corporate seal, corporate minute books and stock transfer records of Canton.
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<PAGE> 28
G. RESIGNATIONS. Canton shall have delivered to Birman the written
resignations, effective as of the Closing, of all of the officers and directors
of Canton.
H. PROOF OF GOOD STANDING. Canton shall have delivered to Birman: (1) a
certified copy of the Articles of Incorporation, and all amendments thereto, of
Canton; (2) a Certificate of Good Standing with respect to Canton, dated within
fifteen (15) days of the Closing, for Mississippi; and (3) a letter from the
MSDI certifying Canton's authority to operate a health maintenance organization
in the State of Mississippi and the subsequent renewal of such authority after
January 1, 1997.
I. CERTIFICATES OF CANTON AND THE SHAREHOLDERS. Birman shall have
received any and all certificates as set forth in Paragraph A. of Section IX.
Each such certificate shall be deemed a representation and warranty to Birman
and MedSouth hereunder by Canton, the Shareholders and any other party whose
signature appears thereon.
J. SCHEDULES. Any Schedules referred to herein which are not attached
hereto as of the date hereof shall have been delivered to Birman by Canton prior
to the Closing. Birman shall have a reasonable period of time in which to review
all such Schedules and to conduct any follow-up investigation which Birman shall
deem necessary or appropriate, and such Schedules shall be satisfactory to
Birman.
K. EXHIBITS. Any Exhibits referred to herein which are not attached
hereto as of the date hereof shall have been negotiated, agreed upon, executed
and delivered to Birman by Canton prior to Closing. Birman shall have a
reasonable period of time in which to review all such Exhibits which Birman
shall deem necessary or appropriate and such Exhibits shall be satisfactory to
Birman.
L. MEDSOUTH SERVICES AGREEMENT. Canton, or Birman on behalf of Canton,
shall have entered into the MedSouth Services Agreement.
M. PROOF OF GOOD STANDING. MedSouth shall have delivered to Birman: (1)
a certified copy of the Articles of Incorporation, and any amendments thereto,
of MedSouth; and (2) a Certificate of Good Standing with respect to MedSouth,
dated within ten (10) days of the Closing, for Mississippi.
N. CERTIFICATES OF MEDSOUTH. Birman shall have received any and all
certificates as set forth in Paragraphs F. and R. of Section IX. Any certificate
shall be deemed a representation and warranty to Birman hereunder by MedSouth
and any other person whose signature appears thereon.
O. SHAREHOLDERS AGREEMENT. Canton, MedSouth and the Shareholders shall
have entered into the form of Shareholders Agreement attached hereto as Exhibit
VI.F.
P. RECEIPT OF DOCUMENTS. Birman shall have received all of the
documents set forth in Section IX. of this Agreement.
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<PAGE> 29
SECTION XI.
CONDITIONS TO OBLIGATION OF CANTON AND
THE SHAREHOLDERS TO CLOSE
The obligations of Canton and the Shareholders to proceed with the
Closing are subject to the satisfaction on or before the Closing of each of the
following conditions, unless otherwise waived, in writing, by Canton and the
Shareholders:
A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Birman contained herein and in any certificate delivered pursuant hereto,
shall be true and correct in all material respects on and as of the Closing.
B. PERFORMANCE. Birman shall have duly performed or complied with all
of the covenants, acts and obligations to be performed or complied with
hereunder at or prior to the Closing.
C. CERTIFICATE OF BIRMAN. Canton and the Shareholders shall have
received a certificate signed by Birman, dated as of the Closing, certifying
without qualification or exception to the effect that the representations and
warranties of Birman contained herein and in any certificate delivered by Birman
pursuant hereto are true and correct in all material respects on and as of the
Closing and Birman shall have duly performed or complied in all material
respects with the covenants, acts and obligations to be performed or complied
with by Birman hereunder at or prior to the Closing. Such certificate shall be
deemed to be a representation and warranty to Canton by Birman hereunder.
SECTION XII.
TERMINATION
A. TERMINATION DUE TO LEGISLATION. In the event that federal or state
legislation is enacted, or there is a change in the interpretation or
enforcement of existing federal or state laws or regulations, which Birman
determines, in its sole discretion, materially and adversely affects the
economic benefits directly or indirectly enjoyed or contemplated by Birman under
this Agreement, the parties hereto shall renegotiate, in good faith, the terms
of this Agreement. If the Agreement cannot be renegotiated to the satisfaction
of both parties within thirty (30) days of the initiation of such good faith
negotiations by Birman, then, prior to the Closing, this Agreement may be
terminated upon the delivery to Canton by Birman of thirty (30) days' prior
written notice of termination.
B. TERMINATION BY THE PARTIES. This Agreement may be terminated and
abandoned, without limiting or waiving any other rights and remedies any party
may have at law or in equity, at any time prior to the consummation of the
Closing under the following described circumstances:
1. Upon the mutual written consent of all parties hereto.
2. By Birman, if the conditions set forth in Section X hereof
shall not be fully satisfied or waived by Birman or if the
Closing shall not have occurred within thirty (30) days after
the issuance of the Form A Order.
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<PAGE> 30
3. By Canton, if the conditions set forth in Section XI hereof
shall not be fully satisfied or waived by Canton or if the
Closing shall not have occurred within thirty (30) days after
the issuance of the Form A Order.
4. By the Shareholders, if the conditions set forth in Section XI
hereof shall not be fully satisfied or waived by the
Shareholders or if the Closing shall not have occurred within
thirty (30) days after the issuance of the Form A Order.
SECTION XIII.
INDEMNIFICATION AND SURVIVAL
A. INDEMNIFICATION OF CANTON. The Shareholders shall jointly and
severally, indemnify, defend and hold Canton and Birman, their respective
successors and assigns, harmless from and against any and all costs, expenses,
losses, damages, fines, penalties or liabilities (including, without limitation,
interest which may be imposed by any third party in connection therewith, court
costs, litigation expenses, reasonable attorneys' fees and expenses relating to
proof of claims) incurred by any of such parties with respect to, in connection
with, arising from, or resulting from:
1. A breach of any representation or warranty made by the
Shareholders or Canton and contained in this Agreement or in
any certificate delivered by a Shareholder or Canton pursuant
hereto; and
2. A breach of any covenant, restriction or agreement made by or
applicable to the Shareholders or Canton and contained in this
Agreement or in any certificate delivered by the Shareholders
or Canton pursuant hereto.
3. Any suit, arbitration, claim, investigation, action or
proceeding of any kind now pending or threatened, against
Canton before any court, arbitrator, administrative or
regulatory body or governmental agency, which relates to,
arises from, or occurs in connection with facts or
circumstances relating to the conduct of Canton's business on
or prior to the Closing.
4. Any taxes owed by Canton or the Shareholders with respect to
the period on or prior to the Closing, including any taxes
resulting from any inquiry, adjustment or assessment of a
deficiency by a governmental agency or authority pertaining to
Canton's or a Shareholder's tax returns for any periods ending
on or prior to the Closing.
5. Any other liability arising out of or in connection with the
operations of Canton on or prior to the Closing.
6. Any claim for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding
alleged to have been made with any of the Shareholders or
Canton in connection with the transactions contemplated
hereby.
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<PAGE> 31
In addition to any other remedies which may be available at law or in
equity, to the extent Canton and Birman are entitled to indemnification from the
Shareholders hereunder, Canton and Birman may each give such Shareholders
written notice of its intention to exercise a right of direct set-off against
any amount then due such Shareholders from Canton, and Canton shall not be
deemed to be in default for nonpayment of any amount not paid as a result of any
such set-off. In addition, the set-off or failure to set-off or the giving or
failure to give a notice of a claim under this Section XIII. shall not
constitute an election of remedies or limit Birman in any manner in the
enforcement of any other available remedies. Notwithstanding anything in this
Section XIII. to the contrary, for the purposes of determining the Shareholders'
liability hereunder, liability shall be calculated by subtracting all insurance
benefits paid to Canton, Birman or their successors or assigns with respect to
the matter that forms the basis for such indemnification claim. The Shareholders
shall not have any liability hereunder to the extent that an indemnification
claim is fully covered by an applicable insurance policy held by Canton or
Birman and proceeds thereof are collected by Canton or Birman.
The foregoing limitations on liability shall not apply to any breach of
any representation or warranty by the Shareholders which was not true when made
and which was made fraudulently or with intent to defraud or mislead.
B. INDEMNIFICATION OF THE SHAREHOLDERS. Birman shall indemnify, defend
and hold the Shareholders and their respective heirs, executors, personal
representatives and assigns, harmless from and against any and all costs,
expenses, losses, damages, fines, penalties or liabilities (including, without
limitation, interest that may be imposed in connection therewith, court costs,
litigation expenses, reasonable attorneys' fees and accounting fees) incurred by
any of such parties with respect to, in connection with, arising from, resulting
from:
1. A material breach of any representation or warranty made by
Birman and contained in this Agreement or in any certificate
delivered by Birman hereunder.
2. A material breach of any covenant, restriction or agreement
made by Birman and contained in this Agreement or in any
certificate delivered by Birman hereunder.
3. Any other claim, suit, cause of action, investigation or
proceeding of any kind whatsoever which relates to, arises
from, or occurs in connection with facts or circumstances
relating to the conduct of Canton's business after the Closing
due to Birman's negligence or misconduct.
4. Any claim for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding
alleged to have been made with Birman in connection with the
transactions contemplated hereby.
C. PROCEDURE FOR INDEMNIFICATION.
1. Any party which is entitled to be indemnified hereunder
(the "Indemnified Party") shall give notice hereunder to each
indemnifying party ("Indemnifying Party") promptly after obtaining
written notice of any claim as to which recovery may be sought against
the Indemnifying Party because of the terms of this Section XIII. and,
if such indemnity shall arise from the claim of a third party, shall
permit the Indemnifying Party to assume the defense of any such claim
and any
25
<PAGE> 32
litigation resulting from such claim. The right to indemnification
hereunder shall not be affected by any failure of an Indemnified Party
to give such notice or related materials or delay by an Indemnified
Party in giving such notice or related materials unless, and then only
to the extent that, the rights and remedies of the Indemnifying Party
shall have been prejudiced as a result of the failure to give, or delay
in giving, such notice or related materials. Failure by an Indemnifying
Party to notify an Indemnified Party of an election to defend any such
claim or action by a third party within twenty-one (21) days after
notice thereof shall have been given to the Indemnifying Party shall be
deemed a waiver by such Indemnifying Party of the right to defend such
claim or action.
2. If the Indemnifying Party assumes the defense of such claim
or litigation resulting therefrom, the obligations of such Indemnifying
Party hereunder as to such claim shall include taking all steps
necessary in the defense or settlement of such claim or litigation and
holding the Indemnified Party harmless from and against any and all
damages caused by or arising out of any settlement approved by such
Indemnifying Party or any judgment in connection with such claim or
litigation. The Indemnifying Party shall not, in the defense of such
claim or any litigation resulting therefrom, consent to the entry of
any judgment (other than a judgment of dismissal on the merits without
costs) except with the written consent of the Indemnified Party (which
consent shall not be unreasonably withheld) or enter into any
settlement (except with the written consent of the Indemnified Party),
(which consent shall not be unreasonably withheld) which does not
include as an unconditional term thereof the giving by the claimant or
the plaintiff to the Indemnified Party a release from all liability in
respect of such claim or litigation. If an Indemnified Party
unreasonably withholds consent to the entry of any judgment or
settlement, the Indemnifying Party shall not have any obligation to
indemnify the Indemnified Party with respect thereto. Notwithstanding
anything in this Section XIII. to the contrary, the Indemnified Party
may, with counsel and at such Indemnified Party's expense, participate
in the defense of any such claim or litigation.
3. If the Indemnifying Party shall not assume the defense of
any such claim by a third party or litigation resulting therefrom after
receipt of notice from such Indemnified Party, the Indemnified Party
may defend against such claim or litigation in such manner as it deems
appropriate, and unless the Indemnifying Party shall, at its option,
provide a bond to, or deposit with the Indemnified Party a sum
equivalent to the total amount demanded in such claim or litigation
plus the Indemnified Party's estimate of the costs of defending the
same, the Indemnified Party, at its option, may settle such claim or
litigation on reasonable terms and the Indemnifying Party shall
promptly reimburse the Indemnified Party for the amount of such
settlement and for all damage incurred by the Indemnified Party in
connection with the defense against or settlement of such claim or
litigation. If the Indemnifying Party shall provide such bond or
deposit, the Indemnified Party shall not settle any such claim or
litigation without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.
4. The Indemnifying Party shall promptly reimburse the
Indemnified Party for the amount of any judgment rendered with respect
to any claim by a third party in such litigation and for all damage
incurred by the Indemnified Party in connection with the defense
against such claim or litigation, whether or not resulting from,
arising out of, or incurred with respect to, the act of a third party.
D. SURVIVAL. All covenants and agreements of any party hereto set forth
herein shall survive the Closing. All indemnification obligations,
representations and warranties in this Agreement or pursuant hereto or in any
certificate or other writing delivered pursuant hereto or in connection herewith
shall survive the Closing and shall remain in effect for a period
contemporaneous with the running of any applicable statute of limitations from
and after the Closing, provided that, (1) indemnification obligations,
representations and warranties regarding tax liabilities shall not expire until
the running of their respective statutes of limitation,
26
<PAGE> 33
and (2) any representation or warranty which is not true when made and which is
made fraudulently or with intent to defraud or mislead shall survive such
period.
SECTION XIV.
MISCELLANEOUS
A. WRITTEN AGREEMENT TO GOVERN. This Agreement, including the Exhibits
and Schedules attached hereto, sets forth the entire understanding of the
parties relating to the subject matter contained herein and supersedes all prior
and contemporaneous oral or written agreements among the parties hereto relating
to the subject matter contained herein, and merges all prior and contemporaneous
discussions among them. No party hereto shall be bound by any definition,
condition, representation, warranty, covenant or provision other than as
expressly stated in this Agreement or as hereafter set forth in a written
instrument executed by such party or by a duly authorized representative of such
party.
B. SEVERABILITY. The parties hereto expressly agree that it is not the
intention of any party hereto to violate any public policy, statutory or common
laws rules, regulations, treaties or decisions of any government or agency
thereof. If any provision of this Agreement is judicially or administratively
interpreted or construed as being in violation of any such provision, such
articles, sections, sentences, words, clauses or combinations thereof shall be
inoperative, and the remainder of this Agreement shall remain binding upon the
parties hereto.
C. NOTICES. Any and all notices and other communications necessary or
desirable to be served hereunder shall be either personally delivered or sent by
facsimile, a nationally recognized overnight courier or certified mail, return
receipt requested, postage prepaid, addressed as follows:
To Birman and to Canton
after the Closing: Birman Managed Care, Inc.
502 Gould Drive
Cookeville, Tennessee 38506
Attn: Robert D. Arkin, Esq.,
Chief Operating Officer and General Counsel
with a copy to: Rudnick & Wolfe
203 North LaSalle Street
Chicago, Illinois 60601
Attn: Peter B. Ross, Esq.
Deborah L. Gersh, Esq.
To Canton prior to the Closing: Canton Management Group, Inc.
406 Briarwood Dr., Bldg. 200
Jackson, Mississippi 39206
27
<PAGE> 34
To MedSouth: MedSouth, Inc.
P.O. Box 3104
Gulfport, Mississippi 39505
Attn: Richard Peden, D.O.
To the Shareholders: At the Shareholders' addresses set forth on
Exhibit XIV.C.attached hereto
or to such other address or addresses as any party hereto may designate from
time to time in a written notice served upon the other parties hereto in
accordance herewith. Any notice provided hereunder shall be deemed delivered as
follows: (1) any notice sent by facsimile shall be deemed delivered when
actually received; (2) any notice sent by hand delivery shall be deemed
delivered when actually received; (3) any notice sent by a nationally recognized
overnight courier shall be deemed delivered one (1) business day after deposit
with such courier; and (4) any notice sent by mail shall be deemed delivered on
the second (2nd) business day next following the postmark date which it bears.
D. SURVIVAL. The representations and warranties of the parties and the
restrictive covenants contained herein shall survive the Closing.
E. ASSIGNMENT. Neither this agreement nor the Common Stock or Preferred
Stock sold hereunder shall be assigned or transferred except as provided in the
Shareholders Agreement attached hereto as Exhibit VI.F. Any purported assignment
or transfer other than in accordance with the Shareholders Agreement shall be
void and of no effect.
F. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute one and the same agreement.
G. LAW TO GOVERN. The validity, construction and enforceability of this
Agreement shall be governed in all respects by the laws of the State of
Mississippi without regard to its conflict of laws rules.
H. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and assigns.
I. FURTHER ASSURANCES. At any time on or after the Closing, each of the
parties hereto shall perform such acts, execute and deliver such instruments,
assignments, endorsements and other documents and do all such other things
consistent with the terms of this Agreement as may be reasonably necessary to
accomplish the transactions contemplated in this Agreement or otherwise carry
out the purpose of this Agreement.
J. GENDER, NUMBER AND HEADINGS. The masculine, feminine or neuter
pronouns used herein shall be interpreted without regard to gender, and the use
of the singular or plural shall be deemed to include the other whenever the
context so requires. The headings in this Agreement are inserted for convenience
or reference only and are not a part of this Agreement.
K. SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred to
herein and attached hereto are incorporated herein by such references as if
fully set forth in the text hereof.
28
<PAGE> 35
L. WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
M. EXPENSES. Except as otherwise expressly provided herein, each party
hereto shall bear its own expenses incident to this Agreement and the
transactions contemplated hereby, including without limitation, all fees of
counsel, accountants and consultants.
N. RECITALS. The recitals set forth above on the initial pages of this
Agreement are incorporated herein by this reference, and this Agreement shall be
construed in light thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
BIRMAN MANAGED CARE, INC., a
Tennessee corporation
By:____________________________
President
CANTON MANAGEMENT GROUP, INC.,
a Mississippi corporation
By:____________________________
Its:_______________________
SHAREHOLDERS
_______________________________
JAMES GOODMAN, PH.D.
_______________________________
WINIFRED FULGHAM
_______________________________
LOUIS SADDLER, M.D.
_______________________________
L.C. TENNIN, M.D.
29
<PAGE> 36
_______________________________
CALVIN RAMSEY, M.D.
_______________________________
LARRY COOPER, M.D.
_______________________________
JOYCE JOHNSON
_______________________________
WESLEY PRATER, M.D.
_______________________________
VIC CARACCI
_______________________________
STEPHANIE TUCKER
_______________________________
HAROLD WHEELER, M.D.
_______________________________
MICHAEL T. CARACCI
_______________________________
ROBERT TEAGUE, M.S.W.
_______________________________
VINCENT CARACCI
_______________________________
CHARLIE HILLS
30
<PAGE> 37
JOINDER
I, Richard Peden, D.O., as the president and sole shareholder of
MedSouth, Inc. ("MedSouth"), in consideration of the mutual agreements set forth
in Paragraph B. of Section I., Paragraph K. of Section II. and Sections IV.,
VIII., IX., X. and XII., as well as any additional Paragraphs or Sections
referenced therein (the "MedSouth Provisions"), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, do
hereby join in this Agreement, as the sole shareholder of MedSouth and on behalf
of MedSouth, as its act and deed, having first been duly authorized, if
applicable, thereby binding myself and MedSouth to all of the rights and
obligations set forth in such MedSouth Provisions.
ACKNOWLEDGED AND RECEIVED, this ____ day
of _______, 1996
MEDSOUTH, INC., a Mississippi corporation
_________________________________________
BY: RICHARD L. PEDEN, D.O.
ITS: PRESIDENT AND SOLE SHAREHOLDER
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
$775,000.00 September 1, 1996
Cookeville, Tennessee
FOR VALUE RECEIVED, David N. Birman, M.D., a Tennessee resident
("Maker"), promises to pay to Birman Managed Care, Inc., a Tennessee corporation
("Payee"), at such place as Payee from time to time may designate in writing to
Maker, the principal sum of Seven Hundred Seventy-Five Thousand ($775,000.00).
The principal balance hereof shall bear interest at a rate (computed on the
basis of a 360-day year and actual days elapsed) equal to the rate of interest
announced or published publicly on the first day of each month from time to time
by American National Bank and Trust Company of Chicago as its prime or base rate
of interest, adjusting on the first day of each month. All amounts payable
hereunder shall be payable to Payee, at the option of Maker, in lawful currency
of the United States or in common stock of Payee owned by Maker and tendered by
Payee for redemption. The value of any common stock of Payee tendered by Maker
shall be determined based upon a price per share determined as follows: On or
prior to January 31, 1997, at a price per share equal to the initial public
offering price of the common stock registered by the Payee with the Securities
and Exchange Commission on Form SB-2; and after January 31, 1997, at a price per
share equal to 92% of the average closing bid price of the common stock as
reported by NASDAQ over the previous 20 consecutive trading days immediately
preceding the Payment Date (as hereinafter defined).
1. PAYMENTS. Subject to paragraph 2 below, interest on the principal
balance shall be due and payable in three (3) equal annual payments, payable on
the 31st day of August, commencing August 31, 1997 (the "Payment Date"). The
principal balance shall be due and payable in full on August 31, 1999.
2. DEFAULT. If Maker shall fail to properly pay any sum due hereunder
when due, Maker shall thereupon be in default under the terms of this Promissory
Note.
3. ACCELERATION AND OTHER REMEDIES. If Maker is in default under the
terms of this Promissory Note and if such default remains uncured for a period
of ten (10) days after receipt of written notice thereof to Maker, then the
entire then unpaid principal balance and interest hereof shall be immediately
due and payable without further act or notice by Payee.
4. WAIVERS. Except as set forth herein, each of Maker and all other
parties now or hereafter liable for the payment hereof, whether as endorser,
guarantor, surety or otherwise, hereby waives diligence, demand, grace,
presentment for payment, protest and notice of protest and notice of extension.
No delay or omission on the part of Payee in exercising any right hereunder
shall constitute a waiver of any such right or of any other right hereunder. A
waiver on any one occasion shall not be construed to bar the exercise, or to
constitute a waiver of any such right on any future occasion.
<PAGE> 2
5. APPLICABLE LAW. THIS PROMISSORY NOTE SHALL BE GOVERNED BY, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE,
NOTWITHSTANDING ANY CONFLICT-OF-LAW RULES TO THE CONTRARY.
6. PREPAYMENT. Maker may prepay all or any portion of the interest and
the unpaid principal balance of this Promissory Note at any time, or from time
to time, without penalty or premium. Any prepayment shall first be credited to
interest, and then to principal, in the inverse order of maturity.
7. COLLECTION COSTS AND EXPENSES. If this Promissory Note shall be
placed in the hands of an attorney for collection, by suit or otherwise, then
Maker's obligations hereunder shall include the payment of all collection costs
and expenses incurred by Payee in connection therewith, including, without
limitation, reasonable attorneys' fees and costs.
8. NOTICE. Any notice or other communication with respect to this
Promissory Note shall (a) be in writing; (b) be effective on the date of hand
delivery thereof to the party to whom directed, one day following the date of
deposit thereof with delivery charges prepaid, with a national overnight
delivery service, or three days following the date of deposit thereof with
postage prepaid, with the United States Postal Service, by regular first class,
certified or registered mail.
EXECUTED as of the date first set forth above.
By:
--------------------------------
David N. Birman, M.D.
<PAGE> 1
EXHIBIT 10.14
[AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO LOGO]
LOAN AND SECURITY AGREEMENT
(ALL ASSETS WITH ADVANCE RATE)
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), made as of the
21st day of August, 1996, by and between AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO ("Bank"), a national banking association with its principal
place of business at 33 North LaSalle Street, Chicago, Illinois 60690, and
BIRMAN & ASSOCIATES, INC. ("Borrower"), a corporation with its principal place
of business at 502 Gould Drive, Cookeville, Tennessee 38501 has reference to the
following facts and circumstances:
A. Pursuant to Borrower's request, Bank heretofore, now and from time to time
hereafter, has and/or may loan or advance monies, extend credit, and/or extend
other financial accommodations to or for the benefit of Borrower.
B. To secure repayment of the same and all of "Borrower's Liabilities" (as
hereinafter defined), Borrower wishes to provide Bank with a security interest
in and/or collateral assignment of Borrower's assets.
NOW, THEREFORE, in consideration of terms and conditions set forth
herein and of any loans or extensions of credit heretofore, now or hereafter
made to or for the benefit of Borrower by Bank, the parties hereto agree as
follows:
1. DEFINITIONS AND TERMS
1.1 When used herein, the words, terms and/or phrases set forth below
shall have the following meanings:
A. "ACCOUNTS": all present and future rights of Borrower to
payment for goods sold or leased or for services rendered,
which are not evidenced by instruments or chattel paper, and
whether or not they have been earned by performance.
B. "BORROWER'S LIABILITIES": all obligations and liabilities of
Borrower to Bank (including without limitation all debts,
claims, indebtedness and attorneys' fees and expenses as
provided for in Paragraph 8.13) whether primary, secondary,
direct, contingent, fixed or otherwise, including Rate Hedging
Obligations (as defined in subparagraph L herein), heretofore,
now and/or from time to time hereafter owing, due or payable,
however evidenced, created, incurred, acquired or owing and
however arising, whether under this Agreement or the "Other
Agreements" (hereinafter defined) or by operation of law or
otherwise.
C. "CHARGES": all national, federal, state, county, city,
municipal and/or other governmental (or any instrumentality,
division, agency, body or department thereof, including
without limitation the Pension Benefit Guaranty Corporation)
taxes,
<PAGE> 2
levies, assessments, charges, liens, claims or encumbrances
upon and/or relating to the "Collateral" (as hereinafter
defined), Borrower's Liabilities, Borrower's business,
Borrower's ownership and/or use of any of its assets, and/or
Borrower's income and/or gross receipts.
D. "COLLATERAL": shall have the meaning set forth in Paragraph
3.2.
E. "INDEBTEDNESS": (i) indebtedness for borrowed money or for the
deferred purchase price of property or services; (ii)
obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting
principles, recorded as capital leases; (iii) obligations
under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) or (ii) above; and (iv) liabilities
with respect to unfunded vested benefits under plans covered
by Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and in effect from time to time.
F. "LETTER OF CREDIT OBLIGATIONS": shall mean any and all
existing and future indebtedness, obligations and liabilities
of every kind, nature and character, direct or indirect,
absolute or contingent, of the Borrower to Bank, arising
under, pursuant to or in connection with any letter of credit
issued under the Maximum Revolving Facility.
G. "LOANS": shall mean collectively any Revolving Loans as
defined in Paragraph 2.5 and Term Loans as defined in
Paragraph 2.6.
H. "MAXIMUM REVOLVING FACILITY": shall mean the maximum amount of
the Revolving Loans as evidenced by a revolving note(s) which
amount Bank has agreed to consider as a ceiling on the
outstanding principal balance of Revolving Loans (other than
Term Loans) to be made by Bank pursuant to this Agreement.
I. "OBLIGOR": any Person who is and/or may become obligated to
Borrower under or on account of "Accounts."
J. "OTHER AGREEMENTS": all agreements, instruments and documents,
including without limitation, guaranties, mortgages, deeds of
trust, notes, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases,
subordination agreements, financing statements and all other
written matter heretofore, now and/or from time to time
hereafter executed by and/or on behalf of Borrower and
delivered to Bank.
K. "PERSONS": any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization,
association, corporation, limited liability company,
institution, entity, party or government (whether national,
federal, state, county, city, municipal or otherwise,
including without limitation, any instrumentality, division,
agency, body or department thereof).
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<PAGE> 3
L. "RATE HEDGING OBLIGATIONS": shall mean any and all obligations
of the Borrower, whether absolute or contingent and howsoever
and whenever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof
and substitutions therefor), under (i) any and all agreements
designed to protect the Borrower from the fluctuations of
interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions,
including, but not limited to: interest rate swap agreements,
dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest
rate cap, floor or collar agreements, forward rate currency
agreements or agreements relating to interest rate options,
puts and warrants, and (ii) any and all agreements relating to
cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
1.2 Except as otherwise defined in this Agreement or the Other
Agreements, all words, terms and/or phrases used herein and therein shall be
defined by the applicable definition therefor (if any) in the Illinois Uniform
Commercial Code.
2. LOANS
2.1 Loans made by Bank to Borrower pursuant to this Agreement shall be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Except as otherwise provided in this Agreement or in any notes executed and
delivered by Borrower to Bank in connection herewith, the principal portion of
Borrower's Liabilities shall be payable by Borrower to Bank on the maturity
date(s) described in any such note(s) or other instruments evidencing Borrower's
Liabilities (as the same may be amended, renewed or replaced) and all costs,
fees and expenses payable hereunder or under the Other Agreements, shall be
payable by Borrower to the Bank on demand, in either case at Bank's principal
place of business or such other place as Bank shall specify in writing to
Borrower.
2.2 All of Borrower's Liabilities shall constitute one obligation
secured by Bank's security interest in the Collateral and by all other security
interests, liens, claims and encumbrances heretofore, now and/or from time to
time hereafter granted by Borrower to Bank.
2.3 Each loan made by Bank to Borrower pursuant to this Agreement or
the Other Agreements shall constitute an automatic warranty and representation
by Borrower to Bank that there does not then exist an "Event of Default" (as
hereinafter defined) or any event or condition, which with notice, lapse of time
and/or the making of such loan would constitute an Event of Default.
2.4 This Agreement shall be in effect until all of Borrower's
Liabilities have been paid in full and any and all commitments of Bank to make
loans have terminated.
2.5 Provided that an Event of Default does not then exist or would not
then be created or any event which with notice or lapse of time or both would
constitute an Event of Default does not then exist, Bank shall advance to
Borrower on a revolving credit basis (the "Revolving Loans") up to the lesser
of: (i) the Maximum Revolving Facility minus any Letter of Credit Obligations,
or (ii) the "Borrowing Base" minus any Letter of Credit Obligations. As used
herein, "Borrowing Base" shall mean up to 75% ("Advance Rate") of the face
amount (less maximum discounts, credits
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<PAGE> 4
or allowances which may be taken by or granted to Obligors in connection
therewith) of all then existing "Eligible Accounts" (as hereinafter defined)
that are scheduled on the most recent schedule of accounts delivered to Bank. If
applicable, any amount calculated pursuant to Paragraph 2.9, shall be included
in the Borrowing Base. Notwithstanding any contrary provision contained herein,
Bank may elect at its option to at any time and upon fourteen (14) days prior
written notice to Borrower change the foregoing method of calculating the
Borrowing Base by reducing the advances against Eligible Accounts, or to deduct
reserves from the Borrowing Base.
2.6 Bank may from time to time advance to Borrower term loans ("Term
Loans") in such amounts and on such terms and conditions as the Bank and
Borrower from time to time may agree in writing.
2.7 Notwithstanding anything contained in this Agreement or the Other
Agreements to the contrary, the principal portion of Borrower's outstanding
liabilities due at any one time under the Revolving Loans shall not exceed the
lesser of: (i) the Maximum Revolving Facility minus the amount of all Letter of
Credit Obligations, or (ii) the Borrowing Base minus the amount of all Letter of
Credit Obligations.
2.8 Bank's commitment to loan shall expire on the earlier of: (i) the
date on which Borrower's Liabilities mature under the terms of any note given by
Borrower to Bank, or (ii) the occurrence of an Event of Default pursuant to
Section 7 hereof.
3. COLLATERAL: GENERAL TERMS
3.1 To secure the prompt payment to Secured party of Debtor's
Liabilities and the prompt, full and faithful performance by Debtor of all of
the provisions to be kept, observed or performed by Debtor under this Agreement
and/or the Other Agreements, Debtor grants to Secured party a security interest
in and to, and collaterally assigns to Secured party, all of Debtor's property,
wherever located, whether now or hereafter existing, owned, licensed, leased (to
the extent of Debtor's leasehold interest therein), consigned (to the extent of
Debtor's ownership therein), arising and/or acquired, including without
limitation all of Debtor's: (a) Accounts, chattel paper, tax refunds, contract
rights, leases, leasehold interests, letters of credit, instruments, documents,
documents of title, licenses, goodwill, beneficial interests and general
intangibles; (b) all goods whose sale, lease or other disposition by Debtor have
given rise to Accounts and have been returned to or repossessed or stopped in
transit by Debtor; (c) liens, guaranties and other rights and privileges
pertaining to any of the Collateral; (d) monies, reserves, deposits, deposit
accounts and interest or dividends thereon, cash or cash equivalents; (e) all
property now or at any time or times hereafter in the possession, or under the
control of Secured party or its bailee; (f) all accessions to the foregoing, all
litigation proceeds pertaining to the foregoing and all substitutions, renewals,
improvements and replacements of and additions to the foregoing; and (g) all
books, records and computer records in any way relating to the Collateral herein
described.
3.2 All of the aforesaid property and products and proceeds of the
foregoing in Paragraph 3.1 above, including without limitation, proceeds of
insurance policies insuring the foregoing are herein individually and
collectively called the "Collateral". The terms used herein to identify the
Collateral shall have the same meaning as are assigned to such terms as of the
date hereof in the Illinois Uniform Commercial Code.
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<PAGE> 5
3.3 Borrower shall make appropriate entries upon its financial
statements and its books and records disclosing Bank's security interest in the
Collateral.
3.4 Borrower shall execute and deliver to Bank, at the request of Bank,
all agreements, instruments and documents ("Supplemental Documentation") that
Bank reasonably may request, in form and substance acceptable to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and to
consummate the transactions contemplated in or by this Agreement and the Other
Agreements. Borrower agrees that a carbon, photographic or photostatic copy, or
other reproduction of this Agreement or of any financing statement, shall be
sufficient to evidence Bank's security interest.
3.5 Bank shall have the right, at any time during Borrower's usual
business hours, to inspect the Collateral and all related records (and the
premises upon which it is located) and to verify the amount and condition of or
any other matter relating to the Collateral.
3.6 Borrower warrants and represents to and covenants with Bank that:
(a) Bank's security interest in the Collateral is now and at all times hereafter
shall be perfected and have a first priority except as expressly agreed to in
writing by the Bank; (b) the offices and/or locations where Borrower keeps the
Collateral are specified at the end of this Paragraph and Borrower shall not
remove such Collateral therefrom except as may occur in the ordinary course of
business, and shall not keep any of such Collateral at any other offices or
locations unless Borrower gives Bank written notice thereof at least thirty (30)
days prior thereto and the same is within the United States of America; and (c)
the addresses specified at the end of this Paragraph include and designate
Borrower's principal executive office, principal place of business and other
offices and places of business and are Borrower's sole offices and places of
business. Borrower, by written notice delivered to Bank at least thirty (30)
days prior thereto, shall advise Bank of Borrower's opening of any new office or
place of business or its closing of any existing office or place of business and
any new office or place of business shall be within the United States of
America. Borrower has places of business at the address shown at the beginning
of this Agreement and at the locations listed below:
1) _____________________________________________________________
2) _____________________________________________________________
3) _____________________________________________________________
All of the Collateral currently owned by Borrower and all of the
Collateral hereafter acquired is, or will be held or stored at the locations
listed below:
1) The address of the Borrower shown at the beginning of this
Agreement;
2) _____________________________________________________________
3) _____________________________________________________________
3.7 At the request of Bank, Borrower shall receive, as the sole and
exclusive property of Bank and as trustee for Bank, all monies, checks, notes,
drafts and all other payments for and/or proceeds of Collateral which come into
the possession or under the control of Borrower and immediately upon receipt
thereof, Borrower shall remit the same (or cause the same to be remitted), in
kind, to Bank or at Bank's direction.
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<PAGE> 6
3.8 Upon demand or upon an Event of Default, Bank may take control of,
in any manner, and may endorse Borrower's name to any of the items of payment or
proceeds described in Paragraph 3.7 above and, pursuant to the provisions of
this Agreement, Bank shall apply the same to and on account of Borrower's
Liabilities.
3.9 Bank may, at its option, at any time or times hereafter, but shall
be under no obligation to pay, acquire and/or accept an assignment of any
security interest, lien, encumbrance or claim asserted by any Person against the
Collateral.
3.10 Immediately upon Borrower's receipt of that portion of the
Collateral evidenced by an agreement, instrument and/or document ("Special
Collateral"), Borrower shall mark the same to show that such Special Collateral
is subject to a security interest in favor of Bank and shall deliver the
original thereof to Bank, together with appropriate endorsement and/or specific
evidence of assignment (in form and substance acceptable to Bank) thereof to
Bank.
3.11 Regardless of the adequacy of any Collateral securing Borrower's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from Bank to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in possession or
control of Bank or its bailee for any purpose may, upon demand or an Event of
Default or event or condition which with notice or lapse of time would
constitute an Event of Default, be reduced to cash and applied by Bank to or
setoff by Bank against Borrower's Liabilities hereunder.
3.12 At the request of Bank, Borrower shall instruct the Obligors of
its Accounts to make payments directly to a lockbox or cash collateral account
maintained by Bank in Borrower's name. All such collections shall be Bank's
property to be applied against Borrower's Liabilities, and not Borrower's
property. Bank may endorse Borrower's name to any of the items of payment or
proceeds described herein.
4. COLLATERAL: ACCOUNTS
4.1 An "Eligible Account" is an Account of Borrower which meets each of
the following requirements: (a) it arises from the sale or lease of goods, such
goods having been shipped or delivered to the Obligor thereof, or from services
rendered to the Obligor; (b) it is a valid, legally enforceable obligation of
the Obligor thereunder, and is not subject to any offset, counterclaim or other
defense on the part of such Obligor denying liability thereunder in whole or in
part; (c) it is subject to a perfected security interest in favor of Bank and is
not subject to any other lien or security interest whatsoever, except those of
Bank; (d) it is evidenced by an invoice (dated not later than the date of
shipment to the Obligor or performance and having a due date not more than
thirty (30) days after the date of invoice) rendered to such Obligor, and is not
evidenced by any instrument or chattel paper; (e) it is payable in United States
dollars; (f) it is not owing by any Obligor residing, located or having its
principal activities or place of business outside the United States of America
or who is not subject to service of process in the United States of America; (g)
it is not owing by any Obligor involved in any bankruptcy or insolvency
proceeding; (h) it is not owing by any affiliate of Borrower; (i) it is not
unpaid more than ninety (90) days after the date of such invoice; (j) it is not
owing by an Obligor which shall have failed to pay in full any invoice
evidencing any account within ninety (90) days after the date of such invoice,
unless the total invoice amounts of such Obligor which have not been paid within
ninety (90) days of the date
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<PAGE> 7
represents less than 10% of the total invoice amounts then outstanding of such
Obligor; and (k) it is not an Account as to which Bank, at any time or times
hereafter, determines, in good faith, that the prospect of payment or
performance by the Obligor thereof is or will be impaired. Notwithstanding the
foregoing, Accounts with respect to which the Account Debtor is the United
States of America or any department, agency or instrumentality thereof, shall
not be included as an Eligible Account unless, with respect to any such Account,
Borrower has complied to Bank's satisfaction with the provisions of the Federal
Assignment of Claims Act of 1940, including, without limitation, executing and
delivering to Bank all statements of assignment and/or notification which are in
form and substance acceptable to Bank and which are deemed necessary by Bank to
effectuate the assignment to Bank of such Accounts. An Account which is at any
time an Eligible Account, but which subsequently fails to meet any of the
foregoing requirements, shall forthwith cease to be an Eligible Account. Bank
may in its sole discretion at any time reduce the percentage set forth in clause
(j) above upon seven (7) days prior notice to Borrower. Borrower, immediately
upon demand from Bank, shall pay to Bank an amount of money equal to the monies
advanced by Bank to Borrower upon an Account that is no longer an Eligible
Account. Borrower warrants and represents to and covenants with Bank that the
principal portion of Borrower's Liabilities represented by Revolving Loans made
by Bank to Borrower, pursuant to Paragraph 2.5 above, shall not exceed the total
of the then outstanding amounts (less maximum discounts, credits and allowances
which may be taken by or granted to Obligors in connection therewith) of all
then existing Eligible Accounts multiplied by the Advance Rate.
4.2 With respect to Accounts, except as otherwise disclosed by Borrower
to Bank in writing, Borrower warrants and represents to Bank that: (a) they are
genuine, are in all respects what they purport to be and are not evidenced by a
judgment; (b) they represent undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in the invoices and other
documents delivered to Bank with respect thereto; (c) the amounts shown on any
Schedule of Accounts and/or all invoices and statements delivered to Bank with
respect thereto are actually and absolutely owing to Borrower and are not in any
way contingent; (d) no payments have been made or shall be made thereon except
payments immediately delivered to Bank pursuant to this Agreement; (e) there are
no setoffs, counterclaims or disputes existing or asserted with respect thereto
and Borrower has not made any agreement with any Obligor thereof for any
deduction therefrom except a regular discount allowed by Borrower in the
ordinary course of its business for prompt payment; (f) there are no facts,
events or occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder, which may be shown on
any schedule of accounts and on all invoices, and statements delivered to Bank
with respect thereto; (g) to the best of Borrower's knowledge, all Obligors have
the capacity to contract and are solvent; (h) the services furnished and/or
goods sold or leased giving rise thereto are not subject to any lien, claim,
encumbrance or security interest except that of Bank; (i) Borrower has no
knowledge of any fact or circumstance which would impair the validity or
collectability thereof; (j) to the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Obligor which
might result in any material adverse change in its financial condition; and (k)
Borrower has filed a Notice of Business Activities Report or a Certificate of
Authority or similar report with the appropriate office or department in states
where Account Obligors are located and where such reports are required as a
condition to commencing or maintaining an action in the courts of such states,
or Borrower has demonstrated to Bank's satisfaction that it is exempt from any
such requirements under such state's law.
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<PAGE> 8
4.3 Any of Bank's officers, employees or agents shall have the right,
at any time or times hereafter, in Bank's name or in the name of a nominee of
Bank, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, facsimile or otherwise and to sign Borrower's name
on any verification of Accounts and notices thereof to Obligors. All costs, fees
and expenses relating thereto incurred by Bank (or for which Bank becomes
obligated) shall be part of Borrower's Liabilities, payable by Borrower to Bank
on demand.
4.4 Unless Bank notifies Borrower in writing that Bank suspends any one
or more of the following requirements, Borrower shall: (a) promptly upon
Borrower's learning thereof, inform Bank, in writing, of any material delay in
Borrower's performance of any of its obligations to any Obligor and of any
assertion of any claims, offsets or counterclaims by any Obligor and of any
allowances, credits and/or other monies granted by Borrower to any Obligor; (b)
not permit or agree to any extension, compromise or settlement with respect to
Accounts which constitute, in the aggregate, more than 5% of all Accounts then
owing to Borrower; and (c) keep all goods returned by any Obligor and all goods
repossessed or stopped in transit by Borrower from any Obligor segregated from
other property of Borrower, immediately notify Bank of Borrower's possession of
such goods, and hold the same as trustee for Bank until otherwise directed in
writing by Bank.
4.5 Bank shall have the right, now and at any time or times hereafter,
at its option, without notice thereof to Borrower: (a) to notify any or all
Obligors that the Accounts and Special Collateral have been assigned to Bank and
the Bank has a security interest therein; (b) to direct such Obligors to make
all payments due from them to Borrower upon the Accounts and Special Collateral
directly to Bank; and (c) to enforce payment of and collect, by legal
proceedings or otherwise, the Accounts and Special Collateral in the name of
Bank and Borrower.
4.6 Borrower, irrevocably, hereby designates, makes, constitutes and
appoints Bank (and all Persons designated by Bank) as Borrower's true and lawful
attorney (and agent-in-fact), with power, upon an Event of Default, or an event
or condition which with notice or lapse of time would constitute an Event of
Default, without notice to Borrower and in Borrower's or Bank's name: (a) to
demand payment of Accounts; (b) to enforce payment of the Accounts by legal
proceedings or otherwise; (c) to exercise all of Borrower's rights and remedies
with respect to the collection of the Accounts; (d) to settle, adjust,
compromise, discharge, release, extend or renew the Accounts; (e) to settle,
adjust or compromise any legal proceedings brought to collect the Accounts; (f)
to sell or assign the Accounts upon such terms, for such amounts and at such
time or times as Bank deems advisable; (g) to prepare, file and sign Borrower's
name on any Notice of Lien, Assignment or Satisfaction of Lien or similar
document in connection with the Accounts and Special Collateral; or (h) to
prepare, file and sign Borrower's name on any Proof of Claim in Bankruptcy or
similar document against any Obligor.
5. WARRANTIES, REPRESENTATIONS AND COVENANTS:
INSURANCE AND TAXES
5.1 Borrower, at its sole cost and expense, shall keep and maintain:
(a) the Collateral insured for the full insurable value against all hazards and
risks ordinarily insured against by other owners or users of such properties in
similar businesses; and (b) business interruption insurance and public liability
and property damage insurance relating to Borrower's ownership and use of its
assets. All such policies of insurance shall be in a form with insurers and in
such amounts as may be satisfactory to Bank. Borrower shall deliver to Bank the
original (or certified) copy of each
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<PAGE> 9
policy of insurance, or a certificate of insurance, and evidence of payment of
all premiums for each such policy. Such policies of insurance (except those of
public liability) shall contain a standard form lender's loss payable clause, in
form and substance acceptable to Bank, showing loss payable to Bank, and shall
provide that: (i) the insurance companies will give Bank at least thirty (30)
days written notice before any such policy or policies of insurance shall be
altered or canceled; and (ii) no act or default of Borrower or any other Person
shall effect the right of Bank to recover under such policy or policies of
insurance in case of loss or damage. Borrower hereby directs all insurers under
such policies of insurance (except those of public liability) to pay all
proceeds payable thereunder directly to Bank and hereby authorizes Bank to make,
settle, and adjust claims under such policies of insurance and endorse the name
of Borrower on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance.
5.2 Borrower shall pay promptly, when due, all Charges, and shall not
permit any Charges to arise, or to remain and will promptly discharge the same.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS:
GENERAL
6.1 Borrower warrants and represents to and covenants with Bank that:
(a) Borrower has the right, power and capacity and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and Other
Agreements; (b) the execution, delivery and/or performance by Borrower of this
Agreement and Other Agreements shall not, by the lapse of time, the giving of
notice or otherwise, constitute a violation of any applicable law or a breach of
any provision contained in Borrower's Articles of Incorporation, By-Laws,
Articles of Partnership, Articles of Organization, Operating Agreement or
similar document, or contained in any agreement, instrument or document to which
Borrower is now or hereafter a party or by which it is or may be bound; (c)
Borrower has and at all times hereafter shall have good, indefeasible and
merchantable title to and ownership of the Collateral, free and clear of all
liens, claims, security interests and encumbrances except those of Bank; (d)
Borrower is now and at all times hereafter, shall be solvent and generally
paying its debts as they mature and Borrower now owns and shall at all times
hereafter own property which, at a fair valuation, is greater than the sum of
its debts; (e) Borrower is not and will not be during the term hereof in
violation of any applicable federal, state or local statute, regulation or
ordinance that, in any respect materially and adversely affects its business,
property, assets, operations or condition, financial or otherwise; and (f)
Borrower is not in default with respect to any indenture, loan agreement,
mortgage, deed or other similar agreement relating to the borrowing of monies to
which it is a party or by which it is bound.
6.2 Borrower warrants and represents to and covenants with Bank that
Borrower shall not, without Bank's prior written consent thereto: (a) grant a
security interest in or assign any of the Collateral to any Person or permit,
grant, or suffer a lien, claim or encumbrance upon any of the Collateral; (b)
sell or transfer any of the Collateral not in the ordinary course of business;
(c) enter into any transaction not in the ordinary course of business which
materially and adversely affects the Collateral or Borrower's ability to repay
Borrower's Liabilities or Indebtedness; (d) other than as specifically permitted
in or contemplated by this Agreement, encumber, pledge, mortgage, sell, lease or
otherwise dispose of or transfer, whether by sale, merger, consolidation or
otherwise, any of Borrower's assets; and (e) incur Indebtedness except: (i)
unsecured trade debt in the ordinary course of business; (ii) renewals or
extensions of existing Indebtedness and interest thereon; and (iii) Indebtedness
that is unsecured and is to Persons who execute and deliver to Bank in form and
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<PAGE> 10
substance acceptable to Bank and its counsel subordination agreements
subordinating their claims against Borrower therefor to the payment of
Borrower's Liabilities.
6.3 Borrower warrants and represents to and covenants with Bank that
Borrower shall furnish to Bank: (a) as soon as available but not later than
ninety (90) days after the close of each fiscal year of Borrower, financial
statements, which shall include, but not be limited to, balance sheets, income
statements and statements of cash flow of Borrower prepared in accordance with
generally accepted accounting principles, consistently applied, audited by a
firm of independent certified public accountants selected by Borrower and
acceptable to Bank; (b) as soon as available but not later than thirty (30) days
after the end of each month hereafter, financial statements of Borrower
certified by Borrower to be prepared in accordance with generally accepted
accounting principles fairly present the financial position and results of
operations of Borrower for such period; (c) schedule of accounts payable and
accounts receivable by the 15th of every month or otherwise as Bank may direct;
and (d) such other data and information (financial and otherwise) as Bank, from
time to time, may request.
6.4 Borrower warrants and represents to and covenants with Bank that
Borrower shall not permit its "Tangible Net Worth" (as hereinafter defined) to
be at any time less than $1,000,000.00. Tangible Net Worth shall mean the value
of the tangible assets of Borrower as determined in accordance with the
generally accepted accounting principles after subtracting therefrom the
aggregate amount of any intangible assets of Borrower as determined in
accordance with generally accepted accounting principles, including without
limitation, prepaid expenses, other accounts receivable, goodwill, franchises,
licenses, patents, trademarks, tradenames, copyrights and brand names, minus the
aggregate of all contingent and non-contingent liabilities of Borrower.
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7. DEFAULT
7.1 The occurrence of any one of the following events shall constitute
a default by the Borrower ("Event of Default") under this Agreement: (a) if
Borrower fails to pay any of Borrower's Liabilities when due and payable or
declared due and payable (whether by scheduled maturity, required payment,
acceleration, demand or otherwise); (b) if Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Agreement or any of the Other Agreements; (c)
occurrence of a default or Event of Default under any of the Other Agreements
heretofore, now or at any time hereafter delivered by or on behalf of Borrower
to Bank; (d) occurrence of a default or an Event of Default under any agreement,
instrument or document heretofore, now or at any time hereafter delivered to
Bank by any guarantor of Borrower's Liabilities or by any Person which has
granted to Bank a security interest or lien in such Person's real or personal
property to secure the payment of Borrower's Liabilities; (e) if the Collateral
or any other of Borrower's assets are attached, seized, subjected to a writ, or
are levied upon or become subject to any lien or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors; (f)
if a notice of lien, levy or assessment is filed of record or given to Borrower
with respect to all or any of Borrower's assets by any federal, state, local
department or agency; (g) if Borrower or any guarantor of Borrower's Liabilities
becomes insolvent or generally fails to pay or admits in writing its inability
to pay debts as they become due, if a petition under Title 11 of the United
States Code or any similar law or regulation is filed by or against Borrower or
any such guarantor, if Borrower or any such guarantor shall make an assignment
for the benefit of creditors, if any case or proceeding is filed by or against
Borrower or any such guarantor for its dissolution or liquidation, if Borrower
or any such guarantor is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business affairs; (h) the
death or incompetency of Borrower or any guarantor of Borrower's Liabilities, or
the appointment of a conservator for all or any portion of Borrower's assets or
the Collateral; (i) the revocation, termination, or cancellation of any guaranty
of Borrower's Liabilities without written consent of Bank; (j) if a contribution
failure occurs with respect to any pension plan maintained by Borrower or any
corporation, trade or business that is, along with Borrower, a member of a
controlled group of corporations or controlled group of trades or businesses (as
described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or
Section 4001 of ERISA) sufficient to give rise to a lien under Section 302(f) of
ERISA; (k) if Borrower or any guarantor of Borrower's Liabilities is in default
in the payment of any obligations, indebtedness or other liabilities to any
third party and such default is declared and is not cured within the time, if
any, specified therefor in any agreement governing the same; (l) if any material
statement, report or certificate made or delivered by Borrower, any of
Borrower's partners, officers, employees or agents or any guarantor of
Borrower's Liabilities is not true and correct; or (m) if Bank is reasonably
insecure.
7.2 All of Bank's rights and remedies under this Agreement and the
Other Agreements are cumulative and non-exclusive.
7.3 Upon an Event of Default or the occurrence of any one of the events
described in Paragraph 7.1, without notice by Bank to or demand by Bank of
Borrower, Bank shall have no further obligation to and may then forthwith cease
advancing monies or extending credit to or for the benefit of Borrower under
this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to or demand by Bank of Borrower, Borrower's Liabilities shall be
immediately due and payable.
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7.4 Upon an Event of Default, Bank, in its sole and absolute
discretion, may exercise any one or more of the rights and remedies accruing to
a secured party under the Uniform Commercial Code of the relevant state and any
other applicable law upon default by a debtor.
7.5 Upon an Event of Default, Borrower, immediately upon demand by
Bank, shall assemble the Collateral and make it available to Bank at a place or
places to be designated by Bank which is reasonably convenient to Bank and
Borrower. Borrower recognizes that in the event Borrower fails to perform,
observe or discharge any of its obligations or liabilities under this Agreement
or the Other Agreements, no remedy of law will provide adequate relief to Bank,
and agrees that Bank shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
7.6 Upon an Event of Default, without notice, demand or legal process
of any kind, Bank may take possession of any or all of the Collateral (in
addition to Collateral of which it already has possession), wherever it may be
found, and for that purpose may pursue the same wherever it may be found, and
may enter into any of Borrower's premises where any of the Collateral may be or
is supposed to be, and search for, take possession of, remove, keep and store
any of the Collateral until the same shall be sold or otherwise disposed of, and
Bank shall have the right to store the same in any of Borrower's premises
without cost to Bank.
7.7 Any notice required to be given by Bank of a sale, lease, or other
disposition of the Collateral or any other intended action by Bank, (i)
deposited in the United States mail, postage prepaid and duly addressed to
Borrower at the address specified at the beginning of this Agreement, or (ii)
sent via certified mail, return receipt requested, or (iii) sent via facsimile,
or (iv) delivered personally, not less than ten (10) days prior to such proposed
action, shall constitute commercially reasonable and fair notice to Borrower.
7.8 Upon an Event of Default, Borrower agrees that Bank may, if Bank
deems it reasonable, postpone or adjourn any such sale of the Collateral from
time to time by an announcement at the time and place of sale or by announcement
at the time and place of such postponed or adjourned sale, without being
required to give a new notice of sale. Borrower agrees that Bank has no
obligation to preserve rights against prior parties to the Collateral. Further,
to the extent permitted by law, Borrower waives and releases any cause of action
and claim against Bank as a result of Bank's possession, collection or sale of
the Collateral, any liability or penalty for failure of Bank to comply with any
requirement imposed on Bank relating to notice of sale, holding of sale or
reporting of sale of the Collateral, and any right of redemption from such sale.
8. GENERAL
8.1 Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Liabilities and Borrower agrees that Bank shall have the continuing
exclusive right to apply and re-apply any and all such payments in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records.
8.2 Borrower covenants, warrants and represents to Bank that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true from
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the time of Borrower's execution of this Agreement to the end of the original
term and each renewal term hereof. All of Borrower's warranties,
representations, undertakings, and covenants contained in this Agreement or the
Other Agreements shall survive the termination or cancellation of the same.
8.3 The terms and provisions of this Agreement and the Other Agreements
shall supersede any prior agreement or understanding of the parties hereto, and
contain the entire agreement of the parties hereto with respect to the matters
covered herein. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank. Except for the provisions of Section 2 hereof which shall terminate as
provided in paragraph 2.8, this Agreement shall continue in full force and
effect so long as any portion or component of Borrower's Liabilities shall be
outstanding. Should a claim ("Recovery Claim") be made upon the Bank at any time
for recovery of any amount received by the Bank in payment of Borrower's
Liabilities (whether received from Borrower or otherwise) and should the Bank
repay all or part of said amount by reason of (1) any judgment, decree or order
of any court or administrative body having jurisdiction over Bank or any of its
property; or (2) any settlement or compromise of any such Recovery Claim
effected by the Bank with the claimant (including Borrower), this Agreement and
the security interests granted Bank hereunder shall continue in effect with
respect to the amount so repaid to the same extent as if such amount had never
originally been received by the Bank, notwithstanding any prior termination of
this Agreement, the return of this Agreement to Borrower, or the cancellation of
any note or other instrument evidencing Borrower's Liabilities. Borrower may not
sell, assign or transfer this Agreement, or the Other Agreements or any portion
thereof.
8.4 Bank's failure to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Bank of an Event of Default by Borrower under this
Agreement or the Other Agreements shall not suspend, waive or affect any other
Event of Default by Borrower under this Agreement or the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the Other Agreements
and no Event of Default by Borrower under this Agreement or the Other Agreements
shall be deemed to have been suspended or waived by Bank unless such suspension
or waiver is by an instrument in writing signed by an officer of Bank and
directed to Borrower specifying such suspension or waiver.
8.5 If any provision of this Agreement or the Other Agreements or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Agreement and the Other Agreements
shall be severable in any such instance.
8.6 This Agreement and the Other Agreements shall be binding upon and
inure to the benefit of the successors and assigns of Borrower and Bank. This
provision, however, shall not be deemed to modify Paragraph 8.3 hereof.
8.7 Borrower hereby appoints Bank as Borrower's agent and
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing any
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<PAGE> 14
agreement, instrument or document which Bank may reasonably deem necessary or
advisable to accomplish the purposes hereof which appointment is irrevocable and
coupled with an interest. All monies paid for the purposes herein, and all
costs, fees and expenses paid or incurred in connection therewith, shall be part
of Borrower's Liabilities, payable by Borrower to Bank on demand.
8.8 This Agreement, or a carbon, photographic or other reproduction of
this Agreement or of any Uniform Commercial Code financing statement covering
the Collateral or any portion thereof, shall be sufficient as a Uniform
Commercial Code financing statement and may be filed as such.
8.9 Except as otherwise provided in the Other Agreements, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in the Other Agreements, the provision contained in this Agreement
shall govern and control.
8.10 Except as otherwise specifically provided in this Agreement,
Borrower waives any and all notice or demand which Borrower might be entitled to
receive by virtue of any applicable statute or law, and waives presentment,
demand and protest and notice of presentment, protest, default, dishonor,
non-payment, maturity, release, compromise, settlement, extension or renewal of
any and all agreements, instruments or documents at any time held by Bank on
which Borrower may in any way be liable.
8.11 Until Bank is notified by Borrower to the contrary in writing by
registered or certified mail directed to Bank's principal place of business, the
signature upon this Agreement or upon any of the Other Agreements of any
partner, manager, employee or agent of the Borrower, or of any other Person
designated in writing to Bank by any of the foregoing, shall bind Borrower and
be deemed to be the duly authorized act of Borrower.
8.12 This Agreement and the Other Agreements shall be governed and
controlled by the internal laws of the State of Illinois; and not the law of
conflicts.
8.13 If at anytime or times hereafter, whether or not Borrower's
Liabilities are outstanding at such time, Bank: (a) employs counsel for advice
or other representation, (i) with respect to the Collateral, this Agreement, the
Other Agreements or the administration of Borrower's Liabilities, (ii) to
represent Bank in any litigation, arbitration, contest, dispute, suit or
proceeding or to commence, defend or intervene or to take any other action in or
with respect to any litigation, arbitration, contest, dispute, suit or
proceeding (whether instituted by Bank, Borrower or any other Person) in any way
or respect relating to the Collateral, this Agreement, the Other Agreements, or
Borrower's affairs, or (iii) to enforce any rights of Bank against Borrower or
any other Person which may be obligated to Bank by virtue of this Agreement or
the Other Agreements, including, without limitation, any Obligor; (b) takes any
action with respect to administration of Borrower's Liabilities or to protect,
collect, sell, liquidate or otherwise dispose of the Collateral; and/or (c)
attempts to or enforces any of Bank's rights or remedies under this Agreement or
the Other Agreements, including, without limitation, Bank's rights or remedies
with respect to the Collateral, the reasonable costs and expenses incurred by
Bank in any manner or way with respect to the foregoing, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
8.14 BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER
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<PAGE> 15
OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER
AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR
CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN
ACCORDANCE WITH THIS PARAGRAPH.
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8.15 BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (II) ARISING FROM
ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS, OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
BIRMAN & ASSOCIATES, INC.,
a Tennessee corporation
By: ______________________________
Its: ______________________________
Accepted this 21st day of August, 1996, at Bank's principal place of
business in the City of Chicago, State of Illinois.
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: ___________________________
Its: __________________________
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<PAGE> 1
EXHIBIT 10.15
[AMERICAN NATIONAL BANK LOGO]
LOAN AND SECURITY AGREEMENT
(ALL ASSETS WITH ADVANCE RATE)
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), made as of the
21st day of August, 1996, by and between AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO ("Bank"), a national banking association with its principal
place of business at 33 North LaSalle Street, Chicago, Illinois 60690, and
Hughes & Associates, Inc. ("Borrower"), a corporation with its principal place
of business at 502 Gould Drive, Cookeville, Tennessee 38501 has reference to the
following facts and circumstances:
A. Pursuant to Borrower's request, Bank heretofore, now and from time to time
hereafter, has and/or may loan or advance monies, extend credit, and/or extend
other financial accommodations to or for the benefit of Borrower.
B. To secure repayment of the same and all of "Borrower's Liabilities" (as
hereinafter defined), Borrower wishes to provide Bank with a security interest
in and/or collateral assignment of Borrower's assets.
NOW, THEREFORE, in consideration of terms and conditions set forth
herein and of any loans or extensions of credit heretofore, now or hereafter
made to or for the benefit of Borrower by Bank, the parties hereto agree as
follows:
1. DEFINITIONS AND TERMS
1.1 When used herein, the words, terms and/or phrases set forth below
shall have the following meanings:
A. "ACCOUNTS": all present and future rights of Borrower to
payment for goods sold or leased or for services rendered,
which are not evidenced by instruments or chattel paper, and
whether or not they have been earned by performance.
B. "BORROWER'S LIABILITIES": all obligations and liabilities of
Borrower to Bank (including without limitation all debts,
claims, indebtedness and attorneys' fees and expenses as
provided for in Paragraph 8.13) whether primary, secondary,
direct, contingent, fixed or otherwise, including Rate Hedging
Obligations (as defined in subparagraph L herein), heretofore,
now and/or from time to time hereafter owing, due or payable,
however evidenced, created, incurred, acquired or owing and
however arising, whether under this Agreement or the "Other
Agreements" (hereinafter defined) or by operation of law or
otherwise.
C. "CHARGES": all national, federal, state, county, city,
municipal and/or other governmental (or any instrumentality,
division, agency, body or department thereof, including
without limitation the Pension Benefit Guaranty Corporation)
taxes,
<PAGE> 2
levies, assessments, charges, liens, claims or encumbrances
upon and/or relating to the "Collateral" (as hereinafter
defined), Borrower's Liabilities, Borrower's business,
Borrower's ownership and/or use of any of its assets, and/or
Borrower's income and/or gross receipts.
D. "COLLATERAL": shall have the meaning set forth in Paragraph
3.2.
E. "INDEBTEDNESS": (i) indebtedness for borrowed money or for the
deferred purchase price of property or services; (ii)
obligations as lessee under leases which shall have been or
should be, in accordance with generally accepted accounting
principles, recorded as capital leases; (iii) obligations
under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) or (ii) above; and (iv) liabilities
with respect to unfunded vested benefits under plans covered
by Title IV of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and in effect from time to time.
F. "LETTER OF CREDIT OBLIGATIONS": shall mean any and all
existing and future indebtedness, obligations and liabilities
of every kind, nature and character, direct or indirect,
absolute or contingent, of the Borrower to Bank, arising
under, pursuant to or in connection with any letter of credit
issued under the Maximum Revolving Facility.
G. "LOANS": shall mean collectively any Revolving Loans as
defined in Paragraph 2.5 and Term Loans as defined in
Paragraph 2.6.
H. "MAXIMUM REVOLVING FACILITY": shall mean the maximum amount of
the Revolving Loans as evidenced by a revolving note(s) which
amount Bank has agreed to consider as a ceiling on the
outstanding principal balance of Revolving Loans (other than
Term Loans) to be made by Bank pursuant to this Agreement.
I. "OBLIGOR": any Person who is and/or may become obligated to
Borrower under or on account of "Accounts."
J. "OTHER AGREEMENTS": all agreements, instruments and documents,
including without limitation, guaranties, mortgages, deeds of
trust, notes, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, leases,
subordination agreements, financing statements and all other
written matter heretofore, now and/or from time to time
hereafter executed by and/or on behalf of Borrower and
delivered to Bank.
K. "PERSONS": any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization,
association, corporation, limited liability company,
institution, entity, party or government (whether national,
federal, state, county, city, municipal or otherwise,
including without limitation, any instrumentality, division,
agency, body or department thereof).
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<PAGE> 3
L. "RATE HEDGING OBLIGATIONS": shall mean any and all obligations
of the Borrower, whether absolute or contingent and howsoever
and whenever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof
and substitutions therefor), under (i) any and all agreements
designed to protect the Borrower from the fluctuations of
interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions,
including, but not limited to: interest rate swap agreements,
dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest
rate cap, floor or collar agreements, forward rate currency
agreements or agreements relating to interest rate options,
puts and warrants, and (ii) any and all agreements relating to
cancellations, buy backs, reversals, terminations or
assignments of any of the foregoing.
1.2 Except as otherwise defined in this Agreement or the Other
Agreements, all words, terms and/or phrases used herein and therein shall be
defined by the applicable definition therefor (if any) in the Illinois Uniform
Commercial Code.
2. LOANS
2.1 Loans made by Bank to Borrower pursuant to this Agreement shall be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Except as otherwise provided in this Agreement or in any notes executed and
delivered by Borrower to Bank in connection herewith, the principal portion of
Borrower's Liabilities shall be payable by Borrower to Bank on the maturity
date(s) described in any such note(s) or other instruments evidencing Borrower's
Liabilities (as the same may be amended, renewed or replaced) and all costs,
fees and expenses payable hereunder or under the Other Agreements, shall be
payable by Borrower to the Bank on demand, in either case at Bank's principal
place of business or such other place as Bank shall specify in writing to
Borrower.
2.2 All of Borrower's Liabilities shall constitute one obligation
secured by Bank's security interest in the Collateral and by all other security
interests, liens, claims and encumbrances heretofore, now and/or from time to
time hereafter granted by Borrower to Bank.
2.3 Each loan made by Bank to Borrower pursuant to this Agreement or
the Other Agreements shall constitute an automatic warranty and representation
by Borrower to Bank that there does not then exist an "Event of Default" (as
hereinafter defined) or any event or condition, which with notice, lapse of time
and/or the making of such loan would constitute an Event of Default.
2.4 This Agreement shall be in effect until all of Borrower's
Liabilities have been paid in full and any and all commitments of Bank to make
loans have terminated.
2.5 Provided that an Event of Default does not then exist or would not
then be created or any event which with notice or lapse of time or both would
constitute an Event of Default does not then exist, Bank shall advance to
Borrower on a revolving credit basis (the "Revolving Loans") up to the lesser
of: (i) $100,000.00, or (ii) or the Maximum Revolving Facility minus any Letter
of Credit Obligations, or (iii) the "Borrowing Base" minus any Letter of Credit
Obligations. As used herein, "Borrowing Base" shall mean up to 75% ("Advance
Rate") of the face amount (less
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<PAGE> 4
maximum discounts, credits or allowances which may be taken by or
granted to Obligors in connection therewith) of all then existing "Eligible
Accounts" (as hereinafter defined) that are scheduled on the most recent
schedule of accounts delivered to Bank. Notwithstanding any contrary provision
contained herein, Bank may elect at its option to at any time and upon fourteen
(14) days prior written notice to Borrower change the foregoing method of
calculating the Borrowing Base by reducing the advances against Eligible
Accounts, or to deduct reserves from the Borrowing Base.
2.6 Bank may from time to time advance to Borrower term loans ("Term
Loans") in such amounts and on such terms and conditions as the Bank and
Borrower from time to time may agree in writing.
2.7 Notwithstanding anything contained in this Agreement or the Other
Agreements to the contrary, the principal portion of Borrower's outstanding
liabilities due at any one time under the Revolving Loans shall not exceed the
lesser of: (i) the Maximum Revolving Facility minus the amount of all Letter of
Credit Obligations, or (ii) the Borrowing Base minus the amount of all Letter of
Credit Obligations.
2.8 Bank's commitment to loan shall expire on the earlier of: (i) the
date on which Borrower's Liabilities mature under the terms of any note given by
Borrower to Bank, or (ii) the occurrence of an Event of Default pursuant to
Section 7 hereof.
3. COLLATERAL: GENERAL TERMS
3.1 To secure the prompt payment to Secured party of Debtor's
Liabilities and the prompt, full and faithful performance by Debtor of all of
the provisions to be kept, observed or performed by Debtor under this Agreement
and/or the Other Agreements, Debtor grants to Secured party a security interest
in and to, and collaterally assigns to Secured party, all of Debtor's property,
wherever located, whether now or hereafter existing, owned, licensed, leased (to
the extent of Debtor's leasehold interest therein), consigned (to the extent of
Debtor's ownership therein), arising and/or acquired, including without
limitation all of Debtor's: (a) Accounts, chattel paper, tax refunds, contract
rights, leases, leasehold interests, letters of credit, instruments, documents,
documents of title, licenses, goodwill, beneficial interests and general
intangibles; (b) all goods whose sale, lease or other disposition by Debtor have
given rise to Accounts and have been returned to or repossessed or stopped in
transit by Debtor; (c) liens, guaranties and other rights and privileges
pertaining to any of the Collateral; (d) monies, reserves, deposits, deposit
accounts and interest or dividends thereon, cash or cash equivalents; (e) all
property now or at any time or times hereafter in the possession, or under the
control of Secured party or its bailee; (f) all accessions to the foregoing, all
litigation proceeds pertaining to the foregoing and all substitutions, renewals,
improvements and replacements of and additions to the foregoing; and (g) all
books, records and computer records in any way relating to the Collateral herein
described.
3.2 All of the aforesaid property and products and proceeds of the
foregoing in Paragraph 3.1 above, including without limitation, proceeds of
insurance policies insuring the foregoing are herein individually and
collectively called the "Collateral". The terms used herein to
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<PAGE> 5
identify the Collateral shall have the same meaning as are assigned to such
terms as of the date hereof in the Illinois Uniform Commercial Code.
3.3 Borrower shall make appropriate entries upon its financial
statements and its books and records disclosing Bank's security interest in the
Collateral.
3.4 Borrower shall execute and deliver to Bank, at the request of Bank,
all agreements, instruments and documents ("Supplemental Documentation") that
Bank reasonably may request, in form and substance acceptable to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and to
consummate the transactions contemplated in or by this Agreement and the Other
Agreements. Borrower agrees that a carbon, photographic or photostatic copy, or
other reproduction of this Agreement or of any financing statement, shall be
sufficient to evidence Bank's security interest.
3.5 Bank shall have the right, at any time during Borrower's usual
business hours, to inspect the Collateral and all related records (and the
premises upon which it is located) and to verify the amount and condition of or
any other matter relating to the Collateral.
3.6 Borrower warrants and represents to and covenants with Bank that:
(a) Bank's security interest in the Collateral is now and at all times hereafter
shall be perfected and have a first priority except as expressly agreed to in
writing by the Bank; (b) the offices and/or locations where Borrower keeps the
Collateral are specified at the end of this Paragraph and Borrower shall not
remove such Collateral therefrom except as may occur in the ordinary course of
business, and shall not keep any of such Collateral at any other offices or
locations unless Borrower gives Bank written notice thereof at least thirty (30)
days prior thereto and the same is within the United States of America; and (c)
the addresses specified at the end of this Paragraph include and designate
Borrower's principal executive office, principal place of business and other
offices and places of business and are Borrower's sole offices and places of
business. Borrower, by written notice delivered to Bank at least thirty (30)
days prior thereto, shall advise Bank of Borrower's opening of any new office or
place of business or its closing of any existing office or place of business and
any new office or place of business shall be within the United States of
America. Borrower has places of business at the address shown at the beginning
of this Agreement and at the locations listed below:
1)
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2)
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3)
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All of the Collateral currently owned by Borrower and all of the
Collateral hereafter acquired is, or will be held or stored at the locations
listed below:
1) The address of the Borrower shown at the beginning of this
Agreement;
2)
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3)
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3.7 At the request of Bank, Borrower shall receive, as the
sole and exclusive property of Bank and as trustee for Bank, all monies, checks,
notes, drafts and all other payments for and/or proceeds of Collateral which
come into the possession or under the control of Borrower and
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immediately upon receipt thereof, Borrower shall remit the same (or cause the
same to be remitted), in kind, to Bank or at Bank's direction.
3.8 Upon demand or upon an Event of Default, Bank may take control of,
in any manner, and may endorse Borrower's name to any of the items of payment or
proceeds described in Paragraph 3.7 above and, pursuant to the provisions of
this Agreement, Bank shall apply the same to and on account of Borrower's
Liabilities.
3.9 Bank may, at its option, at any time or times hereafter, but shall
be under no obligation to pay, acquire and/or accept an assignment of any
security interest, lien, encumbrance or claim asserted by any Person against the
Collateral.
3.10 Immediately upon Borrower's receipt of that portion of the
Collateral evidenced by an agreement, instrument and/or document ("Special
Collateral"), Borrower shall mark the same to show that such Special Collateral
is subject to a security interest in favor of Bank and shall deliver the
original thereof to Bank, together with appropriate endorsement and/or specific
evidence of assignment (in form and substance acceptable to Bank) thereof to
Bank.
3.11 Regardless of the adequacy of any Collateral securing Borrower's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from Bank to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in possession or
control of Bank or its bailee for any purpose may, upon demand or an Event of
Default or event or condition which with notice or lapse of time would
constitute an Event of Default, be reduced to cash and applied by Bank to or
setoff by Bank against Borrower's Liabilities hereunder.
3.12 At the request of Bank, Borrower shall instruct the Obligors of
its Accounts to make payments directly to a lockbox or cash collateral account
maintained by Bank in Borrower's name. All such collections shall be Bank's
property to be applied against Borrower's Liabilities, and not Borrower's
property. Bank may endorse Borrower's name to any of the items of payment or
proceeds described herein.
4. COLLATERAL: ACCOUNTS
4.1 An "Eligible Account" is an Account of Borrower which meets each of
the following requirements: (a) it arises from the sale or lease of goods, such
goods having been shipped or delivered to the Obligor thereof, or from services
rendered to the Obligor; (b) it is a valid, legally enforceable obligation of
the Obligor thereunder, and is not subject to any offset, counterclaim or other
defense on the part of such Obligor denying liability thereunder in whole or in
part; (c) it is subject to a perfected security interest in favor of Bank and is
not subject to any other lien or security interest whatsoever, except those of
Bank; (d) it is evidenced by an invoice (dated not later than the date of
shipment to the Obligor or performance and having a due date not more than
thirty (30) days after the date of invoice) rendered to such Obligor, and is not
evidenced by any instrument or chattel paper; (e) it is payable in United States
dollars; (f) it is not owing by any Obligor residing, located or having its
principal activities or place of business outside the United States of America
or who is not subject to service of process in the United States of America; (g)
it is not owing by any Obligor involved in any bankruptcy or insolvency
proceeding; (h) it is not owing by any affiliate of Borrower; (i) it is not
unpaid more than ninety (90) days after
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the date of such invoice; (j) it is not owing by an Obligor which shall have
failed to pay in full any invoice evidencing any account within ninety (90) days
after the date of such invoice, unless the total invoice amounts of such Obligor
which have not been paid within ninety (90) days of the date represents less
than 10% of the total invoice amounts then outstanding of such Obligor; and (k)
it is not an Account as to which Bank, at any time or times hereafter,
determines, in good faith, that the prospect of payment or performance by the
Obligor thereof is or will be impaired. Notwithstanding the foregoing, Accounts
with respect to which the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, shall not be included as an
Eligible Account unless, with respect to any such Account, Borrower has complied
to Bank's satisfaction with the provisions of the Federal Assignment of Claims
Act of 1940, including, without limitation, executing and delivering to Bank all
statements of assignment and/or notification which are in form and substance
acceptable to Bank and which are deemed necessary by Bank to effectuate the
assignment to Bank of such Accounts. An Account which is at any time an Eligible
Account, but which subsequently fails to meet any of the foregoing requirements,
shall forthwith cease to be an Eligible Account. Bank may in its sole discretion
at any time reduce the percentage set forth in clause (j) above upon seven (7)
days prior notice to Borrower. Borrower, immediately upon demand from Bank,
shall pay to Bank an amount of money equal to the monies advanced by Bank to
Borrower upon an Account that is no longer an Eligible Account. Borrower
warrants and represents to and covenants with Bank that the principal portion of
Borrower's Liabilities represented by Revolving Loans made by Bank to Borrower,
pursuant to Paragraph 2.5 above, shall not exceed the total of the then
outstanding amounts (less maximum discounts, credits and allowances which may be
taken by or granted to Obligors in connection therewith) of all then existing
Eligible Accounts multiplied by the Advance Rate.
4.2 With respect to Accounts, except as otherwise disclosed by Borrower
to Bank in writing, Borrower warrants and represents to Bank that: (a) they are
genuine, are in all respects what they purport to be and are not evidenced by a
judgment; (b) they represent undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in the invoices and other
documents delivered to Bank with respect thereto; (c) the amounts shown on any
Schedule of Accounts and/or all invoices and statements delivered to Bank with
respect thereto are actually and absolutely owing to Borrower and are not in any
way contingent; (d) no payments have been made or shall be made thereon except
payments immediately delivered to Bank pursuant to this Agreement; (e) there are
no setoffs, counterclaims or disputes existing or asserted with respect thereto
and Borrower has not made any agreement with any Obligor thereof for any
deduction therefrom except a regular discount allowed by Borrower in the
ordinary course of its business for prompt payment; (f) there are no facts,
events or occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder, which may be shown on
any schedule of accounts and on all invoices, and statements delivered to Bank
with respect thereto; (g) to the best of Borrower's knowledge, all Obligors have
the capacity to contract and are solvent; (h) the services furnished and/or
goods sold or leased giving rise thereto are not subject to any lien, claim,
encumbrance or security interest except that of Bank; (i) Borrower has no
knowledge of any fact or circumstance which would impair the validity or
collectability thereof; (j) to the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Obligor which
might result in any material adverse change in its financial condition; and (k)
Borrower has filed a Notice of Business Activities Report or a Certificate of
Authority or similar report with the appropriate office or department in states
where Account Obligors are located and where such reports are required as a
condition to commencing or maintaining an action in the courts
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of such states, or Borrower has demonstrated to Bank's satisfaction that it is
exempt from any such requirements under such state's law.
4.3 Any of Bank's officers, employees or agents shall have the right,
at any time or times hereafter, in Bank's name or in the name of a nominee of
Bank, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, facsimile or otherwise and to sign Borrower's name
on any verification of Accounts and notices thereof to Obligors. All costs, fees
and expenses relating thereto incurred by Bank (or for which Bank becomes
obligated) shall be part of Borrower's Liabilities, payable by Borrower to Bank
on demand.
4.4 Unless Bank notifies Borrower in writing that Bank suspends any one
or more of the following requirements, Borrower shall: (a) promptly upon
Borrower's learning thereof, inform Bank, in writing, of any material delay in
Borrower's performance of any of its obligations to any Obligor and of any
assertion of any claims, offsets or counterclaims by any Obligor and of any
allowances, credits and/or other monies granted by Borrower to any Obligor; (b)
not permit or agree to any extension, compromise or settlement with respect to
Accounts which constitute, in the aggregate, more than 5% of all Accounts then
owing to Borrower; and (c) keep all goods returned by any Obligor and all goods
repossessed or stopped in transit by Borrower from any Obligor segregated from
other property of Borrower, immediately notify Bank of Borrower's possession of
such goods, and hold the same as trustee for Bank until otherwise directed in
writing by Bank.
4.5 Bank shall have the right, now and at any time or times hereafter,
at its option, without notice thereof to Borrower: (a) to notify any or all
Obligors that the Accounts and Special Collateral have been assigned to Bank and
the Bank has a security interest therein; (b) to direct such Obligors to make
all payments due from them to Borrower upon the Accounts and Special Collateral
directly to Bank; and (c) to enforce payment of and collect, by legal
proceedings or otherwise, the Accounts and Special Collateral in the name of
Bank and Borrower.
4.6 Borrower, irrevocably, hereby designates, makes, constitutes and
appoints Bank (and all Persons designated by Bank) as Borrower's true and lawful
attorney (and agent-in-fact), with power, upon an Event of Default, or an event
or condition which with notice or lapse of time would constitute an Event of
Default, without notice to Borrower and in Borrower's or Bank's name: (a) to
demand payment of Accounts; (b) to enforce payment of the Accounts by legal
proceedings or otherwise; (c) to exercise all of Borrower's rights and remedies
with respect to the collection of the Accounts; (d) to settle, adjust,
compromise, discharge, release, extend or renew the Accounts; (e) to settle,
adjust or compromise any legal proceedings brought to collect the Accounts; (f)
to sell or assign the Accounts upon such terms, for such amounts and at such
time or times as Bank deems advisable; (g) to prepare, file and sign Borrower's
name on any Notice of Lien, Assignment or Satisfaction of Lien or similar
document in connection with the Accounts and Special Collateral; or (h) to
prepare, file and sign Borrower's name on any Proof of Claim in Bankruptcy or
similar document against any Obligor.
5. WARRANTIES, REPRESENTATIONS AND COVENANTS:
INSURANCE AND TAXES
5.1 Borrower, at its sole cost and expense, shall keep and maintain:
(a) the Collateral insured for the full insurable value against all hazards and
risks ordinarily insured against by other owners or users of such properties in
similar businesses; and (b) business interruption insurance and
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public liability and property damage insurance relating to Borrower's
ownership and use of its assets. All such policies of insurance shall be in a
form with insurers and in such amounts as may be satisfactory to Bank. Borrower
shall deliver to Bank the original (or certified) copy of each policy of
insurance, or a certificate of insurance, and evidence of payment of all
premiums for each such policy. Such policies of insurance (except those of
public liability) shall contain a standard form lender's loss payable clause, in
form and substance acceptable to Bank, showing loss payable to Bank, and shall
provide that: (i) the insurance companies will give Bank at least thirty (30)
days written notice before any such policy or policies of insurance shall be
altered or canceled; and (ii) no act or default of Borrower or any other Person
shall effect the right of Bank to recover under such policy or policies of
insurance in case of loss or damage. Borrower hereby directs all insurers under
such policies of insurance (except those of public liability) to pay all
proceeds payable thereunder directly to Bank and hereby authorizes Bank to make,
settle, and adjust claims under such policies of insurance and endorse the name
of Borrower on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance.
5.2 Borrower shall pay promptly, when due, all Charges, and shall not
permit any Charges to arise, or to remain and will promptly discharge the same.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS:
GENERAL
6.1 Borrower warrants and represents to and covenants with Bank that:
(a) Borrower has the right, power and capacity and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and Other
Agreements; (b) the execution, delivery and/or performance by Borrower of this
Agreement and Other Agreements shall not, by the lapse of time, the giving of
notice or otherwise, constitute a violation of any applicable law or a breach of
any provision contained in Borrower's Articles of Incorporation, By-Laws,
Articles of Partnership, Articles of Organization, Operating Agreement or
similar document, or contained in any agreement, instrument or document to which
Borrower is now or hereafter a party or by which it is or may be bound; (c)
Borrower has and at all times hereafter shall have good, indefeasible and
merchantable title to and ownership of the Collateral, free and clear of all
liens, claims, security interests and encumbrances except those of Bank; (d)
Borrower is now and at all times hereafter, shall be solvent and generally
paying its debts as they mature and Borrower now owns and shall at all times
hereafter own property which, at a fair valuation, is greater than the sum of
its debts; (e) Borrower is not and will not be during the term hereof in
violation of any applicable federal, state or local statute, regulation or
ordinance that, in any respect materially and adversely affects its business,
property, assets, operations or condition, financial or otherwise; and (f)
Borrower is not in default with respect to any indenture, loan agreement,
mortgage, deed or other similar agreement relating to the borrowing of monies to
which it is a party or by which it is bound.
6.2 Borrower warrants and represents to and covenants with Bank that
Borrower shall not, without Bank's prior written consent thereto: (a) grant a
security interest in or assign any of the Collateral to any Person or permit,
grant, or suffer a lien, claim or encumbrance upon any of the Collateral; (b)
sell or transfer any of the Collateral not in the ordinary course of business;
(c) enter into any transaction not in the ordinary course of business which
materially and adversely affects the Collateral or Borrower's ability to repay
Borrower's Liabilities or Indebtedness; (d) other than as specifically permitted
in or contemplated by this Agreement, encumber, pledge, mortgage, sell, lease or
otherwise dispose of or transfer, whether by sale, merger, consolidation or
otherwise, any
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of Borrower's assets; and (e) incur Indebtedness except: (i) unsecured trade
debt in the ordinary course of business; (ii) renewals or extensions of existing
Indebtedness and interest thereon; and (iii) Indebtedness that is unsecured and
is to Persons who execute and deliver to Bank in form and substance acceptable
to Bank and its counsel subordination agreements subordinating their claims
against Borrower therefor to the payment of Borrower's Liabilities.
6.3 Borrower warrants and represents to and covenants with Bank that
Borrower shall furnish to Bank: (a) as soon as available but not later than
ninety (90) days after the close of each fiscal year of Borrower, financial
statements, which shall include, but not be limited to, balance sheets, income
statements and statements of cash flow of Borrower prepared in accordance with
generally accepted accounting principles, consistently applied, audited by a
firm of independent certified public accountants selected by Borrower and
acceptable to Bank; (b) as soon as available but not later than thirty (30) days
after the end of each month hereafter, financial statements of Borrower
certified by Borrower to be prepared in accordance with generally accepted
accounting principles fairly present the financial position and results of
operations of Borrower for such period; (c) schedule of accounts payable and
accounts receivable by the 15th of every month or otherwise as Bank may direct;
and (d) such other data and information (financial and otherwise) as Bank, from
time to time, may request.
7. DEFAULT
7.1 The occurrence of any one of the following events shall constitute
a default by the Borrower ("Event of Default") under this Agreement: (a) if
Borrower fails to pay any of Borrower's Liabilities when due and payable or
declared due and payable (whether by scheduled maturity, required payment,
acceleration, demand or otherwise); (b) if Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Agreement or any of the Other Agreements; (c)
occurrence of a default or Event of Default under any of the Other Agreements
heretofore, now or at any time hereafter delivered by or on behalf of Borrower
to Bank; (d) occurrence of a default or an Event of Default under any agreement,
instrument or document heretofore, now or at any time hereafter delivered to
Bank by any guarantor of Borrower's Liabilities or by any Person which has
granted to Bank a security interest or lien in such Person's real or personal
property to secure the payment of Borrower's Liabilities; (e) if the Collateral
or any other of Borrower's assets are attached, seized, subjected to a writ, or
are levied upon or become subject to any lien or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors; (f)
if a notice of lien, levy or assessment is filed of record or given to Borrower
with respect to all or any of Borrower's assets by any federal, state, local
department or agency; (g) if Borrower or any guarantor of Borrower's Liabilities
becomes insolvent or generally fails to pay or admits in writing its inability
to pay debts as they become due, if a petition under Title 11 of the United
States Code or any similar law or regulation is filed by or against Borrower or
any such guarantor, if Borrower or any such guarantor shall make an assignment
for the benefit of creditors, if any case or proceeding is filed by or against
Borrower or any such guarantor for its dissolution or liquidation, if Borrower
or any such guarantor is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business affairs; (h) the
death or incompetency of Borrower or any guarantor of Borrower's Liabilities, or
the appointment of a conservator for all or any portion of Borrower's assets or
the Collateral; (i) the revocation, termination, or cancellation of any guaranty
of Borrower's Liabilities without written consent of Bank; (j) if a contribution
failure occurs with respect to any pension plan maintained by Borrower or any
corporation, trade or business that is,
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along with Borrower, a member of a controlled group of corporations or
controlled group of trades or businesses (as described in Sections 414(b) and
(c) of the Internal Revenue Code of 1986 or Section 4001 of ERISA) sufficient to
give rise to a lien under Section 302(f) of ERISA; (k) if Borrower or any
guarantor of Borrower's Liabilities is in default in the payment of any
obligations, indebtedness or other liabilities to any third party and such
default is declared and is not cured within the time, if any, specified therefor
in any agreement governing the same; (l) if any material statement, report or
certificate made or delivered by Borrower, any of Borrower's partners, officers,
employees or agents or any guarantor of Borrower's Liabilities is not true and
correct; or (m) if Bank is reasonably insecure.
7.2 All of Bank's rights and remedies under this Agreement and the
Other Agreements are cumulative and non-exclusive.
7.3 Upon an Event of Default or the occurrence of any one of the events
described in Paragraph 7.1, without notice by Bank to or demand by Bank of
Borrower, Bank shall have no further obligation to and may then forthwith cease
advancing monies or extending credit to or for the benefit of Borrower under
this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to or demand by Bank of Borrower, Borrower's Liabilities shall be
immediately due and payable.
7.4 Upon an Event of Default, Bank, in its sole and absolute
discretion, may exercise any one or more of the rights and remedies accruing to
a secured party under the Uniform Commercial Code of the relevant state and any
other applicable law upon default by a debtor.
7.5 Upon an Event of Default, Borrower, immediately upon demand by
Bank, shall assemble the Collateral and make it available to Bank at a place or
places to be designated by Bank which is reasonably convenient to Bank and
Borrower. Borrower recognizes that in the event Borrower fails to perform,
observe or discharge any of its obligations or liabilities under this Agreement
or the Other Agreements, no remedy of law will provide adequate relief to Bank,
and agrees that Bank shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
7.6 Upon an Event of Default, without notice, demand or legal process
of any kind, Bank may take possession of any or all of the Collateral (in
addition to Collateral of which it already has possession), wherever it may be
found, and for that purpose may pursue the same wherever it may be found, and
may enter into any of Borrower's premises where any of the Collateral may be or
is supposed to be, and search for, take possession of, remove, keep and store
any of the Collateral until the same shall be sold or otherwise disposed of, and
Bank shall have the right to store the same in any of Borrower's premises
without cost to Bank.
7.7 Any notice required to be given by Bank of a sale, lease, or other
disposition of the Collateral or any other intended action by Bank, (i)
deposited in the United States mail, postage prepaid and duly addressed to
Borrower at the address specified at the beginning of this Agreement, or (ii)
sent via certified mail, return receipt requested, or (iii) sent via facsimile,
or (iv) delivered personally, not less than ten (10) days prior to such proposed
action, shall constitute commercially reasonable and fair notice to Borrower.
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7.8 Upon an Event of Default, Borrower agrees that Bank may, if Bank
deems it reasonable, postpone or adjourn any such sale of the Collateral from
time to time by an announcement at the time and place of sale or by announcement
at the time and place of such postponed or adjourned sale, without being
required to give a new notice of sale. Borrower agrees that Bank has no
obligation to preserve rights against prior parties to the Collateral. Further,
to the extent permitted by law, Borrower waives and releases any cause of action
and claim against Bank as a result of Bank's possession, collection or sale of
the Collateral, any liability or penalty for failure of Bank to comply with any
requirement imposed on Bank relating to notice of sale, holding of sale or
reporting of sale of the Collateral, and any right of redemption from such sale.
8. GENERAL
8.1 Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Liabilities and Borrower agrees that Bank shall have the continuing
exclusive right to apply and re-apply any and all such payments in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records.
8.2 Borrower covenants, warrants and represents to Bank that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true from the time of Borrower's execution of this
Agreement to the end of the original term and each renewal term hereof. All of
Borrower's warranties, representations, undertakings, and covenants contained in
this Agreement or the Other Agreements shall survive the termination or
cancellation of the same.
8.3 The terms and provisions of this Agreement and the Other Agreements
shall supersede any prior agreement or understanding of the parties hereto, and
contain the entire agreement of the parties hereto with respect to the matters
covered herein. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank. Except for the provisions of Section 2 hereof which shall terminate as
provided in paragraph 2.8, this Agreement shall continue in full force and
effect so long as any portion or component of Borrower's Liabilities shall be
outstanding. Should a claim ("Recovery Claim") be made upon the Bank at any time
for recovery of any amount received by the Bank in payment of Borrower's
Liabilities (whether received from Borrower or otherwise) and should the Bank
repay all or part of said amount by reason of (1) any judgment, decree or order
of any court or administrative body having jurisdiction over Bank or any of its
property; or (2) any settlement or compromise of any such Recovery Claim
effected by the Bank with the claimant (including Borrower), this Agreement and
the security interests granted Bank hereunder shall continue in effect with
respect to the amount so repaid to the same extent as if such amount had never
originally been received by the Bank, notwithstanding any prior termination of
this Agreement, the return of this Agreement to Borrower, or the cancellation of
any note or other instrument evidencing Borrower's Liabilities. Borrower may not
sell, assign or transfer this Agreement, or the Other Agreements or any portion
thereof.
8.4 Bank's failure to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Bank of an Event of Default by Borrower under this
Agreement or the Other Agreements shall not suspend, waive or affect any
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other Event of Default by Borrower under this Agreement or the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the Other Agreements
and no Event of Default by Borrower under this Agreement or the Other Agreements
shall be deemed to have been suspended or waived by Bank unless such suspension
or waiver is by an instrument in writing signed by an officer of Bank and
directed to Borrower specifying such suspension or waiver.
8.5 If any provision of this Agreement or the Other Agreements or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Agreement and the Other Agreements
shall be severable in any such instance.
8.6 This Agreement and the Other Agreements shall be binding upon and
inure to the benefit of the successors and assigns of Borrower and Bank. This
provision, however, shall not be deemed to modify Paragraph 8.3 hereof.
8.7 Borrower hereby appoints Bank as Borrower's agent and
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing any agreement, instrument or
document which Bank may reasonably deem necessary or advisable to accomplish the
purposes hereof which appointment is irrevocable and coupled with an interest.
All monies paid for the purposes herein, and all costs, fees and expenses paid
or incurred in connection therewith, shall be part of Borrower's Liabilities,
payable by Borrower to Bank on demand.
8.8 This Agreement, or a carbon, photographic or other reproduction of
this Agreement or of any Uniform Commercial Code financing statement covering
the Collateral or any portion thereof, shall be sufficient as a Uniform
Commercial Code financing statement and may be filed as such.
8.9 Except as otherwise provided in the Other Agreements, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in the Other Agreements, the provision contained in this Agreement
shall govern and control.
8.10 Except as otherwise specifically provided in this Agreement,
Borrower waives any and all notice or demand which Borrower might be entitled to
receive by virtue of any applicable statute or law, and waives presentment,
demand and protest and notice of presentment, protest, default, dishonor,
non-payment, maturity, release, compromise, settlement, extension or renewal of
any and all agreements, instruments or documents at any time held by Bank on
which Borrower may in any way be liable.
8.11 Until Bank is notified by Borrower to the contrary in writing by
registered or certified mail directed to Bank's principal place of business, the
signature upon this Agreement or upon any of the Other Agreements of any
partner, manager, employee or agent of the Borrower, or of any other Person
designated in writing to Bank by any of the foregoing, shall bind Borrower and
be deemed to be the duly authorized act of Borrower.
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8.12 This Agreement and the Other Agreements shall be governed and
controlled by the internal laws of the State of Illinois; and not the law of
conflicts.
8.13 If at anytime or times hereafter, whether or not Borrower's
Liabilities are outstanding at such time, Bank: (a) employs counsel for advice
or other representation, (i) with respect to the Collateral, this Agreement, the
Other Agreements or the administration of Borrower's Liabilities, (ii) to
represent Bank in any litigation, arbitration, contest, dispute, suit or
proceeding or to commence, defend or intervene or to take any other action in or
with respect to any litigation, arbitration, contest, dispute, suit or
proceeding (whether instituted by Bank, Borrower or any other Person) in any way
or respect relating to the Collateral, this Agreement, the Other Agreements, or
Borrower's affairs, or (iii) to enforce any rights of Bank against Borrower or
any other Person which may be obligated to Bank by virtue of this Agreement or
the Other Agreements, including, without limitation, any Obligor; (b) takes any
action with respect to administration of Borrower's Liabilities or to protect,
collect, sell, liquidate or otherwise dispose of the Collateral; and/or (c)
attempts to or enforces any of Bank's rights or remedies under this Agreement or
the Other Agreements, including, without limitation, Bank's rights or remedies
with respect to the Collateral, the reasonable costs and expenses incurred by
Bank in any manner or way with respect to the foregoing, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
8.14 BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE
COLLATERAL SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
8.15 BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (II) ARISING FROM
ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS, OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
HUGHES & ASSOCIATES, INC.,
a Tennessee corporation
By:
----------------------------------
14
<PAGE> 15
Its:
----------------------------------
Accepted this 21st day of August, 1996, at Bank's principal place of
business in the City of Chicago, State of Illinois.
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By:
---------------------------
Its:
---------------------------
15
<PAGE> 1
EXHIBIT 10.16
[AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO LOGO]
PROMISSORY NOTE (SECURED)
$1,000,000.00
CHICAGO, ILLINOIS AUGUST 21, 1996
DUE OCTOBER 31, 1997
FOR VALUE RECEIVED, the undersigned (jointly and severally if more than
one) ("Borrower"), promises to pay to the order of AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO ("Bank"), at its principal place of business in
Chicago, Illinois or such other place as Bank may designate from time to time
hereafter, the principal sum of ONE MILLION AND 00/100 DOLLARS, or such lesser
principal sum as may then be owed by Borrower to Bank hereunder, which sum shall
be due and payable on October 31, 1997.
Borrower's obligations and liabilities to Bank under this Note, and all
other obligations and liabilities of Borrower to Bank (including without
limitation all debts, claims and indebtedness) whether primary, secondary,
direct, contingent, fixed or otherwise, including those evidenced in rate
hedging agreements designed to protect the Borrower from the fluctuation of
interest rates, heretofore, now and/or from time to time hereafter owing, due or
payable, however evidenced, created, incurred, acquired or owing and however
arising, whether under this Note, any agreement, instrument or document
heretofore, now or from time to time hereafter executed and delivered to Bank by
or on behalf of Borrower, or by oral agreement or operation of law or otherwise
shall be defined and referred to herein as "Borrower's Liabilities."
The unpaid principal balance of Borrower's Liabilities due hereunder
shall bear interest from the date of disbursement until paid, computed as
follows: AT A DAILY RATE EQUAL TO THE DAILY RATE EQUIVALENT OF 0.00% PER ANNUM
(computed on the basis of a 360-day year and actual days elapsed) IN EXCESS OF
the rate of interest announced or published publicly from time to time by Bank
as its prime or base rate of interest (THE "BASE Rate"); provided, however, that
in the event that any of Borrower's Liabilities are not paid when due, the
unpaid amount of Borrower's Liabilities shall bear interest after the due date
until paid at a rate equal to the sum of the rate that would otherwise be in
effect plus 3%.
The rate of interest to be charged by Bank to Borrower shall fluctuate
hereafter from time to time concurrently with, and in an amount equal to, each
increase or decrease in the Base Rate, whichever is applicable.
Accrued interest shall be payable by Borrower to Bank on the same day
of each month, commencing with the last day of August, 1996, or as billed by
Bank to Borrower, at Bank's principal place of business, or at such other place
as Bank may designate from time to time hereafter. After maturity, accrued
interest on all of Borrower's Liabilities shall be payable on demand.
<PAGE> 2
Borrower warrants and represents to Bank that Borrower shall use the
proceeds represented by this Note solely for proper business purposes and
consistently with all applicable laws and statutes.
To secure the prompt payment to Bank of Borrower's Liabilities and the
prompt, full and faithful performance by Borrower of all of the provisions to be
kept, observed or performed by Borrower under this Note and/or any other
agreement, instrument or document heretofore, now and/or from time to time
hereafter delivered by or on behalf of Borrower to Bank, Borrower grants to Bank
a security interest in and to the following property: (a) all of Borrower's now
existing and/or owned and hereafter arising or acquired monies, reserves,
deposits, deposit accounts and interest or dividends thereon, securities, cash,
cash equivalents and other property now or at any time or times hereafter in the
possession or under the control of Bank or its bailee for any purpose; (b)
CERTAIN BUSINESS ASSETS OF BIRMAN & ASSOCIATES, INC., A TENNESSEE CORPORATION,
PURSUANT TO LOAN AND SECURITY AGREEMENT OF EVEN DATE HEREWITH AS AMENDED FROM
TIME TO TIME BY AND BETWEEN BORROWER AND BANK, AND HUGHES & ASSOCIATES, INC., A
TENNESSEE CORPORATION, PURSUANT TO LOAN AND SECURITY AGREEMENT OF EVEN DATE
HEREWITH AS AMENDED FROM TIME TO TIME BY AND BETWEEN BORROWER AND BANK; and (c)
all substitutions, renewals, improvements, accessions or additions thereto,
replacements, offspring, rents, issues, profits, returns, products and proceeds
thereof, including without limitation proceeds of insurance policies insuring
the foregoing collateral (all of the foregoing property is referred to herein
individually and collectively as "Collateral").
Regardless of the adequacy of the Collateral, any deposits or other
sums at any time credited by or payable or due from Bank to Borrower, or any
monies, cash, cash equivalents, securities, instruments, documents or other
assets of Borrower in the possession or control of Bank or its bailee for any
purpose, may be reduced to cash and applied by Bank to or setoff by Bank against
Borrower's Liabilities.
Borrower agrees to deliver to Bank immediately upon Bank's demand, such
additional collateral as Bank may request from time to time should the value of
the Collateral (in Bank's sole and exclusive opinion) decline, deteriorate,
depreciate or become impaired, or should Bank deem itself insecure for any
reason whatsoever, including without limitation a change in the financial
condition of Borrower or any party liable with respect to Borrower's
Liabilities, and does hereby grant to Bank a continuing security interest in
such other collateral, which shall be deemed to be a part of the Collateral.
Borrower shall execute and deliver to Bank, at any time upon Bank's demand, all
agreements, instruments, documents and other written matter that Bank may
request, in form and substance acceptable to Bank, to perfect and maintain
perfected Bank's security interest in the Collateral or any additional
collateral. Borrower agrees that a carbon, photographic or photostatic copy, or
other reproduction, of this Note or of any financing statement, shall be
sufficient as a financing statement.
Bank may take, and Borrower hereby waives notice of, any action from
time to time that Bank may deem necessary or appropriate to maintain or protect
the Collateral, and Bank's security interest therein, and in particular Bank may
at any time (i) transfer the whole or any part of the Collateral into the name
of the Bank or its nominee, (ii) collect any amounts due on Collateral directly
from persons obligated thereon, (iii) take control of any proceeds and products
of
2
<PAGE> 3
Collateral, and/or (iv) sue or make any compromise or settlement with respect to
any Collateral. Borrower hereby releases Bank from any and all causes of action
or claims which Borrower may now or hereafter have for any asserted loss or
damage to Borrower claimed to be caused by or arising from: (a) Bank's taking
any action permitted by this paragraph; (b) any failure of Bank to protect,
enforce or collect in whole or in part any of the Collateral; and/or (c) any
other act or omission to act on the part of Bank, its officers, agents or
employees, except for willful misconduct.
The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Note: (a) if Borrower
fails to pay any of Borrower's Liabilities when due and payable or declared due
and payable (whether by scheduled maturity, required payment, acceleration,
demand or otherwise); (b) if Borrower or any guarantor of any of Borrower's
Liabilities fails or neglects to perform, keep or observe any term, provision,
condition, covenant, warranty or representation contained in this Note; (c)
occurrence of a default or event of default under any agreement, instrument or
document heretofore, now or at any time hereafter delivered by or on behalf of
Borrower to Bank; (d) occurrence of a default or an event of default under any
agreement, instrument or document heretofore, now or at any time hereafter
delivered to Bank by any guarantor of Borrower's Liabilities or by any person or
entity which has granted to Bank a security interest or lien in and to some or
all of such person's or entity's real or personal property to secure the payment
of Borrower's Liabilities; (e) if the Collateral or any other of Borrower's
assets are attached, seized, subjected to a writ, or are levied upon or become
subject to any lien or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors; (f) if a notice of lien,
levy or assessment is filed of record or given to Borrower with respect to all
or any of Borrower's assets by any federal, state or local department or agency;
(g) if Borrower or any guarantor of Borrower's Liabilities becomes insolvent or
generally fails to pay or admits in writing its inability to pay debts as they
become due, if a petition under Title 11 of the United States Code or any
similar law or regulation is filed by or against Borrower or any such guarantor,
if Borrower or any such guarantor shall make an assignment for the benefit of
creditors, if any case or proceeding is filed by or against Borrower or any such
guarantor for its dissolution or liquidation, or if Borrower or any such
guarantor is enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs; (h) the death or
incompetency of Borrower or any guarantor of Borrower's Liabilities, or the
appointment of a conservator for all or any portion of Borrower's assets or the
Collateral; (i) the revocation, termination or cancellation of any guaranty of
Borrower's Liabilities without written consent of Bank; (j) if a contribution
failure occurs with respect to any pension plan maintained by Borrower or any
corporation, trade or business that is, along with Borrower, a member of a
controlled group of corporations or a controlled group of trades or businesses
(as described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or
Section 4001 of the Employee Retirement Income Security Act of 1974, as amended,
"ERISA") sufficient to give rise to a lien under Section 302(f) of ERISA; (k) if
Borrower or any guarantor of Borrower's Liabilities is in default in the payment
of any obligations, indebtedness or other liabilities to any third party and
such default is declared and is not cured within the time, if any, specified
therefor in any agreement governing the same; (l) if any material statement,
report or certificate made or delivered by Borrower, any of Borrower's partners,
officers, employees or agents or any guarantor of Borrower's Liabilities is not
true and correct; or (m) if Bank is reasonably insecure.
3
<PAGE> 4
Upon the occurrence of an Event of Default, at Bank's option, without
notice by Bank to or demand by Bank of Borrower: (i) all of Borrower's
Liabilities shall be immediately due and payable; (ii) Bank may exercise any one
or more of the rights and remedies accruing to a secured party under the Uniform
Commercial Code of the relevant jurisdiction and any other applicable law upon
default by a debtor; (iii) Bank may enter, with or without process of law and
without breach of the peace, any premises where the Collateral is or may be
located, and may seize or remove the Collateral from said premises and/or remain
upon said premises and use the same for the purpose of collecting, preparing and
disposing of the Collateral; and/or (iv) Bank may sell or otherwise dispose of
the Collateral at public or private sale for cash or credit, provided, however,
that Borrower shall be credited with the net proceeds of any such sale only when
the same are actually received by Bank.
Upon an Event of Default, Borrower, immediately upon demand by Bank,
shall assemble the Collateral and make it available to Bank at a place or places
to be designated by Bank which is reasonably convenient to Bank and Borrower.
All of Bank's rights and remedies under this Note are cumulative and
non-exclusive. The acceptance by Bank of any partial payment made hereunder
after the time when any of Borrower's Liabilities become due and payable will
not establish a custom or waive any rights of Bank to enforce prompt payment
hereof. Bank's failure to require strict performance by Borrower of any
provision of this Note shall not waive, affect or diminish any right of Bank
thereafter to demand strict compliance and performance therewith. Any waiver of
an Event of Default hereunder shall not suspend, waive or affect any other Event
of Default hereunder. Borrower and every endorser waive presentment, demand and
protest and notice of presentment, protest, default, non-payment, maturity,
release, compromise, settlement, extension or renewal of this Note, and hereby
ratify and confirm whatever Bank may do in this regard. Borrower further waives
any and all notice or demand to which Borrower might be entitled with respect to
this Note by virtue of any applicable statute or law (to the extent permitted by
law).
Borrower agrees to pay, immediately upon demand by Bank, any and all
costs, fees and expenses (including reasonable attorneys' fees, costs and
expenses) incurred by Bank (i) in enforcing any of Bank's rights hereunder, and
(ii) in representing Bank in any litigation, contest, suit or dispute, or to
commence, defend or intervene or to take any action with respect to any
litigation, contest, suit or dispute (whether instituted by Bank, Borrower or
any other person) in any way relating to this Note, Borrower's Liabilities or
the Collateral, and to the extent not paid the same shall become part of
Borrower's Liabilities.
This Note shall be deemed to have been submitted by Borrower to Bank
and to have been made at Bank's principal place of business. This Note shall be
governed and controlled by the internal laws of the State of Illinois and not
the law of conflicts.
Advances under this Note may be made by Bank upon oral or written
request of any person authorized to make such requests on behalf of Borrower
("Authorized Person"). Borrower agrees that Bank may act on requests which Bank
in good faith believes to be made by an Authorized Person, regardless of whether
such requests are in fact made by an Authorized Person. Any such advance shall
be conclusively presumed to have been made by Bank to or for the benefit of
4
<PAGE> 5
Borrower. Borrower does hereby irrevocably confirm, ratify and approve all such
advances by Bank and agrees to indemnify Bank against any and all losses and
expenses (including reasonable attorneys' fees) and shall hold Bank harmless
with respect thereto.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER IRREVOCABLY AGREES THAT,
SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS NOTE SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR IN
CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR
(II) ARISING FROM ANY DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO
THIS NOTE OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES
THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
502 Gould Drive BIRMAN & ASSOCIATES, INC.
Cookeville, Tennessee 38501 a Tennessee corporation
BY: _____________________
ITS: ____________________
________________________________
Federal Employer Identification Number
HUGHES & ASSOCIATES, INC.
a Tennessee corporation
BY: _____________________
ITS: ____________________
________________________________
Federal Employer Identification Number
5
<PAGE> 1
EXHIBIT 10.17
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this _____ day of ________________, ____ between
Birman Managed Care, Inc., a Delaware corporation (the "Company") and
____________________ ("Indemnitee").
Recitals.
1. Indemnitee is a member of the Board of Directors or is an executive
officer of the Company and in such capacity is performing valuable services for
the Company.
2. The Bylaws of the Company provide for the indemnification of its
officers and directors as permitted by the General Corporation Law of the State
of Delaware (the "Delaware Law"). Such Bylaws and the Delaware Law specifically
provide that they are not exclusive, and thereby contemplate that contracts may
be entered into between the Company and members of its Board of Directors and
its executive officers with respect to indemnification of such directors and
officers.
To induce Indemnitee to continue to serve as a member of the Board of
Directors and/or an executive officer of the Company, the parties hereto hereby
agree as follows:
1. Indemnity of Indemnitee. The Company agrees to hold harmless and
indemnify Indemnitee to the fullest extent permitted by Section 145 of the
Delaware Law, any amendment thereof and other statutory provisions permitting
such indemnification that may be adopted after the date of this Agreement.
2. Additional Indemnity. Subject to the exclusions set forth in Section
3 of this Agreement, the Company further agrees to hold harmless and indemnify
the Indemnitee against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action brought in the right of the Company) to which Indemnitee
is, was or at any time becomes a party, or is threatened to be made a party, by
reason of the fact that Indemnitee is, was or at any time becomes a director,
officer, employee or agent of the Company, or is or was serving or at any time
serves at the request of the Company as a director, officer, partner, manager,
employee or agent of another corporation, partnership, limited liability
company, joint venture, trust or other enterprise.
3. Limitations on Additional Indemnity. No indemnity pursuant to
Section 2 of this Agreement shall be paid by the Company:
<PAGE> 2
(a) if Indemnitee is indemnified for such losses pursuant to
the Bylaws of the Company, or pursuant to any policy of directors and
officers liability insurance purchased and maintained by the Company;
(b) in respect to remuneration paid to Indemnitee if it shall
be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any suit in which judgment is rendered
against a Indemnitee for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Company pursuant to
the provisions of securities of the Company pursuant to the provisions
of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules promulgated thereunder or similar
provisions of any other federal, state or local statutory law;
(d) on account of any liability derived from a failure of the
Indemnitee to timely file with the U.S. Securities and Exchange
Commission any reports and notices under Sections 13 or 16(a) of the
Exchange Act;
(e) on account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct; or
(f) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is unlawful.
4. Continuation of Indemnity. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of the Company (or is or was serving at the
request of the Company as a director, officer, partner, manager, employee or
agent of another corporation, partnership, limited liability company, joint
venture, trust or other enterprise) and shall continue thereafter so long as
Indem- nitee shall be subject to any possible claim or threatened, pending or
completed action, suit, proceeding, whether civil, criminal or investigative, by
reason of the fact that Indemnitee was a director of the Company or serving in
any other capacity referred to herein.
5. Notification and Defense of Claim. Promptly after receipt by
Indemnitee of notice of the commencement of any action, suit or proceeding,
Indemnitee shall, if a claim in respect thereof is to be made against the
Company under this Agreement, notify the Company of the commencement thereof;
but the omission so to notify the Company will not relieve it from any liability
which it may have to Indemnitee otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to which Indemnitee notifies
the Company of the commencement thereof:
2
<PAGE> 3
(a) The Company shall be entitled to participate therein at
its own expense; and
(b) Except as otherwise provided below, to the extent that it
may wish, the Company jointly with any other indemnifying party
similarly notified will be entitled to assume the defense thereof, with
counsel reasonably acceptable to Indemnitee. After notice from the
Company to Indemnitee of its election so to assume the defense thereof,
the Company will not be liable to Indemnitee under this Agreement for
any legal or other expense subsequently incurred by Indemnitee in
connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the
right to employ counsel of his own choice in such action, suit or
proceeding, provided that the fees and expenses of any such counsel
incurred after notice from the Company of its assumption of the defense
thereof shall be the sole obligation of Indemnitee unless (i) the
employment of such counsel by Indemnitee has been authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may
be a conflict of interest between the Company and Indemnitee in the
conduct of the defense of such action, or (iii) the Company shall not
have employed counsel to assume the defense of such action, in each of
which cases the fees and expenses of such counsel shall be at the
expense of the Company. The Company shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of
the Company or as to which Indemnitee shall have made the conclusion
provided for in (ii) above.
(c) The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent. The Company shall not
settle any action or claim in any manner which would impose any penalty
or limitation on Indemnitee without Indemnitee's written consent.
Neither the Company nor Indemnitee will unreasonably withhold their
consent to any proposed settlement.
6. Advancement and Repayment of Expenses. Expenses incurred by
Indemnitee in defending any action, suit or proceeding referred to in Sections 1
or 2 of this Agreement shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the Indemnitee to repay such amount if it shall ultimately be
determined that the Indemnitee is not entitled to indemnification by the Company
for such expenses under provisions of the Delaware Law, the Bylaws of the
Company, this Agreement, or otherwise. Indemnitee agrees to reimburse the
Company in accordance with any such undertaking.
7. Enforcement
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to
3
<PAGE> 4
induce Indemnitee to continue as a director or officer of the Company,
and acknowledges that Indemnitee is relying upon this Agreement in
continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect monies due under this Agreement and is
successful in such action, the Company shall reimburse Indemnitee for
all of Indemnitee's reasonable fees and expenses in bringing and
pursuing such action (including attorneys' fees at any stage including
on appeal).
8. Severability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others. If any provisions hereof
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof.
9. Governing Law; Binding Effect; Amendment and Termination.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnitee and upon
the Company, its successors and assigns, and shall inure to the benefit
of Indemnitee, his or her heirs, personal representatives and assigns
and to the benefit of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both
parties hereto.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
BIRMAN MANAGED CARE, INC.: INDEMNITEE:
By:
------------------------ --------------------------
President
5
<PAGE> 1
Exhibit 10.18
BIRMAN MANAGED CARE, INC.
EXECUTIVE BONUS PLAN DOCUMENT
1. Purpose:
The Birman Managed Care, Inc. Executive Bonus Plan (the "Plan") is for
executive employees to earn incentive compensation based on his or her
individual performance and/or the financial performance of BIRMAN MANAGED CARE,
INC. and its subsidiaries (collectively referred to herein as the "Company").
The effective date of this Plan Document is March 1, 1996.
2. Certain Definitions:
(a) "BOARD" means the Board of Directors of the Company.
(b) "BONUS EARNED" means the amount of incentive compensation that is
payable to a Participant under the Plan with respect to any Bonus Year.
(c) "BONUS YEAR" means that fiscal year with respect to which the
amount of a Bonus is determined.
(d) "COMMITTEE" means the Compensation Committee of the Board of
Directors.
(e) "EXECUTIVE" shall have the meaning ascribed in Section 4.
(f) "EXECUTIVE OFFICER" means any "Officer" as defined in Rule 16a-1(f)
of the Securities Exchange Act of 1934 of the Parent Company and such other
person as may be designated by the Committee to be an Executive Officer or by
the Board of Directors of the Parent Company.
(g) "NET REVENUE" means gross revenue of the company and subsidiaries
net of any reserve or allowance for doubtful accounts. Net revenue for operating
health plans which are consolidated is defined as total gross premium less
reserves for doubtful accounts and direct medical expenses.
(h) "PARTICIPANT" has the meaning ascribed in Section 4.
(i) "PLAN" means this Executive Bonus Plan, as the same may be amended
from time to time.
(j) "MAXIMUM BONUS AMOUNT" is the Participant's annual salary
multiplied against the "Target Bonus Percentage".
1
<PAGE> 2
(k) "PARENT COMPANY" means Birman Managed Care, Inc.
(l) "TARGET BONUS PERCENTAGE" means the percentage applicable to the
Participant's annual base salary as further defined under section 5.
(m) "OPERATING PROFIT" means an amount equal to net revenue less the
following expense categories: cost of revenue, general and administrative,
research and development and accrued executive bonuses all calculated consistent
with the Company's accounting policies in accordance with generally accepted
accounting principals.
(n) "OPERATING PROFIT PERCENTAGE" means a percentage amount equal to
Operating Profit divided by Net Revenue.
3. Administration:
This Plan shall be administered by the Committee. The Committee shall
hold meetings at such times and places as it may determine. Acts approved by a
majority of the members of the Committee shall be the valid acts of the
Committee. The interpretation and construction by the Committee of any provision
of the Plan shall be final, binding and conclusive.
4. Eligibility:
Each person who on June 30th of the Bonus Year is employed by the
Company and who is or has been designated "Executive" by the Board of Directors
and who does not have an alternative incentive program shall be a participant
("Participant") in the Plan and shall be eligible to participate in the Plan for
all or any portion of the Bonus Year as to which such person participated. Any
person who is initially hired by the Company during a Bonus Year and who is
designated as a Participant shall participate in that portion of the Bonus Year
equal to the number of months such person was employed by the Company divided by
twelve (12). For this purpose, a person shall be treated as employed as of the
first day of the calendar month in which they were hired if they were hired on
or before the 15th day of the month. All other persons shall be treated as
employed as of the first day of the calendar month following his or her date of
hire. Any person whose employment with the Company terminated during the Bonus
Year for any reason other than death, disability or retirement, shall
participate in the Plan only with respect to that portion of the Bonus year
equal to the number of months such person was employed by the Company divided by
twelve (12). Notwithstanding anything to the contrary contained in the Plan, for
the purpose of determining any Participant's entitlement to any Bonus under any
section of the Plan, the Committee may designate the status of such Participant
as either an Executive or as an Executive Officer solely for the purpose of
applying any specific provision of the Plan without regard to such Participant's
status as either an Executive Officer or as an Executive for purpose of applying
any other provisions of the Plan.
2
<PAGE> 3
5. Calculation of Maximum Bonus Amount:
The Maximum Bonus Amount is based on several components. First the Maximum Bonus
Amount is determined based on the Participant's annual base salary multiplied by
the Target Bonus Percentage from the following table.
Net Revenue Target Bonus Percentage
- ------------------------ -----------------------
Less than 10 Million 50%
10 Million to 50 Million 100%
Over 50 Million 200%
After the Maximum Bonus Amount has been determined, then the Bonus Earned will
be calculated.
6. Calculation of Bonus Earned:
To determine how much of the Maximum Bonus Amount has been earned, the following
three parameters will be reviewed: Company profitability, Net Revenue Growth,
and individual performance. No more than 100% of the Maximum Bonus Amount can be
earned in any one fiscal year. The criteria of each portion is described below:
PORTION A - COMPANY PROFITABILITY: Portion A is based upon the year end
consolidated financial performance of the Company. The Maximum Bonus Amount will
be multiplied by the applicable Bonus Percentage Earned as set forth below to
determine the amount that will be paid under this portion of the Plan.
Operating Profit Percentage Bonus Percentage Earned
- --------------------------- -----------------------
Less than 5% 0.0%
5% thru 10% 10.0%
11% thru 15% 20.0%
16% thru 20% 30.0%
21% thru 25% 40.0%
26% thru 29% 50.0%
30% or greater 60.0%
PORTION B - REVENUE GROWTH: Portion B is based on the achievement of revenue
growth goals established by the Company at the beginning of each fiscal year and
approved by the Committee. The amount of Bonus Earned will be determined based
on the percentage of Net Revenue growth achieved as a percentage of the goal
established by the Company at the beginning of the year. The Company's annual
audited financial statements will be used to determine achievement of the
revenue growth goals established at the beginning of the year. The Maximum Bonus
Amount will be multiplied by the
3
<PAGE> 4
applicable Percentage of Bonus Earned as set forth below to determine the amount
that will be paid under this portion of the Plan.
Revenue Growth Goals Achieved Bonus Earned Percentage
- ----------------------------- -----------------------
Less than 50% of Growth Goal 0.0%
50% to 74% of Growth Goal 20.0%
75% to 94% of Growth Goal 30.0%
95% to 99% of Growth Goal 40.0%
100% to 110% of Growth Goal 50.0%
Over 110% of Growth Goal 60.0%
PORTION C - INDIVIDUAL PERFORMANCE: Portion C is based on the Participant's
individual performance, achievement of goals and contribution to the Company
during the Bonus Year. The Participant can earn up to 10% of the Maximum Bonus
Amount under this portion of the Plan.
MAXIMUM BONUS AMOUNT TO BE PAID:
Even though it is possible for the sum of portions A, B and C to exceed 100%,
the maximum that will be awarded in any bonus year is the Maximum Bonus Amount
as defined in section 5.
7. Payment of Bonus Amount Earned:
Bonuses will normally be paid three months after the fiscal year end.
Alternative payment arrangements can be approved by the Committee.
4
<PAGE> 1
Exhibit 10.19
AGREEMENT
THIS AGREEMENT, made and entered into this day of April, 1996, is
between National Benefit Resources, Inc. ("NBR") and Birman Managed Care, Inc.
(the "Company").
R E C I T A L S
A. Pursuant to that certain Subscription Agreement of even date
herewith (the "Subscription Agreement"), between the Company and NBR, NBR has
agreed to acquire newly issued shares (the "Acquired Shares") of the common
stock of the Company ("Common Stock").
B. By letter dated April 4, 1996 (the "April 4 Letter") incorporated
herewith as Exhibit "A" and made a part hereof as though fully set forth herein
from BMC Health Plans, Inc., a wholly-owned subsidiary of the Company ("BMC"),
NBR and BMC have agreed that NBR would seek to manage and provide fronting
carriers which would issue excess risk, fully-insured, provider excess and other
ancillary insurance products, including group life and accidental death and
disability (collectively "Covered Products") to managed care plans and/or their
respective participants (collectively "Covered Plans") as to which BMC has
provided services with respect to plan delivery, system formation, development
or implementation, or ongoing operations, marketing and management services
(collectively "Covered Services").
C. As a condition to its execution and performance of the Subscription
Agreement, incorporated herewith as Exhibit "B" and made a part hereof as though
fully set forth herein NBR requires that the Company enter into this Agreement,
and the Company is willing to do so.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties to this Agreement agree as follows:
ARTICLE I
DIRECTOR DESIGNATION AND OTHER RIGHTS
1.1 BOARD DESIGNEES. Throughout the five (5) year term of the April 4
Letter (the "Term"), the Company agrees that it shall cause:
(a) one or more individuals designated by NBR to be elected to
serve as a director of each affiliate of the Company which is engaged
in the provision of Covered Services (each an "Affiliated Service
Provider"), it being agreed that NBR shall be entitled to designate no
more than one director for each Affiliated Service Provider;
<PAGE> 2
(b) the maintenance in office of each such designee until such
designee is removed pursuant to this Section 1.1 or shall no longer be
serving by reason of resignation, incapacity, retirement, or death; and
(c) the removal from office of any such designee upon the written
request of NBR.
1.2 DIRECTORS AND OFFICERS LIABILITY COVERAGE. Company shall use its
reasonable efforts to acquire and maintain or cause its Affiliated Service
Provider(s) to use reasonable efforts to acquire and maintain directors and
officers liability insurance at all times while an NBR designee is serving as a
director of Affiliated Service Provider(s) written on a claims occurrence basis
with a single occurrence limit of not less than one million dollars ($1,000,000)
and a general aggregate limit of not less than one million dollars ($1,000,000).
1.3 COVERED PRODUCTS. Throughout the Term, if any Covered Plan shall
desire to obtain any Covered Product, the Company agrees to cause each
Affiliated Service Provider to use its best efforts and relationships to cause
such Covered Plan to obtain such Covered Product through NBR on terms
substantially similar to those contemplated by the April 4 Letter; provided that
the Covered Products to which NBR has access and which are available to such
Covered Plan are reasonably responsive to the requirements of the Covered Plan
and reasonably price competitive.
1.4 FINANCIAL INFORMATION. Throughout the Term, the Company shall
deliver to NBR each of the following:
(a) within fifteen (15) days after the end of each calendar month
such regular monthly consolidated financial information as is prepared
for review by management of the Company;
(b) within forty-five (45) days after the end of each calendar
quarter (except for the last quarter of each fiscal year), an unaudited
consolidated balance sheet of the Company as of the end of such quarter
and related unaudited consolidated statement of operations, statement
of cash flow, and statement of changes in stockholders' equity, setting
forth in each case in comparative form the consolidated figures for the
corresponding period in the previous fiscal year;
(c) within fifteen (15) days after it files them with the
Securities and Exchange Commission (the "Commission") copies of the
annual report and of information, documents and other reports which the
Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 as amended (the "SEA");
2
<PAGE> 3
(d) within ninety (90) days after the end of each fiscal year, an
audited consolidated balance sheet of the Company as of the end of such
fiscal year and related audited consolidated statement of operations,
statement of cash flow, and statement of changes in stockholders'
equity for such fiscal year, setting forth in each case in comparative
form the consolidated figures for the corresponding period in the
previous fiscal year accompanied by the report thereon prepared by
independent auditors selected by the Company's board of directors; and
(e) with reasonable promptness, such other available financial
reports, information, and data with respect to the Company, any of its
affiliates as NBR may reasonably request from time to time, including
without limitation budgets, forecasts, cash flow projections and
statements and information relative thereto.
All such statements, reports, forms, information and data shall be provided
without cost to NBR and all such financial statements shall be prepared in
accordance with GAAP and shall fairly present the information contained therein,
subject, in the case of financial information other than that set forth in
Section 1.4(d) above, to normal year-end audit adjustments.
ARTICLE II
CONFIDENTIALITY, RESTRICTIONS ON ACCESS
2.1 USE OF COMPANY CONFIDENTIAL INFORMATION. NBR shall use commercially
reasonable efforts to maintain in confidence from other than its agents and
employees and to refrain, and to cause its agents and its employees to refrain,
from disclosing any information obtained by it pursuant to Section 1.4 hereof
which is proprietary to the Company ("Company Confidential Information") without
the prior written consent of the Company. NBR shall exercise the same degree of
care to safeguard the secrecy and prevent the unauthorized disclosure of Company
Confidential Information as it uses with respect to its own proprietary
information, but in no event less than reasonable care.
2.2 EXCEPTIONS. The obligations of confidentiality set forth in Section
2.1 above shall not apply to Company Confidential Information which NBR can
reasonably demonstrate:
(a) was already known to NBR prior to receipt thereof from the
Company;
(b) was developed by employees of NBR having no access to such
Company Confidential Information;
(c) has become public knowledge through no breach of this
Agreement;
3
<PAGE> 4
(d) has been made available to NBR by a third party without any
breach of confidence on its part;
(e) is material to any litigation or arbitration proceeding
initiated by any party to this Agreement in connection with a dispute
arising out of this Agreement; or
(f) is required to be disclosed by order of a governmental agency
or court having jurisdiction over such Holder or by any law, rule or
regulation or pursuant to any listing agreement with or the rules of
any stock exchange or upon the request of any stock exchange.
2.3 RESTRICTIONS ON ACCESS. The Company shall not be obligated to
prepare or furnish any document or report which would disclose any information
that the Company is at that time precluded from disclosing to NBR by reason of
government regulation, contractual obligation, or other restrictions arising by
operation of law. During the Term, the Company shall not enter into any
contractual obligation (other than a contractual obligation concerning
information which is the subject of the immediately following sentence) that
limits the Company's freedom to disclose Company Confidential Information to
NOR; provided, however, that the Company may enter into any initial
confidentiality agreements as it may reasonably determine are necessary to
evaluate a potential transactions with third parties and which precludes it from
disclosing to those not having a need to know information and data concerning
such third party.
ARTICLE III
REGISTRATION RIGHTS
3.1 PIGGYBACK REGISTRATIONS RIGHT TO PIGGYBACK. If at any time (whether
or not during the Term), prior to the expiration of the Company's holding period
under 144(k), the Company proposes to cause a registration statement (a
"Registration") under the Securities Act of 1933 as amended (the "Securities
Act") to become effective with respect to any shares of its Common Stock (other
than a Registration statement on Form S-4 or S-8 or any successor or similar
forms), and the Registration form to be used may be used for a secondary
offering of Common Stock (a "Piggyback Registration") and at the time thereof
NBR or any transferee thereof which has acquired all of the Acquired Shares
(herein a "Holder") continues to hold any Acquired Shares which have not then
previously been the subject of a Registration, the Company will give written
notice of such determination to the Holder, not less than ten (10) business days
prior to the projected filing of a Registration statement with the Commission,
and if a Piggyback Registration is requested by written notice from the Holder
to the Company within ten (10) business days after receipt of the aforesaid
notice, the Company, to the extent permitted by law,
4
<PAGE> 5
and subject to any underwriter cutbacks which will be enforced pro rata against
all persons holding piggyback rights shall include in such Registration all
Acquired Shares held thereby.
3.2 REGISTRATION PROCEDURES. If and whenever the Company effects a
Registration which is to include a Piggyback Registration, the Company will as
expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration statement
on the appropriate form with respect to the shares proposed to be
registered and use its reasonable commercial efforts to cause such
registration statement to become effective (provided that before filing
a registration statement or prospectus or any amendments or supplements
thereto, the Company shall furnish to the counsel selected by Holder
copies of all such documents proposed to be filed including all drafts
thereof, which documents shall be subject to the prior review of such
counsel reasonably prior to such filing);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period of the lesser of sixty (60) calendar
days or the completion of the plan of distribution described in such
prospectus and comply with the provisions of the Securities Act with
respect to the disposition of all shares covered by such registration
statement during such period in accordance with the intended methods of
disposition set forth in such registration statement;
(c) furnish to the Holder such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as the Holder may
reasonably request in order to facilitate the disposition of the
Acquired Shares;
(d) use its reasonable commercial efforts to register or qualify
the Acquired Shares under such other securities or blue sky laws of
such jurisdictions as the Holder reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the Holder to consummate the disposition of the Acquired Shares
in such jurisdictions (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection,
(ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction, if in
the opinion of counsel reasonably acceptable to the Holder, any of such
actions in this clause (iv) would occur or result);
(e) notify the Holder, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event or the
5
<PAGE> 6
receipt of any information as a result of which the prospectus included
in such registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the statements
therein not misleading, and prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
shares of Common Stock, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) enter into such customary agreements (including underwriting
agreements in customary form) and use its reasonable best efforts to
take all such other actions in order to expedite or facilitate the
disposition of the Acquired Shares;
(g) comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months beginning with the first day of the Company's first
full calendar quarter after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(h) permit the Holder to participate in the preparation of such
registration statement and to require the insertion therein of written
material concerning the Holder (and any person included therein) and
the intended method of distribution, furnished to the Company in
writing, which in the reasonable judgment of the Holder and its counsel
should be included;
(i) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the
qualification of any shares of Common Stock included in such
registration statement for sale in any jurisdiction, use its reasonable
best efforts to promptly obtain the withdrawal of such order;
(j) cause, subject to applicable law and regulations, the Acquired
Shares to be listed on each securities exchange on which shares of
Common Stock are then listed and, if not so listed, to be listed on the
NASD automated quotation system; and
(k) use its best efforts to deliver an opinion of counsel to the
Company and a cold comfort letter from Company's independent public
accountants each in customary form and covering such matters of the
type customarily covered by such opinions and letters in an
underwritten offering.
3.3 REGISTRATION EXPENSES. All expenses to the Company or the Holder,
including reasonable attorneys fees, in connection with any Registration in
which any Acquired Shares are included will be paid by the Company
("Registration Expenses"); provided however, that the
6
<PAGE> 7
Holder will pay its attorney's fees and other expenses it incurs in connection
with the Piggyback Registration and shall be responsible for its pro rata share
of underwriters compensation. In addition, the Company will pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, and the expense of any liability
insurance.
3.4 INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by law,
the Holder, its officers and directors, each person who controls the Holder
(within the meaning of the Securities Act) and each underwriter for any
Registration against all loss, liability, claim, obligation, damage or
deficiency (including reasonably attorney's fees and all other expenses incurred
in investigating, preparing or defending any litigation or proceeding, commenced
or threatened) caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Company by or on behalf
of the Holder expressly for use therein or arises out of such the Holder's
failure to deliver a copy of the final prospectus to the person asserting such
claim or loss at or prior to the written confirmation of the sale of Acquired
Shares by the Holder to such person, provided the untrue statement or omission
was corrected in the final prospectus and the Company furnished such person with
sufficient copies of the final prospectus for delivery to such person.
(b) Each Holder, by availing itself of registration pursuant to the
terms hereof, agrees to indemnify the Company, its directors and officers, each
person who controls the Company (within the meaning of the Securities Act) and
each underwriter for any Registration against any loss, liability, claim,
obligation, damage or deficiency (including reasonably attorney's fees and all
other expenses incurred in investigating, preparing or defending any litigation
or proceeding, commenced or threatened) resulting from any untrue or alleged
untrue statement of material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only if, and to the extent that, such statement or omission was in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such Holder specifically for use in the preparation of such
Registration statement.
(c) Any person entitled to indemnification hereunder will:
(i) give prompt written notice to the indemnifying party of any
claim with respect to which it seeks indemnification and
7
<PAGE> 8
(ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties
may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory
to the indemnified party.
If such defense is assumed, the indemnifying party will not be
subject to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be reasonably
withheld).
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of the Acquired Shares.
(e) In the event the indemnification provided for under this Agreement
is unavailable for any reason other than the exceptions to indemnification
contained herein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such Damages in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on one hand and the indemnified party on the other hand in connection with
the statements or omissions that resulted in such Damages, as well as any other
relevant equitable considerations. Notwithstanding the foregoing, no person
guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
3.5 SELECTION OF UNDERWRITERS. The Company will have the right to
select the investment banker(s) and manager(s) to administer the offering
pursuant to any Registration.
3.6 SEC FILINGS; PUBLIC INFORMATION. So long as NBR or its affiliates
holds unregistered Acquired Shares, the Company shall use commercially
reasonable efforts to file on a timely basis all reports required to be filed
pursuant to the SEA.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 EXPENSES. Each of the parties hereto shall bear its own costs, fees
and expenses in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, including without limitation fees, commissions
and expenses payable to brokers, finders, investment bankers, consultants,
exchange or transfer agents, attorneys, accountants and other professionals,
whether
8
<PAGE> 9
or not the transactions contemplated herein is consummated, except as may be
contemplated by Section 3 hereof.
4.2 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended or modified by the parties hereto; provided, however,
that all such amendments and modifications must be in writing duly executed by
the parties hereto.
4.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No single or partial exercise
of a right or remedy shall preclude any other or further exercise thereof or of
any other right or remedy hereunder. Whenever this Agreement requires or permits
the consent by or on behalf of a party, such consent shall be given in writing
in the same manner as for waivers of compliance.
4.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall
entitle any person or entity (other than a party hereto and his, her or its
respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind.
4.5 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be made in writing and shall be deemed to
have been duly given and effective: (i) on the date of delivery, if delivered
personally; (ii) on the earlier of the fourth (4th) day after mailing or the
date of the return receipt acknowledgement, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date of
transmission, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment:
If to the Company: Birman Managed Care, Inc.
502 Gould Drive
Cookeville, TN 38506
If to NBR: National Benefit Resources, Inc.
Suite 300
5402 Parkdale Drive
Minneapolis, MN 55416
9
<PAGE> 10
With a copy to: Oppenheimer Wolff & Donnelly
First Bank Building
Suite 1700
St. Paul, MN 55101
Attn: Dennis Whelpley
or to such other person or address as a party shall furnish to the other parties
hereto in writing in accordance with this subsection.
4.6 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned (whether voluntarily, involuntarily, by operation of law or
otherwise) by any of the parties hereto without the prior written consent of the
other parties.
4.7 GOVERNING LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
internal substantive laws of the State of Tennessee (without regard to the laws
of conflict that might otherwise apply) as to all matters, including without
limitation matters of validity, construction, effect, performance and remedies.
4.8 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
4.9 HEADINGS. The table of contents and the headings of the sections
and subsections of this Agreement are inserted for convenience only and shall
not constitute a part hereof.
4.10 ENTIRE AGREEMENT. This Agreement and all Exhibits hereto embody
the entire agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement and together they are referred to as
"this Agreement" or the "Agreement". There are no restrictions, promises,
warranties, agreements, covenants or undertakings, other than those expressly
set forth or referred to in this Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the
transaction or transactions contemplated by this Agreement.
4.11 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or the making, performance or interpretation thereof,
including without limitation alleged fraudulent inducement thereof, shall be
settled by binding arbitration in Minneapolis, Minnesota by one arbitrator
appointed in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Judgment upon any arbitration award may be entered in
any court having jurisdiction thereof.
10
<PAGE> 11
4.12 FURTHER ASSURANCES. Each party hereto shall, before, at and after
Closing, execute and deliver such instruments and take such other actions as the
other party or parties, as the case may be, may reasonably require in order to
carry out the intent of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BIRMAN MANAGED CARE,INC.
- -------------------------------- By:
Attest: -----------------------------------
Its:
-----------------------------
NATIONAL BENEFIT RESOURCES,
INC.
- -------------------------------- By:
Attest: ----------------------------------
Its:
-----------------------------
11
<PAGE> 1
EXHIBIT 11.1
BIRMAN MANAGED CARE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNING PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
Earnings Per Share:(1)
Common stock equivalents
Options and warrants granted and unexercised........................ 1,064,371 1,064,371
Assumed buyback of options(2)....................................... 270,019 270,019
--------- ---------
794,352 794,352
Total weighted average shares issued.................................. 6,931,082 6,931,082
--------- ---------
Weighted average shares outstanding................................... 7,725,434 7,725,434
========= =========
</TABLE>
- ---------------
(1) Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective years. All weighted average shares
outstanding give retroactive effect to the 1,000 to 1 stock split in
October, 1995 and the 72.939 for 100 exchange in September 1996. The Company
is planning an initial public offering of its common stock. Pursuant to
Securities and Exchange Commission rules, common stock issued for
consideration below the anticipated offering price per share during the
12-month period prior to filing of the registration statement has been
included in the calculation of common share equivalent shares, using the
treasury stock method, as if they had been outstanding for all periods
presented.
(2) Buyback of stock options under the treasury stock method is at the assumed
IPO price of $6.25 per share.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF BIRMAN MANAGED CARE, INC.
-----------------------------------------
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
Birman and Associates, Inc. Tennessee
BMC Health Plans, Inc. Tennessee
Hughes and Associates, Inc. Tennessee
MMMC, Inc. Mississippi
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Birman Managed Care, Inc. and Subsidiaries
Cookeville, Tennessee
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated August 2, 1996, relating
to the consolidated financial statements of Birman Managed Care, Inc. and
Subsidiaries for the year ended June 30, 1996 which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Los Angeles, California
September 10, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated August 7, 1996, relating
to the financial statements of Canton Management Group, Inc. DBA Progressive
Health Management, Inc. (A Development Stage Company) for the year ended June
30, 1996 which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
Los Angeles, California
September 10, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
inclusion of our report dated July 19, 1996, on the consolidated financial
statements of Birman Managed Care, Inc. and Subsidiaries for the year ended June
30, 1995, in the Company's Form SB-2 Registration Statement for the year then
ended, and to the reference to us under the caption "Experts" contained in the
Prospectus.
/s/ SEMPLE & COOPER, P.L.C.
--------------------------------------
Semple & Cooper, P.L.C.
Certified Public Accountants
Phoenix, Arizona
September 10, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Canton Management Group, Inc.
DBA Progressive Health Management, Inc.
(A Development Stage Company)
Jackson, Mississippi
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated August 7, 1996, relating
to the financial statements of Canton Management Group, Inc. DBA Progressive
Health Management, Inc. (A Development Stage Company) for the year ended June
30, 1995 which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Semple & Cooper, P.L.C.
Phoenix, Arizona
September 10, 1996
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of Birman Managed Care, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint David N. Birman,
M.D., Robert D. Arkin and Douglas A. Lessard, with full power to each of them to
act alone, as the true and lawful attorneys and agents of the undersigned, with
full power of substitution and resubstitution to each of said attorneys to
execute, file or deliver any and all instruments and to do all acts and things
which said attorneys and agents, or any of them, deem advisable to enable the
Company to comply with the Securities Act of 1933, as amended, and with the
securities laws of the various states, and any requirements or regulations of
the Securities and Exchange Commission and of the Securities Commissions and
Administrators of the various states in respect thereof, in connection with the
Company's filing of a Registration Statement on Form SB-2 with respect to the
registration under said Securities Act of shares of common stock and warrants to
purchase shares of common stock, including specifically, but without limitation
of the general authority hereby granted, the power and authority to sign his or
her name as a director or officer or both, of the Company, as indicated below
opposite his or her signature, to the registration statement, and any amendment,
post-effective amendment, supplement or papers supplemental thereto, to be filed
with respect to said shares of common stock and warrants to purchase shares of
common stock; and each of the undersigned does hereby fully ratify and confirm
all that said attorneys and agents, or any of them, or the substitute of any of
them, shall do or cause to be done by virtue hereof.
This instrument may be executed in two or more counterparts, each of
which shall be deemed an original and shall be binding on the signatories
whether or not the instrument has been executed by all persons named below.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, as
of this 9th day of September, 1996.
- ------------------------------------
David N. Birman, M.D. Director, Chairman of the
Board of Directors and President
(Principal Executive Officer)
- ------------------------------------
Sue D. Birman Director, Executive Vice President
- ------------------------------------
Robert D. Arkin Director, Executive Vice President,
Secretary
- ------------------------------------
Diedrich Von Soosten Director
- ------------------------------------
James J. Rhodes Director
- ------------------------------------
Douglas A. Lessard Vice President, Treasurer,
(Principal Financial Officer, Principal
Accounting Officer)
<PAGE> 2
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a
director or officer, or both, of Birman Managed Care, Inc., a Delaware
corporation (the "Company"), does hereby constitute and appoint David N. Birman,
M.D., Robert D. Arkin and Douglas A. Lessard, with full power to each of them to
act alone, as the true and lawful attorneys and agents of the undersigned, with
full power of substitution and resubstitution to each of said attorneys to
execute, file or deliver any and all instruments and to do all acts and things
which said attorneys and agents, or any of them, deem advisable to enable the
Company to comply with the Securities Act of 1933, as amended, and with the
securities laws of the various states, and any requirements or regulations of
the Securities and Exchange Commission and of the Securities Commissions and
Administrators of the various states in respect thereof, in connection with the
Company's filing of a Registration Statement on Form SB-2 with respect to the
registration under said Securities Act of shares of common stock and warrants to
purchase shares of common stock, including specifically, but without limitation
of the general authority hereby granted, the power and authority to sign his or
her name as a director or officer or both, of the Company, as indicated below
opposite his or her signature, to the registration statement, and any amendment,
post-effective amendment, supplement or papers supplemental thereto, to be filed
with respect to said shares of common stock and warrants to purchase shares of
common stock; and each of the undersigned does hereby fully ratify and confirm
all that said attorneys and agents, or any of them, or the substitute of any of
them, shall do or cause to be done by virtue hereof.
This instrument may be executed in two or more counterparts, each of
which shall be deemed an original and shall be binding on the signatories
whether or not the instrument has been executed by all persons named below.
IN WITNESS WHEREOF, the undersigned has subscribed these presents, as
of this 9th day of September, 1996.
- ------------------------------------ Director, Chairman of the Board
David N. Birman, M.D. of Directors and Chief Executive
Officer (Principal Executive Officer)
- ------------------------------------ Director, Executive Vice President
Sue D. Birman
- ------------------------------------ Director, Chief Operating Officer,
Robert D. Arkin Secretary
- ------------------------------------ Director
Diedrich Von Soosten
- ------------------------------------ Director
James J. Rhodes
- ------------------------------------ Chief Financial Officer, (Principal
Douglas A. Lessard Financial Officer, Principal
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,872,343
<SECURITIES> 0
<RECEIVABLES> (547,706)
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,872,343
<PP&E> 293,684
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,675,062
<CURRENT-LIABILITIES> 2,435
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,188,979
<TOTAL-LIABILITY-AND-EQUITY> 4,009,891
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
