<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-21515
AMERICAN MEDSERVE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3925637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
184 SHUMAN BLVD., SUITE 200, NAPERVILLE, ILLINOIS 60563
(Address of principal executive offices) (Zip Code)
(630) 717-2904
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-------
The number of the registrant's shares of common stock outstanding as of
August 12, 1997 was 12,217,936.
<PAGE>
AMERICAN MEDSERVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Page No.
-------
Part I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1996 and
June 30, 1997................................................... 3
Condensed Consolidated Statements of Operations - three months
and six months ended June 30, 1996 and 1997
Condensed Consolidated Statements of Cash Flows - six months
ended June 30, 1996 and 1997
Notes to Condensed Consolidated Financial Statements................. 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. 8
Part II - Other Information
Item 2 - Changes in Securities........................................ 10
Item 4 - Submission of Matters to a Vote of Security Holders.......... 10
Item 5 - Other Information............................................ 10
Item 6 - Exhibits and Reports on Form 8-K............................. 11
Signatures ................................................................ 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN MEDSERVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 JUNE 30
1996 1997
----------- -----------
(NOTE) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $17,382 $3,231
Accounts receivable, net 20,768 30,960
Due from related parties 2,036 1,563
Income taxes receivable 975 --
Inventories 7,708 10,572
Prepaid expenses and other current assets 1,999 2,971
-------- --------
Total current assets 50,868 49,297
Equipment, net 5,509 7,599
Excess of cost over net assets acquired, net 54,174 73,078
Deferred financing costs, net 1,897 1,702
Other assets 850 1,832
-------- --------
Total assets $113,298 $133,508
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,635 $7,329
Accrued expenses 2,672 3,683
Current portion of long-term debt 3,067 8,900
-------- --------
Total current liabilities 12,374 19,912
Long-term debt 6,087 13,219
Minority interest 1,197 1,972
Deferred income taxes 641 1,102
Stockholders' equity
Common Stock -- $.01 par value;
30,000,000 shares authorized; issued
and outstanding -- 12,000,464 at
December 31, 1996 and 12,194,603
at June 30, 1997 120 122
Other stockholders' equity 92,879 97,181
-------- --------
Total stockholders' equity 92,999 97,303
-------- --------
Total liabilities and stockholders' equity $113,298 $133,508
-------- --------
-------- --------
Note: The balance sheet at December 31, 1996 has been derived from
the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE>
AMERICAN MEDSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $17,066 $40,706 $32,357 $75,563
Cost of revenues 12,159 29,130 23,259 54,484
------- ------- ------- -------
Gross profit 4,907 11,576 9,098 21,079
Selling, general and administrative expenses 3,948 9,401 7,290 17,413
------- ------- ------- -------
Operating income 959 2,175 1,808 3,666
Other (income) expense:
Interest expense 666 261 1,213 389
Minority interest 39 (152) (4) (200)
Other, net (41) (27) (75) (39)
------- ------- ------- -------
Income before income taxes and extraordinary item 295 2,093 674 3,516
Income taxes 162 896 324 1,499
------- ------- ------- -------
Income before extraordinary item 133 1,197 350 2,017
Write off of deferred financing costs, net of
income tax benefit of $404 -- -- 437 --
------- ------- ------- -------
Net income (loss) $133 $1,197 ($87) $2,017
------- ------- ------- -------
------- ------- ------- -------
Income (loss) per share:
Before extraordinary item $0.02 $0.10 $0.05 $0.17
Extraordinary item -- -- 0.06 --
------- ------- ------- -------
Net income (loss) $0.02 $0.10 ($0.01) $0.17
------- ------- ------- -------
------- ------- ------- -------
Shares used in computing net income (loss)
per share 6,466 12,265 6,466 12,212
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
AMERICAN MEDSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
------------------
1996 1997
------- -------
OPERATING ACTIVITIES
Net cash used in operating activities ($897) ($1,289)
INVESTING ACTIVITIES:
Capital expenditures (763) (1,350)
Acquisition of entities, net of cash acquired (13,247) (24,799)
Other (275) 473
------- -------
Net cash used in investing activities (14,285) (25,676)
FINANCING ACTIVITIES:
Proceeds from (repayments of) revolving line of credit, net (2,100) 6,800
Proceeds from long-term debt 30,100 7,000
Repayments of long-term debt and capital lease obligations (20,633) --
Capital contributions 8,350 --
GSSS preferred stock issuance -- 1,000
Fees paid for financing arrangements (1,472) (2,046)
Other -- 60
------- -------
Net cash provided by financing activities 14,245 12,814
------- -------
Net decrease in cash and cash equivalents (937) (14,151)
Cash and cash equivalents, beginning of period 1,437 17,382
------- -------
Cash and cash equivalents, end of period $500 $3,231
------- -------
------- -------
See notes to condensed consolidated financial statements.
5
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
2. ACQUISITIONS
During the six months ended June 30, 1997, the Company acquired substantially
all of the assets of HMIS, Inc., based in Hunt Valley, Maryland and completed
seven other less significant acquisitions. The aggregate purchase price for
these acquisitions was $28,100, including expenses. The Company may be
required to make an additional payment, in cash or common stock of the
Company, contingent upon future operating income of certain of these acquired
businesses.
During the six months ended June 30, 1996, the Company completed an acquisition
of substantially all of the assets of Pharmed, Inc., based in Alexandria,
Louisiana and Pharmed of Baton Rouge, Inc. based in Baton Rouge, Louisiana and
three other less significant acquisitions. The aggregate purchase price for
these acquisitions was $7,660. In addition, in 1996 the Company acquired the
controlling interest in Good Samaritan Supply Services, Inc. (GSSS), through a
40.0% equity investment in April 1996 and a 10.1% equity investment in November
1996, and began consolidating the results of operation of GSSS in November 1996.
Between April 1996 and November 1996, GSSS completed two acquisitions.
6
<PAGE>
Unaudited pro forma data as if (a) the Company had purchased each of these
businesses as of January 1, 1996 and (b) the Company had retired certain of its
long-term debt by applying a portion of the net proceeds of its initial public
offering ($46.1 million) in November 1996 as if such transaction had occurred on
January 1, 1996, are set forth below:
Six Months Ended
June 30
---------------------
1996 1997
------- -------
Revenues $76,678 $82,455
Income before extraordinary item 2,162 2,365
Net income 1,725 2,365
Income per share before extraordinary item 0.18 0.19
Net income per share 0.14 0.19
Shares used in computation 12,265 12,265
3. EXTRAORDINARY ITEM
In March 1996 the Company recorded an extraordinary charge of $841 ($437, net of
income taxes) reflecting the write off of deferred financing costs in connection
with the refinancing of the Company's credit facility.
4. SUBSEQUENT EVENT
On August 7, 1997, the Company, Omnicare, Inc. ("Omnicare") and Omnicare
Acquisition Corp., a wholly-owned subsidiary of Omnicare ("Acquisition Corp."),
entered into an agreement and plan of merger whereby Acquisition Corp. agreed to
commence a tender offer for all of the outstanding shares of the Company's
Common Stock at a price per share of $18.00, net to the seller in cash. The
agreement provides that following consummation of the tender offer, Acquisition
Corp. will be merged with and into the Company with the Company surviving the
merger as a wholly-owned subsidiary of Omnicare, and each issued and outstanding
share of the Company's Common Stock (other than shares owned by the Company as
treasury stock, shares owned by Omnicare, Acquisition Corp. or any other wholly-
owned subsidiary of Omnicare and shares held by stockholders exercising
appraisal rights) will be converted into the right to receive $18.00 in cash.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the three months ended June 30, 1997 increased 138% to $40.7
million from revenues of $17.1 million for the comparable 1996 period. Of
this $23.6 million increase, $20.5 million was due to acquisitions and $3.1
million was due to internal growth. For the six months ended June 30, 1997,
revenues increased 133% to $75.6 million from revenues of $32.4 million for
the comparable 1996 period. Of this $43.2 million increase, $37.4 million was
due to acquisitions and $5.8 million was due to internal growth. Increased
revenues reflect the acquisitions of Pharmed, Inc. and Pharmed of Baton
Rouge, Inc. in May 1996, Royal Care of America, Inc. in August 1996 and HMIS,
Inc. in January 1997, as well as fourteen other less significant
acquisitions. In addition, increased revenues reflect the consolidation of
Good Samaritan Supply Services, Inc. (GSSS), a 50.1% owned subsidiary,
beginning in November 1996 in connection with the Company's acquisition of
the controlling interest in GSSS. The Company's "internal growth" consists
of new customers in existing markets, acquired revenues in established areas
that are assimilated into existing operations, start-up facilities in states
where the Company is already established, and sales of new products and
services to existing customers.
Gross profit for the three months ended June 30, 1997 was $11.6 million
compared to $4.9 million for the comparable 1996 period. For the six months
ended June 30, 1997, gross profit was $21.1 million compared to $9.1 million
for the comparable 1996 period. Gross profit as a percentage of revenues was
28.4% and 28.8% for the three months ended June 30, 1997 and 1996,
respectively, and 27.9% and 28.1% for the six months ended June 30, 1997 and
1996, respectively. The decrease in gross profit as a percentage of revenues
was primarily the result of lower margins at GSSS related to its
nonprescription medical supply business. This decrease was partially offset
by the acquisitions of certain companies with higher margins.
Selling, general and administrative expenses for the three months ended June
30, 1997 were $9.4 million compared to $3.9 million for the comparable 1996
period. For the six months ended June 30, 1997, selling, general and
administrative expenses were $17.4 million compared to $7.3 in the comparable
1996 period. As a percentage of revenues, selling, general and
administrative expenses were 23.1% in the three months ended June 30, 1997
and 1996 and 23.0% and 22.5% in the six months ended June 30, 1997 and 1996,
respectively. The increase is primarily the result of the acquisitions
completed throughout the periods, including increased amortization of
goodwill and higher levels of selling, general and administrative expenses at
certain acquired companies.
8
<PAGE>
Interest expense for the three months ended June 30, 1997 was $.3 million
compared to $.7 million for the comparable 1996 period. For the six months
ended June 30, 1997, interest expense was $.4 million compared to $1.2 million
in the comparable 1996 period. Interest expense decreased as a result of lower
debt levels in 1997 which reflect the repayment of substantially all of the
Company's long-term debt in November 1996 with the proceeds of the Company's
initial public offering.
In March 1996, the Company recorded an extraordinary item in the amount of $.4
million (net of an income tax benefit of $.4 million) reflecting the write-off
of deferred financing charges in connection with the refinancing of the
Company's credit facility.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.3 million in the six months ended
June 30, 1997, as compared to $.9 million net cash used in operating activities
in the comparable 1996 period. The net use of cash in the 1997 period was
primarily related to increases in inventory and accounts receivable related to
sales growth as well as slower payments at certain of the Company's operating
subsidiaries.
Net cash used in investing activities was $25.7 million in the six months ended
June 30, 1997, as compared to $14.3 million in the comparable 1996 period. The
majority of the expenditures in both periods were related to acquisitions
completed in the respective periods. Capital expenditures were $1.4 million
and $.8 million in the six months ended June 30, 1997 and 1996, respectively.
The capital expenditures in the six months ended June 30, 1997 increased as a
result of leasehold improvements at one location and increases in computer
equipment, transportation equipment, equipment leased to customers and
medication carts used in locations served.
Net cash provided by financing activities was $12.8 million in the six months
ended June 30, 1997 compared to $14.2 million in the comparable 1996 period.
The primary source of funds in the six months ended June 30, 1997 were funds
available under the Company's credit facility for acquisitions and operating
needs of the Company and proceeds from the issuance of GSSS preferred stock
($1.0 million). The primary source of funds in the six months ended June 30,
1996 were additional capital contributions from the Company's principal
stockholder ($8.4 million) and funds available under the Company's credit
facility for acquisitions.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the period from April 1, 1997 through June 30, 1997, the Company
sold the following securities that were not registered under the Securities Act
of 1933, as amended:
On April 1, 1997, the Company issued 105,821 shares of Common Stock as
partial payment for the acquisition of the assets of Institutional Pharmacy
Services. Exemption from registration is claimed pursuant to Section 4(2) of
the Securities Act of 1933, no public sale having been involved.
No underwriters were involved in the foregoing issuance of securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held in Chicago,
Illinois on June 12, 1997. The following individuals were elected as directors
to hold office until the annual meeting of stockholders held in the year 2000 or
until their successors have been elected and duly qualified:
Director Shares For Shares Withheld
-------- ---------- ---------------
Timothy L. Burfield 9,986,363 17,300
Charles C. Halberg 9,615,860 387,803
Stockholders also acted upon the following proposal at the Annual Meeting:
Ratified the appointment of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1997. Votes totaled
9,985,663 for; 1,700 against; and 16,300 abstentions.
ITEM 5. OTHER INFORMATION
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company believes that a number of important
factors could cause the Company s actual results to differ from those that may
have been or may be projected in forward-looking statements made by or on behalf
of the Company from time to time. These factors are described under the heading
"Risk Factors" in the Company's Registration Statement on Form S-1 (File No.
333-11667) filed with the Securities and Exchange Commission on November 12,
1996. Specific reference is made to the Risk Factors set forth therein entitled
"Limited Operating History," "Impact of Acquisitions and Management of Growth,"
"Capital Requirements Relating to Growth Strategy," "Industry is Highly
Competitive," "Regulation and Reimbursement" and "Uncertainty Due to Potential
Changes in National and State Health Care Policies."
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
10.1 Agreement and Plan of Merger, dated as of August 7, 1997, by
and among Omnicare, Inc., Omnicare Acquisition Corp. and the
Company
10.2 Agreement made as of August 7, 1997, between the Company and
Michael B. Freedman
10.3 Agreement made as of August 7, 1997, between the Company and
Charles R. Wallace
10.4 Agreement made as of August 7, 1997, between the Company and
J. Jeffrey Gephart
10.5 Amendment No. 1 to Senior Management agreement, made as of
June 30, 1997, between the Company and Timothy L. Burfield
10.6 Amended and Restated Senior Management Agreement, made as of
November 11, 1996, between the Company and Michael B.
Freedman
10.7 Amended and Restated Senior Management Agreement, made as of
November 11, 1996, between the Company and Charles R.
Wallace
10.8 Amended and Restated Senior Management Agreement, made as of
November 11, 1996, between the Company and J. Jeffrey
Gephart
10.9 Second Amendment to Shareholders Agreement, dated as of
August 4, 1997, by and among Good Samaritan Supply Services,
Inc., The Evangelical Lutheran Good Samaritan Foundation and
the Company
10.10 First Amendment to Non-Competition and Marketing Assistance
Agreement, made as of August 4, 1997, by and among the
Company, Good Samaritan Supply Services, Inc., The
Evangelical Lutheran Good Samaritan Foundation and The
Evangelical Lutheran Good Samaritan Society
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
99.1 Text of press release issued by Omnicare, Inc. and the
Company, dated August 8, 1997
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN MEDSERVE CORPORATION
Dated: August 12, 1997 By: ____________________________________
Timothy L. Burfield
Chief Executive Officer, President and
Director
Dated: August 12, 1997 By: ____________________________________
Charles R. Wallace
Vice President - Finance and Chief Financial
Officer (Principal Financial and Accounting
Officer)
12
<PAGE>
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
by and among
OMNICARE, INC.
OMNICARE ACQUISITION CORP.
and
AMERICAN MEDSERVE CORPORATION
dated as of
August 7, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. THE OFFER AND MERGER. . . . . . . . . . . . . . . . . .1
Section 1.1. The Offer . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2. Company Actions . . . . . . . . . . . . . . . . . . . .2
Section 1.3. Directors . . . . . . . . . . . . . . . . . . . . . . .3
Section 1.4. The Merger. . . . . . . . . . . . . . . . . . . . . . .4
Section 1.5. Effective Time. . . . . . . . . . . . . . . . . . . . .4
Section 1.6. Closing . . . . . . . . . . . . . . . . . . . . . . . .4
Section 1.7. Directors and Officers of the Surviving Corporation . .4
Section 1.8. Shareholders' Meeting . . . . . . . . . . . . . . . . .5
ARTICLE II. CONVERSION OF SECURITIES. . . . . . . . . . . . . . . .5
Section 2.1. Conversion of Capital Stock . . . . . . . . . . . . . .5
Section 2.2. Exchange of Certificates. . . . . . . . . . . . . . . .6
Section 2.3. Appraisal Rights. . . . . . . . . . . . . . . . . . . .7
Section 2.4. Company Plans . . . . . . . . . . . . . . . . . . . . .8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . .8
Section 3.1. Organization. . . . . . . . . . . . . . . . . . . . . .8
Section 3.2. Capitalization. . . . . . . . . . . . . . . . . . . . .9
Section 3.3. Authorization; Validity of Agreement; Company Action. .10
Section 3.4. Consents and Approvals; No Violations . . . . . . . . .10
Section 3.5. SEC Reports and Financial Statements. . . . . . . . . .10
Section 3.6. Absence of Certain Changes. . . . . . . . . . . . . . .11
Section 3.7. No Undisclosed Liabilities. . . . . . . . . . . . . . .11
Section 3.8. Litigation. . . . . . . . . . . . . . . . . . . . . . .11
Section 3.9. Employee Benefit Plans. . . . . . . . . . . . . . . . .11
Section 3.10. Tax Matters; Government Benefits. . . . . . . . . . . .13
Section 3.11. Intellectual Property . . . . . . . . . . . . . . . . .14
Section 3.12. Employment Matters. . . . . . . . . . . . . . . . . . .15
Section 3.13. Compliance with Laws. . . . . . . . . . . . . . . . . .15
Section 3.14. Vote Required . . . . . . . . . . . . . . . . . . . . .16
Section 3.15. Environmental Laws. . . . . . . . . . . . . . . . . . .16
Section 3.16. Schedule 14D-9: Offer Documents and Proxy Statement . .18
Section 3.17. Opinion of Financial Advisor. . . . . . . . . . . . . .18
Section 3.18. Brokers and Finders . . . . . . . . . . . . . . . . . .18
Section 3.19. Certain Business Practices. . . . . . . . . . . . . . .18
Section 3.20. Insurance . . . . . . . . . . . . . . . . . . . . . . .18
Section 3.21. Product Warranties. . . . . . . . . . . . . . . . . . .19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND THE
PURCHASER . . . . . . . . . . . . . . . . . . . . . . .19
Section 4.1. Organization. . . . . . . . . . . . . . . . . . . . . .19
Section 4.2. Authorization; Validity of Agreement; Necessary Action.19
Section 4.3. Consents and Approvals; No Violations . . . . . . . . .19
Section 4.4. Offer Documents; Proxy Statement; Schedule 14D-9. . . .20
Section 4.5. Financing . . . . . . . . . . . . . . . . . . . . . . .20
Section 4.6. Litigation. . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE V. COVENANTS . . . . . . . . . . . . . . . . . . . . . . .20
Section 5.1. Interim Operations of the Company . . . . . . . . . . .20
Section 5.2. Access; Confidentiality . . . . . . . . . . . . . . . .22
-i-
<PAGE>
Section 5.3. Proxy Statement . . . . . . . . . . . . . . . . . . . .23
Section 5.4. Cooperation . . . . . . . . . . . . . . . . . . . . . .23
Section 5.5. State Takeover Statutes . . . . . . . . . . . . . . . .24
Section 5.6. No Solicitation . . . . . . . . . . . . . . . . . . . .24
Section 5.7. Additional Agreements . . . . . . . . . . . . . . . . .25
Section 5.8. Publicity . . . . . . . . . . . . . . . . . . . . . . .25
Section 5.9. Notification of Certain Matters . . . . . . . . . . . .25
Section 5.10. Directors, and Officers' Insurance and
Indemnification. . . . . . . . . . . . . . . . . . . .25
ARTICLE VI. CONDITIONS. . . . . . . . . . . . . . . . . . . . . . .26
Section 6.1. Conditions to Obligations of Each Party to
Effect the Merger. . . . . . . . . . . . . . . . . . .26
Section 6.2. Conditions Precedent to the Obligations of
the Company. . . . . . . . . . . . . . . . . . . . . .27
Section 6.3. Conditions Precedent to the Obligations of Parent
and Purchaser. . . . . . . . . . . . . . . . . . . . .27
ARTICLE VII. TERMINATION . . . . . . . . . . . . . . . . . . . . . .27
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . . .27
Section 7.2. Effect of Termination . . . . . . . . . . . . . . . . .29
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . .29
Section 8.1. Fees and Expenses . . . . . . . . . . . . . . . . . . .29
Section 8.2. Amendment and Modification. . . . . . . . . . . . . . .29
Section 8.3. Nonsurvival of Representations and Warranties . . . . .30
Section 8.4. Notices . . . . . . . . . . . . . . . . . . . . . . . .30
Section 8.5. Interpretation. . . . . . . . . . . . . . . . . . . . .31
Section 8.6. Counterparts. . . . . . . . . . . . . . . . . . . . . .31
Section 8.7. Entire Agreement; No Third Party Beneficiaries. . . . .31
Section 8.8. Severability. . . . . . . . . . . . . . . . . . . . . .31
Section 8.9. Governing Law . . . . . . . . . . . . . . . . . . . . .31
Section 8.10. Assignment. . . . . . . . . . . . . . . . . . . . . . .31
Section 8.11. Waivers . . . . . . . . . . . . . . . . . . . . . . . .31
Section 8.12. Captions. . . . . . . . . . . . . . . . . . . . . . . .32
Annex A Certain Conditions of the Offer
-ii-
<PAGE>
INDEX OF DEFINED TERMS
Defined Term Section No.
- ------------ -----------
Agreement. . . . . . . . . . . . . . . . . . . . . . Recitals
Acquisition Proposal . . . . . . . . . . . . . . . . 5.6(a)
Appointment Date . . . . . . . . . . . . . . . . . . 5.1
Balance Sheet. . . . . . . . . . . . . . . . . . . . 3.10(a)
Beds . . . . . . . . . . . . . . . . . . . . . . . . 3.22
Break-Up Amount. . . . . . . . . . . . . . . . . . . 8.1(b)
By-Laws. . . . . . . . . . . . . . . . . . . . . . . 1.4
Certificate of Incorporation . . . . . . . . . . . . 1.4
Certificates . . . . . . . . . . . . . . . . . . . . 2.2(b)
Closing. . . . . . . . . . . . . . . . . . . . . . . 1.6
Closing Date . . . . . . . . . . . . . . . . . . . . 1.6
Code . . . . . . . . . . . . . . . . . . . . . . . . 2.2(f)
Company. . . . . . . . . . . . . . . . . . . . . . . Recitals
Company Agreements . . . . . . . . . . . . . . . . . 3.4
Company Disclosure Schedule. . . . . . . . . . . . . 3.0
Company Material Adverse Effect. . . . . . . . . . . 3.1(a)
Company SEC Documents. . . . . . . . . . . . . . . . 3.5
Company Option . . . . . . . . . . . . . . . . . . . 2.4(a)
Computer Software. . . . . . . . . . . . . . . . . . 3.11(c)
Confidentiality Agreement. . . . . . . . . . . . . . 5.2(b)
Copyrights . . . . . . . . . . . . . . . . . . . . . 3.11(c)
DGCL . . . . . . . . . . . . . . . . . . . . . . . . l.4
Dissenting Shareholders. . . . . . . . . . . . . . . 2.1(c)
Dissenting Shares. . . . . . . . . . . . . . . . . . 2.3
DLJ. . . . . . . . . . . . . . . . . . . . . . . . . 3.17
D&O Insurance. . . . . . . . . . . . . . . . . . . . 5.10(b)
Effective Time . . . . . . . . . . . . . . . . . . . 1.5
Encumbrances . . . . . . . . . . . . . . . . . . . . 3.2(b)
Environmental Claim. . . . . . . . . . . . . . . . . 3.15(g)
Environmental Laws . . . . . . . . . . . . . . . . . 3.15(g)
ERISA. . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
ERISA Affiliate. . . . . . . . . . . . . . . . . . . 3.9(a)
Exchange Act . . . . . . . . . . . . . . . . . . . . 1.1(a)
Expiration Date. . . . . . . . . . . . . . . . . . . 1.1(a)
Financial Statements . . . . . . . . . . . . . . . . 3.5
GAAP . . . . . . . . . . . . . . . . . . . . . . . . 3.5
Governmental Authority . . . . . . . . . . . . . . . 3.13(a)
Governmental Entity. . . . . . . . . . . . . . . . . 3.4
Hazardous Materials. . . . . . . . . . . . . . . . . 3.15(g)
Healthcare Laws. . . . . . . . . . . . . . . . . . . 3.13(a)
HSR Act. . . . . . . . . . . . . . . . . . . . . . . 3.4
Indemnified Party. . . . . . . . . . . . . . . . . . 5.10(a)
Independent Directors. . . . . . . . . . . . . . . . 1.3(c)
-iii-
<PAGE>
Intellectual Property. . . . . . . . . . . . . . . . 3.11(c)
Licenses . . . . . . . . . . . . . . . . . . . . . . 3.11(c)
Merger . . . . . . . . . . . . . . . . . . . . . . . 1.4
Merger Consideration . . . . . . . . . . . . . . . . 2.1(c)
Minimum Condition. . . . . . . . . . . . . . . . . . 1.1(a)
Offer. . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Offer Documents. . . . . . . . . . . . . . . . . . . 1.1(b)
Offer Price. . . . . . . . . . . . . . . . . . . . . 1.1(a)
Offer to Purchase. . . . . . . . . . . . . . . . . . 1.1(a)
Option Plan. . . . . . . . . . . . . . . . . . . . . 2.4(a)
Parent . . . . . . . . . . . . . . . . . . . . . . . Recitals
Parent Disclosure Schedule . . . . . . . . . . . . . 4.0
Parent Material Adverse Effect . . . . . . . . . . . 4.1
Patents. . . . . . . . . . . . . . . . . . . . . . . 3.11(c)
Paying Agent . . . . . . . . . . . . . . . . . . . . 2.2(a)
PCBs . . . . . . . . . . . . . . . . . . . . . . . . 3.15(e)
Personnel. . . . . . . . . . . . . . . . . . . . . . 3.13(a)
Plans. . . . . . . . . . . . . . . . . . . . . . . . 3.9(a)
Preferred Stock. . . . . . . . . . . . . . . . . . . 3.2(a)
Preliminary Proxy Statement. . . . . . . . . . . . . 5.3
Proxy Statement. . . . . . . . . . . . . . . . . . . 1.8(a)
Purchaser. . . . . . . . . . . . . . . . . . . . . . Recitals
Purchaser Common Stock . . . . . . . . . . . . . . . 2.1
Schedule 14D-1 . . . . . . . . . . . . . . . . . . . 1.1(b)
Schedule 14D-9 . . . . . . . . . . . . . . . . . . . 1.2(b)
SEC. . . . . . . . . . . . . . . . . . . . . . . . . 1.1(b)
Secretary of State . . . . . . . . . . . . . . . . . 1.5
Securities Act . . . . . . . . . . . . . . . . . . . 3.5
Shares . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Special Meeting. . . . . . . . . . . . . . . . . . . 1.8(a)
Subsidiary . . . . . . . . . . . . . . . . . . . . . 3.1(a)
Superior Proposal. . . . . . . . . . . . . . . . . . 5.6(b)
Surviving Corporation. . . . . . . . . . . . . . . . l.4
Tax. . . . . . . . . . . . . . . . . . . . . . . . . 3.10(k)
Taxes. . . . . . . . . . . . . . . . . . . . . . . . 3.10(k)
Tax Return . . . . . . . . . . . . . . . . . . . . . 3.10(k)
Title IV Plan. . . . . . . . . . . . . . . . . . . . 3.9(a)
Trademarks . . . . . . . . . . . . . . . . . . . . . 3.11(c)
Transactions . . . . . . . . . . . . . . . . . . . . 1.2(a)
Voting Debt. . . . . . . . . . . . . . . . . . . . . 3.2(a)
1996 Premium . . . . . . . . . . . . . . . . . . . . 5.10(b)
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter referred to as this
"Agreement"), dated as of August 7, 1997, by and among OMNICARE, INC., a
Delaware corporation ("Parent"), OMNICARE ACQUISITION CORP., a Delaware
corporation and a wholly-owned subsidiary of Parent (the "Purchaser"), and
AMERICAN MEDSERVE CORPORATION, a Delaware corporation (the "Company").
WHEREAS, the Board of Directors of each of Parent, the Purchaser
and the Company has approved, and deems it advisable and in the best
interests of its respective stockholders to consummate, the acquisition of
the Company by Parent upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree, as follows:
ARTICLE I.
THE OFFER AND MERGER
Section 1.1. THE OFFER.
(a) As promptly as practicable (but in no event later than five business
days after the public announcement of the execution hereof), the Purchaser
shall commence (within the meaning of Rule 14d-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) a tender offer (the "Offer") for
all of the outstanding shares of Common Stock, par value $.01 per share (the
"Shares"), of the Company at a price of $18.00 per Share, net to the seller in
cash (such price, as it may be amended in accordance with the terms of this
Agreement, being referred to herein as the "Offer Price"), subject to there
being validly tendered and not withdrawn prior to the expiration of the Offer,
that number of Shares which represents at least a majority of the Shares
outstanding on a fully diluted basis (the "Minimum Condition") and to the other
conditions set forth in Annex A hereto, and shall consummate the Offer in
accordance with its terms. For purposes of this Agreement, "fully diluted
basis" means issued and outstanding Shares and Shares subject to issuance under
employee stock options and other outstanding rights to acquire Shares. The
Company agrees that no Shares held by the Company or any of its Subsidiaries
(as defined herein) will be tendered to the Purchaser pursuant to the Offer.
The obligations of the Purchaser to accept for payment and to pay for any
Shares validly tendered on or prior to the expiration of the Offer and not
withdrawn shall be subject only to the Minimum Condition and the other
conditions set forth in Annex A hereto. The Offer shall be made by means of an
offer to purchase (the "Offer to Purchase") containing the terms set forth in
this Agreement, the Minimum Condition and the other conditions set forth in
Annex A hereto. The Purchaser shall not amend or waive the Minimum Condition
and shall not decrease the Offer Price or decrease the number of Shares sought,
or amend any other condition of the Offer in any manner adverse to the holders
of the Shares without the written consent of the Company, except that Purchaser
may, in its sole discretion, waive any of the conditions to the Offer set forth
in Annex A hereto. The Purchaser shall, on the terms and subject to the prior
satisfaction or waiver of the conditions of the Offer, accept for payment and
pay for Shares validly tendered and not withdrawn as soon as practicable after
expiration of the Offer; provided, however, that if, immediately prior to the
expiration date of the Offer the Shares tendered and not withdrawn pursuant to
the Offer equal less than 90% of the outstanding Shares but more than 80% of
the outstanding Shares,
<PAGE>
the Purchaser may extend the Offer for a period not to exceed seven business
days, notwithstanding that all conditions to the Offer are satisfied as of
such expiration date of the Offer.
(b) As soon as practicable on the date the Offer is commenced, Parent and
the Purchaser shall file or cause to be filed with the United States Securities
and Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1
with respect to the Offer (together with all amendments and supplements thereto
and including the exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1
will include, as exhibits, the Offer to Purchase and a form of letter of
transmittal and other ancillary Offer documents and instruments (collectively,
together with any amendments and supplements thereto, the "Offer Documents").
(c) Parent and the Purchaser will cause the Offer Documents to be filed
with the SEC and to be disseminated to holders of the Shares, in each case as
and to the extent required by applicable federal securities laws. Each of
Parent and the Purchaser, on the one hand, and the Company, on the other hand,
will promptly correct any information provided by it for use in the Offer
Documents if and to the extent that it shall have become false or misleading in
any material respect and the Purchaser will cause the Offer Documents as so
corrected to be filed with the SEC and to be disseminated to holders of the
Shares, in each case as and to the extent required by applicable federal
securities laws. The Company and its counsel shall be given a reasonable
opportunity to review the Schedule 14D-1 (including, without limitation, all
documents filed therewith as exhibits) before it is filed with the SEC. In
addition, Parent and the Purchaser will provide the Company and its counsel
with any comments, whether written or oral, Parent, the Purchaser or their
counsel may receive from time to time from the SEC or its staff with respect to
the Offer Documents promptly after the receipt of such comments.
Section 1.2. COMPANY ACTIONS.
(a) The Company hereby approves of and consents to the Offer and
represents and warrants that the Company's Board of Directors, at a meeting
duly called and held, has (i) unanimously determined that the terms of the
Offer and the Merger (as defined in Section 1.4) are fair to and in the best
interests of the shareholders of the Company, (ii) approved this Agreement and
the transactions contemplated hereby, including the Offer and Merger
(collectively, the "Transactions"), and (iii) resolved to recommend that the
shareholders of the Company accept the Offer, tender their Shares thereunder to
the Purchaser and approve and adopt this Agreement and the Merger; provided,
that such recommendation may be withdrawn, modified or amended if, in the
opinion of the Board of Directors, only after receipt of advice from outside
legal counsel, failure to withdraw, modify or amend such recommendation would
reasonably be expected to result in the Board of Directors violating its
fiduciary duties to the Company's shareholders under applicable law and the
Company pays the fees and expenses required by Section 8.1 hereof.
(b) Concurrently with the commencement of the Offer, the Company shall
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto and including the
exhibits thereto, the "Schedule 14D-9") which shall, subject to the provisions
of Section 5.6(b), contain the recommendation referred to in clause (iii) of
Section 1.2(a) hereof. The Company further agrees to take all steps necessary
to cause the Schedule 14D-9 to be filed with the SEC and to be disseminated to
holders of the Shares, in each case as and to the extent required by applicable
federal securities laws. Each of the Company, on the one hand, and Parent and
the Purchaser, on the other hand, will promptly correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that it shall
have become false and misleading in any material respect and the Company
further agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and to be disseminated to holders of the
Shares, in each case as and to the extent
2
<PAGE>
required by applicable federal securities laws. Parent and its counsel shall
be given a reasonable opportunity to review and comment upon the Schedule
14D-9 before it is filed with the SEC. In addition, the Company agrees to
provide Parent, the Purchaser and their counsel with any comments, whether
written or oral, that the Company or its counsel may receive from time to
time from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments or other communications.
(c) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing, or computer file containing the names and
addresses of all recordholders of the Shares as of a recent date, and shall
furnish the Purchaser with such additional information (including, but not
limited to, updated lists of holders of the Shares and their addresses, mailing
labels and lists of security positions) and assistance, and cause its
representatives and advisors to provide such assistance, as the Purchaser or
its agents may reasonably request in communicating the Offer to the record and
beneficial holders of the Shares. Subject to the requirements of applicable
law and except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Offer and the
Merger, Parent and the Purchaser shall hold in confidence the information
contained in any of such labels and lists and the additional information
referred to in the preceding sentence, will use such information only in
connection with the Offer, and, if this Agreement is terminated, will upon
request of the Company deliver or cause to be delivered to, the Company all
copies of such information then in its possession or the possession of its
agents or representatives.
Section 1.3. DIRECTORS.
(a) Promptly upon the purchase of and payment for any Shares by Parent or
any of its subsidiaries which represents at least a majority of the outstanding
Shares, Parent shall be entitled to designate such number of directors, rounded
up to the next whole number, on the Board of Directors of the Company as is
equal to the product of the total number of directors on such Board (giving
effect to the directors designated by Parent pursuant to this sentence)
multiplied by the percentage that the number of Shares so accepted for payment
bears to the total number of Shares then outstanding. In furtherance thereof,
the Company shall, upon request of the Purchaser, promptly increase the size of
its Board of Directors or exercise its best efforts to secure the resignations
of such number of directors, or both, as is necessary to enable Parent's
designees to be so elected to the Company's Board, and shall cause Parent's
designees to be so elected. At such time, the Company shall, if requested by
Parent, also cause persons designated by Parent to constitute at least the same
percentage (rounded up to the next whole number) as is on the Company's Board
of Directors of (i) each committee of the Company's Board of Directors, (ii)
each board of directors (or similar body) of each Subsidiary (as defined in
Section 3.1) of the Company and (iii) each committee (or similar body) of each
such board.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in
order to fulfill its obligations under Section 1.3(a), including mailing to
stockholders together with Schedule 14D-9 the information required by such
Section 14(f) and Rule 14f-1 as is necessary to enable Parent's designees to be
elected to the Company's Board of Directors. Parent or the Purchaser will
supply the Company and be solely responsible for any information with respect
to either of them and their nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1. The provisions of this Section
1.3 are in addition to and shall not limit any rights which the Purchaser,
Parent or any of their affiliates may have as a holder or beneficial owner of
Shares as a matter of law with respect to the election of directors or
otherwise.
(c) In the event that Parent's designees are elected to the Company's
Board of Directors, until the Effective Time (as defined below), the Company's
Board shall have at least two directors who
3
<PAGE>
are directors on the date hereof (the "Independent Directors"), provided
that, in such event, if the number of Independent Directors shall be reduced
below two for any reason whatsoever, any remaining Independent Directors (or
Independent Director, if there be only one remaining) shall be entitled to
designate persons to fill such vacancies who shall be deemed to be
Independent Directors for purposes of this Agreement or, if no Independent
Director then remains, the other directors shall designate two persons to
fill such vacancies who shall not be stockholders, affiliates or associates
of Parent or the Purchaser and such persons shall be deemed to be Independent
Directors for purposes of this Agreement. Notwithstanding anything in this
Agreement to the contrary, in the event that Parent's designees are elected
to the Company's Board, after the acceptance for payment of Shares pursuant
to the Offer and prior to the Effective Time, the affirmative vote of a
majority of the Independent Directors shall be required to (a) amend or
terminate this Agreement by the Company or (b) exercise or waive any of the
Company's rights, benefits or remedies hereunder.
Section 1.4. THE MERGER. Subject to the terms and conditions of this
Agreement, and in accordance with the relevant provisions of the Delaware
General Corporation Law ("DGCL"), at the Effective Time, the Company and the
Purchaser shall consummate a merger (the "Merger") pursuant to which (a) the
Purchaser shall be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to
be governed by the laws of the State of Delaware, and (c) the separate
corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in this Section 1.4. Pursuant to the Merger, (x) the
Company's Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") shall be amended in its entirety to read as the Certificate
of the Purchaser, in effect immediately prior to the Effective Time, except
that Article FIRST thereof shall promptly be amended to read as follows:
"FIRST: The name of the corporation is American Medserve Corporation" and, as
so amended, shall be the Certificate of the Surviving Corporation until
thereafter amended as provided by law and such Certificate, and (y) the
By-Laws of the Purchaser (the "By-Laws"), as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law, by such Certificate or by such Bylaws.
The Merger shall have the effects specified in the DGCL.
Section 1.5. EFFECTIVE TIME. Parent, the Purchaser and the Company
will cause a Certificate of Merger to be executed and filed on the Closing
Date (as defined in Section 1.6) (or on such other date as Parent and the
Company may agree) with the Secretary of State of Delaware (the "Secretary of
State") as provided in the DGCL. The Merger shall become effective on the
date on which the Certificate of Merger is duly filed with the Secretary of
State or such time as is agreed upon by the parties and specified in the
Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time".
Section 1.6. CLOSING. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m. on a date to be specified by the parties, which
shall be no later than the second business day after satisfaction or waiver
of all of the conditions set forth in Article VI hereof (the "Closing Date"),
at the offices of Dewey Ballantine, 1301 Avenue of the Americas, New York,
New York 10019, unless another date or place is agreed to in writing by the
parties hereto.
Section 1.7. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors of the Purchaser and the officers of the Company at the Effective
Time shall, from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Corporation until their successors shall have
been duly elected or appointed or qualified or until their earlier death,
resignation or removal in accordance with the Certificate and the By-Laws.
4
<PAGE>
Section 1.8. SHAREHOLDERS' MEETING.
(a) If required by applicable law in order to consummate the Merger, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special meeting
of its shareholders (the "Special Meeting") as promptly as practicable
following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of considering and
taking action upon the approval of the Merger and the adoption of this
Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and
(x) obtain and furnish the information required to be included by the SEC
in the Proxy Statement (as hereinafter defined) and, after consultation
with Parent, to respond promptly to any comments made by the SEC with
respect to the preliminary proxy or information statement and cause a
definitive proxy or information statement, including any amendment or
supplement thereto (the "Proxy Statement") to be mailed to its
shareholders, provided that no amendment or supplement to the Proxy
Statement will be made by the Company without consultation with Parent and
its counsel and (y) use its best efforts to obtain the necessary approvals
of the Merger and this Agreement by its shareholders; and
(iii) include in the Proxy Statement the recommendation of the Board
that shareholders of the Company vote in favor of the approval of the
Merger and the adoption of this Agreement.
(b) Parent shall vote, or cause to be voted, all of the
Shares then owned by it, the Purchaser or any of its other subsidiaries and
affiliates in favor of the approval of the Merger and the approval and
adoption of this Agreement.
Section 1.9. MERGER WITHOUT MEETING OF SHAREHOLDERS. Notwithstanding
Section 1.8 hereof, in the event that Parent, the Purchaser and any other
Subsidiaries of Parent shall acquire in the aggregate at least 90% of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, the parties hereto shall, at the request of Parent
and subject to Article VI hereof, take all necessary and appropriate action
to cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of shareholders of the Company, in accordance
with Section 253 of the DGCL.
ARTICLE II.
CONVERSION OF SECURITIES
Section 2.1. CONVERSION OF CAPITAL STOCK. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
Shares or holders of common stock, par value $.01 per share, of the Purchaser
(the "Purchaser Common Stock"):
(a) THE PURCHASER COMMON STOCK. Each issued and outstanding share of
the Purchaser Common Stock shall be converted into and become one fully paid
and nonassessable share of common stock of the Surviving Corporation.
5
<PAGE>
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK.
All Shares that are owned by the Company as treasury stock and any Shares
owned by Parent, the Purchaser or any other wholly owned Subsidiary of Parent
shall be canceled and retired and shall cease to exist and no consideration
shall be delivered in exchange therefor.
(c) EXCHANGE OF SHARES. Each issued and outstanding Share
(other than Shares to be canceled in accordance with Section 2.1(b) and any
Shares which are held by stockholders exercising appraisal rights pursuant to
Section 262 of the DGCL ("Dissenting Shareholders")) shall be converted into
the right to receive the Offer Price, payable to the holder thereof, without
interest (the "Merger Consideration"), upon surrender of the certificate
formerly representing such Share in the manner provided in Section 2.2. All
such Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance
with Section 2.2, without interest, or the right, if any, to receive payment
from the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Section 262 of the DGCL.
Section 2.2. EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. Parent shall designate a bank or trust
company reasonably acceptable to the Company to act as agent for the holders
of the Shares in connection with the Merger (the "Paying Agent") to receive
in trust from time to time, as necessary, the funds to which holders of the
Shares shall become entitled pursuant to Section 2.1(c). Such funds shall be
invested by the Paying Agent as directed by Parent or the Surviving
Corporation.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable
after the Effective Time, the Paying Agent shall mail to each holder of
record, as of the Effective Time, of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding Shares (the
"Certificates"), whose Shares were converted pursuant to Section 2.1 into the
right to receive the Merger Consideration (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Paying Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration for each Share formerly represented by such Certificate and the
Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued on the cash payable upon the surrender of the Certificates.
If payment of the Merger Consideration is to be made to a person other than
the person in whose name the surrendered Certificate is registered, it shall
be a condition of payment that the Certificate so surrendered shall be
properly endorsed or shall be otherwise in proper form for transfer and that
the person requesting such payment shall have paid any transfer and other
taxes required by reason of the payment of the Merger Consideration to a
person other than the registered holder of the Certificate surrendered or
shall have established to the satisfaction of the Surviving Corporation that
such tax either has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive the
Merger Consideration in cash as contemplated by this Section 2.2.
(c) TRANSFER BOOKS; NO FURTHER OWNERSHIP RIGHTS IN THE
SHARES. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration
6
<PAGE>
of transfers of the Shares on the records of the Company. From and after the
Effective Time, the holders of Certificates evidencing ownership of the
Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares, except as otherwise provided for
herein or by applicable law. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article II.
(d) TERMINATION OF FUND; NO LIABILITY. At any time following
six months after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including
any interest received with respect thereto) which had been made available to
the Paying Agent and which have not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates, without any
interest thereon. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a
Certificate for Merger Consideration delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate for Shares shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed and, if required by Parent, the posting by
such Person of a bond in customary amount as indemnity against any claim that
may be made against it with respect to such Certificate, the Paying Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration pursuant to Section 2.2(b) upon due surrender of and
deliverable in respect of the Shares represented by such Certificate pursuant
to this Agreement.
(f) WITHHOLDING TAXES. Parent and Purchaser shall be
entitled to deduct and withhold, or cause the Paying Agent to deduct and
withhold, from the consideration otherwise payable to a holder of Shares
pursuant to the Offer or the Merger any stock transfer taxes and such amounts
as are required under the Internal Revenue Code of 1986, as amended (the
"Code"), or any applicable provision of state, local or foreign tax law, as
specified in the Offer Documents. To the extent that amounts are so withheld
by Parent or Purchaser, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by Parent or
Purchaser, in the circumstances described in the Offer Documents.
Section 2.3. APPRAISAL RIGHTS. Notwithstanding anything in this
Agreement to the contrary, Shares that are issued and outstanding immediately
prior to the Effective Time and which are held by stockholders who did not
vote in favor of the Merger and comply with all of the relevant provisions of
Section 262 of the DGCL (the "Dissenting Shares") shall not be converted into
or be exchangeable for the right to receive the Merger Consideration, unless
and until such holders shall have failed to perfect or shall have effectively
withdrawn or lost their rights to appraisal under the DGCL. If any
Dissenting Stockholder shall have failed to perfect or shall have effectively
withdrawn or lost such right, such holder's Shares shall thereupon be
converted into and become exchangeable for the right to receive, as of the
Effective Time, the Merger Consideration without any interest thereon. The
Company shall give Parent (i) prompt notice of any written demands for
appraisal of any Shares, attempted withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company relating
to stockholders' rights of appraisal and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. Neither the Company nor the Surviving Corporation shall, except with
the prior written consent of Parent, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for payment. If
any Dissenting Shareholder shall fail to perfect or shall have effectively
withdrawn or lost the right to dissent, the Shares
7
<PAGE>
held by such Dissenting Shareholder shall thereupon be treated as though such
Shares had been converted into the Merger Consideration pursuant to Section 2.1.
Section 2.4. COMPANY PLANS.
(a) On the expiration date of the Offer, immediately prior to
the acceptance for payment of Shares pursuant to the Offer, each outstanding
employee stock option to purchase Shares (a "Company Option") granted under
any stock option or compensation plan or arrangement of the Company or its
Subsidiaries (collectively, the "Option Plan"), shall be surrendered to the
Company and shall be forthwith canceled and the Company shall pay to each
holder of a Company Option, by check, an amount equal to (i) the product of
the number of the Shares which are issuable upon exercise of such Company
Option, multiplied by the Offer Price, less (ii) the aggregate exercise price
of such Company Option. Prior to the Closing, the Company shall use its best
efforts to take all actions (including, without limitation, soliciting any
necessary consents from the holders of the Company Options) required to
effect the matters set forth in this Section 2.4, including the surrender,
cancellation and payment in consideration for the Company Options described
in this Section 2.4(a). The Company shall withhold all income or other taxes
as required under applicable law prior to distribution of the cash amount
received under this Section 2.4(a) to the holders of Company Options.
(b) Except as may be otherwise agreed to by Parent or the
Purchaser and the Company, the Company's Option Plan shall terminate as of
the Effective Time and the provisions in any other plan, program or
arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of the Company or any of its Subsidiaries shall
be deleted as of the Effective Time and no holder of Company Options or any
participant in the Option Plan or any other plans, programs or arrangements
shall have any rights thereunder to acquire any equity securities of the
Company, the Surviving Corporation or any subsidiary thereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the schedule attached to this Agreement setting
forth exceptions to the Company's representations and warranties set forth
herein (the "Company Disclosure Schedule"), the Company represents and
warrants to Parent and the Purchaser as set forth below. The Company
Disclosure Schedule will be arranged in sections corresponding to sections of
this Agreement to be modified by such disclosure schedule.
Section 3.1. ORGANIZATION. (a) Each of the Company and its
Subsidiaries, all of which are listed in Section 3.1 of the Company
Disclosure Schedule, is a corporation, limited liability company or
partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization. Complete and
correct copies of the Certificate of Incorporation and the By-Laws and all
amendments thereof to date, have been delivered to Parent. Each of the
Company and its Subsidiaries has all requisite corporate power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority, and governmental approvals would not, individually or in
the aggregate, have a Company Material Adverse Effect (as defined below). As
used in this Agreement, the term "Subsidiary" shall mean all corporations or
other entities in which the Company or the Parent, as the case may be, owns,
directly or indirectly, a majority of the issued and outstanding capital
stock or similar interests or has the right to elect a majority of the
members of the Board of Directors or similar governing body. As used in this
Agreement, (i)
8
<PAGE>
"Company Material Adverse Effect" shall mean any event, change or effect that
has, or is reasonably likely to have, a material adverse effect (A) on the
condition (financial or otherwise), business, assets, liabilities, results of
operations or cash flows of the Company and its Subsidiaries, taken as a
whole or (B) on the ability of the Company to perform its obligations under
this Agreement or to consummate the transactions contemplated by this
Agreement, and (ii) the phrase "to the Company's knowledge", or words of
comparable import, shall mean facts or circumstances within the personal
knowledge, after due inquiry, of any of Timothy L. Burfield, Charles R.
Wallace and Michael B. Freedman.
(b) The Company and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing as a foreign
corporation in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not individually or in the
aggregate have a Company Material Adverse Effect. Except as set forth in
Section 3.1 of the Company Disclosure Schedule, the Company does not own (i)
any equity interest in any corporation or other entity or (ii) marketable
securities where the Company's equity interest in any entity exceeds five
percent of the outstanding equity of such entity on the date hereof.
Section 3.2. CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 30,000,000 Shares and 1,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). As of the date
hereof, (i) 12,217,936 Shares are issued and outstanding, (ii) no Shares are
issued and held in the treasury of the Company, (iii) no shares of Preferred
Stock are issued and outstanding, and (iv) 1,310,790 Shares are reserved for
issuance to employees pursuant to the Option Plan, of which 517,117 Shares
are subject to outstanding, unexercised options. Section 3.2(a) of the
Company Disclosure Schedule sets forth a true and complete list of the
holders of Company Options, including such person's name, the number of
options (vested, unvested and total) held by such person and the exercise
price for each such option. Since the date hereof, the Company has not
issued or granted additional options under the Option Plan. All the
outstanding shares of the Company's capital stock are, and all Shares which
may be issued pursuant to the exercise of outstanding Company Options will
be, when issued in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and non-assessable. Except as
disclosed in Section 3.2 of the Company Disclosure Schedule, there are no
bonds, debentures, notes or other indebtedness having general voting rights
(or convertible into securities having such rights) ("Voting Debt") of the
Company or any of its Subsidiaries issued and outstanding. Except as set
forth above, except as described in Section 3.2 of the Company Disclosure
Schedule and except for the transactions contemplated by this Agreement, as
of the date hereof, (i) there are no shares of capital stock of the Company
authorized, issued or outstanding, (ii) there are no outstanding options,
warrants, calls, preemptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character, relating to the
issued or unissued capital stock of the Company or any of its Subsidiaries,
obligating the Company or any of its Subsidiaries to issue, transfer or sell
or cause to be issued, transferred or sold any shares of capital stock or
Voting Debt of, or other equity interest in, the Company or any of its
Subsidiaries or securities convertible into or exchangeable for such shares
or equity interests, or obligating the Company or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment and (iii) except as set
forth in Section 3.2(a) of the Company Disclosure Schedule, there are no
outstanding contractual obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any Shares, or the capital stock
of the Company, or any Subsidiary or affiliate of the Company or to provide
funds to make any investment (in the form of a loan, capital contribution or
otherwise) in any Subsidiary or any other entity other than loans to
Subsidiaries in the ordinary course of business.
(b) All of the outstanding shares of capital stock of
each of the Subsidiaries are beneficially owned by the Company, directly or
indirectly, and all such shares have been validly issued
9
<PAGE>
and are fully paid and nonassessable and are owned by either the Company or
one of its Subsidiaries free and clear of all liens, charges, claims or
encumbrances of whatever nature ("Encumbrances").
(c) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party
with respect to the voting of the capital stock of the Company or any of the
Subsidiaries.
Section 3.3. AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY ACTION. The
Company has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the Transactions. The execution,
delivery and performance by the Company of this Agreement, and the
consummation by it of the Transactions, have been duly authorized by its
Board of Directors and, except for obtaining the approval of its shareholders
as contemplated by Section 1.8 hereof, no other corporate action on the part
of the Company is necessary to authorize the execution and delivery by the
Company of this Agreement and the consummation by it of the Transactions.
This Agreement has been duly executed and delivered by the Company and,
assuming that this Agreement constitutes the legal, valid and binding
obligations of Parent and the Purchaser, constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as may be limited by any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws affecting the enforcement of creditors' rights generally or by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 3.4. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the
filings set forth in Section 3.4 of the Company Disclosure Schedule and the
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), state securities or blue sky laws, and the DGCL, none of the
execution, delivery or performance of this Agreement by the Company, the
consummation by the Company of the Transactions or compliance by the Company
with any of the provisions hereof will (i) conflict with or result in any
breach of any provision of the Certificate, the By-Laws or similar
organizational documents of the Company or any of its Subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval of,
any court, arbitrator, tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency (a "Governmental
Entity"), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to
which the Company or any of its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound (the "Company
Agreements") or (iv) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company, any of its Subsidiaries or any
of their properties or assets, excluding from the foregoing clauses (ii),
(iii) and (iv) such violations, breaches or defaults which would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.4 of the Company Disclosure Schedule sets forth a list of all third
party consents and approvals required to be obtained in connection with this
Agreement under the Company Agreements prior to the consummation of the
transactions contemplated by this Agreement, except such third party consents
and approvals the failure of which to obtain would not have a Company
Material Adverse Effect.
Section 3.5. SEC REPORTS AND FINANCIAL STATEMENTS. The Company has
timely filed with the SEC, and has heretofore made available to Parent, true
and complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it since November 13, 1996 and prior to the
date hereof, under the Exchange Act or the Securities Act of 1933, as amended
(the "Securities Act"), and the SEC's rules and regulations thereunder (as
such documents have been amended since the
10
<PAGE>
time of their filing, collectively, the "Company SEC Documents"). As of
their respective dates or, if amended prior to the date hereof, as of the
date of the last such amendment, the Company SEC Documents, including,
without limitation, any financial statements or schedules included therein
(a) did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC thereunder.
None of the Company's Subsidiaries is required to file any forms, reports or
other documents with the SEC. The consolidated financial statements of the
Company included in the Company SEC Documents (the "Financial Statements")
have been prepared from, and are in accordance with, the books and records of
the Company and its consolidated Subsidiaries, comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the period involved (except in
the case of unaudited statements, as permitted by Form 10-Q under the
Exchange Act and as may be otherwise indicated in the notes thereto) and
fairly present (subject, in the case of unaudited statements, to normal
recurring year-end adjustments and any other adjustments described therein)
the consolidated financial position and the consolidated results of
operations and cash flows (and changes in financial position, if any) of the
Company and its consolidated Subsidiaries as of the times and for the periods
referred to therein.
Section 3.6. ABSENCE OF CERTAIN CHANGES. Except as disclosed in
Section 3.6 of the Company Disclosure Schedule or in the Company SEC
Documents filed prior to the date hereof, since March 31, 1997, the Company
and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course and there has not occurred any events or changes
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) having, individually or in the aggregate, a
Company Material Adverse Effect and the Company has not taken any action
which would have been prohibited under Section 5.1 hereof.
Section 3.7. NO UNDISCLOSED LIABILITIES. Except (a) as disclosed in
the Financial Statements and (b) for liabilities and obligations (i) incurred
in the ordinary course of business and consistent with past practice since
December 31, 1996, or (ii) as otherwise disclosed in Section 3.7 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
has any liabilities or obligations of any nature, whether or not accrued,
absolute, contingent or otherwise, whether due or to become due and whether
required to be reflected on a balance sheet under GAAP that have, or would be
reasonably likely to have, a Company Material Adverse Effect or that would be
required by GAAP to be reflected in, reserved against or otherwise described
in a consolidated balance sheet of the Company (including the notes thereto).
Section 3.8. LITIGATION. Except as set forth in Section 3.8 of the
Company Disclosure Schedule, there are no suits, claims, actions,
proceedings, including, without limitation, arbitration proceedings or
alternative dispute resolution proceedings, or investigations pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries by or before any Governmental Entity that, either individually
or in the aggregate, if adversely determined, would be reasonably likely to
have a Company Material Adverse Effect.
Section 3.9. EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Agreement, the term "Plans" shall
include: each deferred compensation and each incentive compensation, stock
purchase, stock option and other equity compensation plan, program, agreement
or arrangement; each severance or termination pay, medical,
11
<PAGE>
surgical, hospitalization, life insurance and other "welfare" plan, fund or
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); each profit-sharing, stock bonus
or other "pension" plan, fund or program (within the meaning of section 3(2)
of ERISA); each employment, termination or severance agreement; and each
other employee benefit plan, fund, program, agreement or arrangement, in each
case, that is sponsored, maintained or contributed to or required to be
contributed to by the Company or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that together with the Company would be
deemed a "single employer" within the meaning of section 4001(b) of ERISA, or
to which the Company or an ERISA Affiliate is party, whether written or oral,
for the benefit of any employee or former employee of the Company or any
Subsidiary (the "Plans"). Each of the Plans that is subject to section 302
or Title IV of ERISA or section 412 of the Code is hereinafter referred to in
this Section 3.9 as a "Title IV Plan." Section 3.9 of the Company Disclosure
Schedule sets forth all of the Plans. Neither the Company, any Subsidiary
nor any ERISA Affiliate has any commitment or formal plan, whether legally
binding or not, to create any additional employee benefit plan or modify or
change any existing Plan that would affect any employee or former employee of
the Company or any Subsidiary.
(b) Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, no liability under Title IV or section 302 of ERISA has
been incurred by the Company or any ERISA Affiliate that has not been
satisfied in full, and no condition exists that presents a material risk to
the Company or any ERISA Affiliate of incurring any such liability. No Plan
is a Title IV Plan.
(c) Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, neither the Company or any Subsidiary, any Plan, any
trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company or any
Subsidiary, any Plan, any such trust, or any trustee or administrator (as
defined in Section 3(16)(A) of ERISA) thereof, or any party in interest (as
defined in ERISA Section 3(14)) or fiduciary with respect to any Plan or any
such trust could be subject to either a civil penalty assessed pursuant to
section 409 or 502(i) of ERISA or a tax imposed pursuant to section 4975 or
4976 of the Code, which would be material in amount.
(d) Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, each Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including
but not limited to ERISA and the Code.
(e) Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, each Plan intended to be "qualified" within the meaning
of section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service with respect to the qualified status of
such Plan under the Code, including all amendments to the Code effected by
the Tax Reform Act of 1986, and nothing has occurred since the issuance of
such letter which could reasonably be expected to cause the loss of the
tax-qualified status of such Plan and the related trust maintained
thereunder. The Company has no Plans intended to satisfy the requirements of
Section 501(c)(9).
(f) Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, no Plan provides medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for employees or former
employees of the Company or any Subsidiary for periods extending beyond their
retirement or other termination of service, other than (i) coverage mandated
by applicable law, (ii) death benefits under any "pension plan," or (iii)
benefits the full cost of which is borne by the current or former employee
(or his beneficiary) or (iv) post-death exercise periods in effect under
outstanding Company Options.
(g) Except as disclosed in Section 3.9 of the Company
Disclosure Schedule, or as set forth in Section 5.11 of this Agreement, the
consummation of the transactions contemplated by this Agreement
12
<PAGE>
will not, either alone or in combination with another event, (i) entitle any
current or former employee or officer of the Company or any ERISA Affiliate
to severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, or (ii) accelerate the time of payment
or vesting, or increase the amount of compensation due any such employee or
officer.
(h) There are no pending, or to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Plan, by any employee
or beneficiary covered under any such Plan, or otherwise involving any such
Plan (other than routine claims for benefits) which would have a material
adverse effect upon the Plans or a Company Material Adverse Effect.
Section 3.10. TAX MATTERS; GOVERNMENT BENEFITS.
(a) The Company and each of its Subsidiaries have duly filed
all Tax Returns (as hereinafter defined) that are required to be filed and
have duly paid or caused to be duly paid in full or made adequate provision
in accordance with GAAP (or there has been paid or provision has been made on
their behalf) for the payment of all Taxes (as hereinafter defined) shown due
on such Tax Returns and all other Taxes for which the Company or any of its
Subsidiaries is or might be liable. All such Tax Returns are correct and
complete in all material respects and accurately reflect all liability for
Taxes for the periods covered thereby. All Taxes owed and due by the Company
and each of its Subsidiaries for results of operations through December 31,
1996 (whether or not shown on any Tax Return) have been paid or have been
adequately reflected on the Company's balance sheet as of December 31, 1996
included in the Financial Statements (the "Balance Sheet"). Since December
31, 1996, the Company has not incurred liability for any Taxes other than in
the ordinary course of business. Neither the Company nor any of its
Subsidiaries has received notice of any claim made by an authority in a
jurisdiction where neither the Company nor any of its Subsidiaries file Tax
Returns that the Company is or may be subject to taxation by that
jurisdiction.
(b) The federal income Tax Returns of the Company and its
Subsidiaries have not been examined by the Internal Revenue Service (or the
applicable statutes of limitation for the assessment of federal income Taxes
for such periods have expired) for any period. Neither the Company nor any
of its Subsidiaries has waived any statute of limitations in any jurisdiction
in respect of Taxes or Tax Returns or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(c) Except as set forth on Section 3.10 of the Company
Disclosure Schedule, no federal, state, local or foreign audits, examinations
or other administrative proceedings have been commenced or, to the Company's
knowledge, are pending with regard to any Taxes or Tax Returns of the Company
or of any of its Subsidiaries. No written notification has been received by
the Company or by any of its Subsidiaries that such an audit, examination or
other proceeding is pending or threatened with respect to any Taxes due from
or with respect to or attributable to the Company or any of its Subsidiaries
or any Tax Return filed by or with respect to the Company or any of its
Subsidiaries. To the Company's knowledge, there is no dispute or claim
concerning any Tax liability of the Company or any of its Subsidiaries either
claimed or raised by any taxing authority.
(d) Neither the Company nor any of its Subsidiaries is a
party to any agreement, plan, contract or arrangement that could result,
separately or in the aggregate, in a payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(e) Neither the Company nor any of its Subsidiaries has filed
a consent pursuant to Section 341(f) of the Code (or any predecessor
provision) concerning collapsible corporations, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a "subsection (f) asset"
(as such term is defined in Section 341(f)(4) of the Code) owned by the
Company or any of its Subsidiaries.
13
<PAGE>
(f) No taxing authority is asserting or, to the knowledge of
the Company, threatening to assert a claim against the Company or any of its
Subsidiaries under or as a result of Section 482 of the Code or any similar
provision of state, local or foreign law.
(g) Neither the Company nor any of its Subsidiaries is a
party to any material tax sharing, tax indemnity or other agreement or
arrangement with any entity not included in the Company's consolidated
financial statements most recently filed by the Company with the SEC.
(h) None of the Company or any of its Subsidiaries has been a
member of any affiliated group within the meaning of Section 1504(a) of the
Code, or any similar affiliated or consolidated group for tax purposes under
state, local or foreign law (other than a group the common parent of which is
the Company), or has any liability for Taxes of any person (other than the
Company and its Subsidiaries) under Treasury Regulation Section 1.1502-E or
any similar provision of state, local or foreign law as a transferee or
successor, by contract or otherwise.
(i) No liens for Taxes exist with respect to any of the
assets or properties of any of the Company or its Subsidiaries, except for
statutory liens for Taxes not yet due or payable.
(j) Neither the Company nor any of its Subsidiaries is or has
been a United States real property holding company within the meaning of
Section 897(c)(2) of the Code.
(k) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Tax" or "Taxes" shall mean all taxes, charges,
fees, duties, levies, penalties or other assessments imposed by any
federal, state, local or foreign governmental authority, including,
but not limited to, income, gross receipts, excise, property,
sales, gain, use, license, custom duty, unemployment, capital
stock, transfer, franchise, payroll, withholding, social security,
minimum estimated, and other taxes, and shall include interest,
penalties or additions attributable thereto; and
(ii) "Tax Return" shall mean any return,
declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
Section 3.11. INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own or have valid rights
to use all items of Intellectual Property (as defined below) utilized in the
conduct of the business of the Company and its Subsidiaries as presently
conducted or as currently proposed to be conducted, free and clear of all
Encumbrances (other than Encumbrances which, individually or in the
aggregate, are not expected to have a Company Material Adverse Effect).
(b) To the best knowledge of the Company, the conduct of the
Company's and its Subsidiaries, business and the Intellectual Property owned
or used by the Company and its Subsidiaries, do not infringe any Intellectual
Property rights or any other proprietary right of any person other than
infringements which, individually or in the aggregate, are not expected to
have a Company Material Adverse
14
<PAGE>
Effect. The Company and its Subsidiaries have received no notice of any
allegations or threats that the Company's and its Subsidiaries, use of any of
the Intellectual Property infringes upon or is in conflict with any
Intellectual Property or proprietary rights of any third party other than
infringements or conflicts which individually or in the aggregate are not
expected to have a Company Material Adverse Effect. To the Company's
knowledge, no person is infringing on or violating, in any material respect,
any of the Intellectual Property rights of others.
(c) As used in this Agreement, "Intellectual Property" means
all of the following: (i) U.S. and foreign registered, unregistered and
pending trademarks, trade dress, service marks, logos, trade names, corporate
names, assumed names, business names and logos and all registrations and
applications to register the same (the "Trademarks"); (ii) issued U.S. and
foreign patents and pending patent applications, patent disclosures, and any
and all divisions, continuations, continuations-in-part, reissues,
reexaminations, and extension thereof, any counterparts claiming priority
therefrom, utility models, patents of importation/confirmation, certificates
of invention and like statutory rights (the "Patents"); (iii) U.S. and
foreign registered and unregistered copyrights (including, but not limited
to, those in computer software and databases) rights of publicity and all
registrations and applications to register the same (the "Copyrights"); (iv)
all categories of trade secrets as defined in the Uniform Trade Secrets Act
including, but not limited to, business information; (v) all licenses and
agreements pursuant to which the Company has acquired rights in or to any
Trademarks, Patents, Computer Software (as defined below), rights of
publicity or Copyrights, or licenses and agreements pursuant to which the
Company has licensed or transferred the right to use any of the foregoing
("Licenses"); and (vi) all computer software, data files, source and object
codes, user interfaces, manuals and other specifications and documentation
and all know-how relating thereto (collectively, "Computer Software").
Section 3.12. EMPLOYMENT MATTERS. Neither the Company nor any of its
Subsidiaries has experienced any strikes, collective labor grievances, other
collective bargaining disputes or Claims of unfair labor practices in the
last five years. To the Company's knowledge, there is no organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of the Company and its Subsidiaries.
Section 3.13. COMPLIANCE WITH LAWS.
(a) The Company and its Subsidiaries and, to the knowledge of
the Company and its Subsidiaries, all of their respective officers,
directors, employees, consultants or agents (collectively, the "Personnel")
have complied in all respects with all applicable statutes, regulations,
rules, orders, ordinances and other laws of the United States of America, all
state, local and foreign governments and other governmental bodies and
authorities, and agencies of any of the foregoing ("Governmental Authority")
to which it is subject with respect to healthcare regulatory matters
(including, without limitation, The Social Security Act, as amended, Sections
1128, 1128A and 1128B, 42 U.S.C. Sections 1320a-7, 7(a) and 7(b) including
Criminal Penalties Involving Medicare or State Health Care Programs, commonly
referred to as the "Federal Anti-Kickback Statute" and The Social Security
Act, as amended, Section 1877, 42 U.S.C. Section 1395nn (Prohibition Against
Certain Referrals), commonly referred to as the "Stark Statute", and all
statutes and regulations related to the possession, distribution, maintenance
and documentation of controlled substances) ("Healthcare Laws")), except to
the extent noncompliance would not have a Company Material Adverse Effect.
The Company and its Subsidiaries have maintained all records required to be
maintained by the FDA, DEA and State Board of Pharmacy and the Medicare and
Medicaid programs as required by applicable Healthcare Laws, except to the
extent that the failure to do so would not have a Company Material Adverse
Effect. There are no presently existing circumstances which would result or
would be likely to result in violations of any such Healthcare Laws, except
to the extent such violations would not have a Company Material Adverse
Effect.
(b) Except with respect to Healthcare Laws, the Company and
its Subsidiaries are and, to the knowledge of the Company and its
Subsidiaries, all Personnel is, in compliance with all applicable statutes,
laws, ordinances, rules, orders and regulations of any Governmental Authority
(including
15
<PAGE>
without limitation, Environmental Laws (as such term is hereinafter defined
in Section 3.15) applicable to the business of the Company and its
Subsidiaries), except to the extent noncompliance would not have a Company
Material Adverse Effect. Except as set forth in Section 3.13 of the Company
Disclosure Schedule, neither the Company nor its Subsidiaries have received
any notice or other communication to the effect that, or otherwise been
advised that, they are not in compliance with any of such statutes,
regulations and orders, ordinances, other laws or undertakings, and the
Company and its Subsidiaries have no reason to anticipate that any presently
existing circumstances are likely to result in violations of any such
regulations which could, in any one case or in the aggregate, have a Company
Material Adverse Effect.
(c) The Company and its Subsidiaries hold all permits
necessary for the lawful conduct of their business under and pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all Federal,
state, local and foreign governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over it or any part of their
operations, except to the extent that the failure to do so would not have a
Company Material Adverse Effect. The Company and its Subsidiaries have
correctly maintained in all respects all records required to be maintained by
the FDA, DEA and State Boards of Pharmacy and pursuant to the requirements of
the Medicare and Medicaid programs, except to the extent that the failure to
do so would not have a Company Material Adverse Effect.
(d) The Company and its Subsidiaries are qualified for
participation in the Medicare and Medicaid programs. The Company and its
Subsidiaries have timely filed all claims or other reports required to be
filed with respect to the purchase of services by third-party payors, and all
such claims or reports are complete and accurate, except to the extent that
the failure to timely file or the failure of such claims or reports to be
complete and accurate would not have a Company Material Adverse Effect. The
Company and its Subsidiaries have no liability to any payor with respect
thereto, except for liabilities incurred in the ordinary course of business.
There are no pending appeals, overpayment determinations, adjustments,
challenges, audit, litigation or notices of intent to open Medicare or
Medicaid claim determinations or other reports required to be filed by the
Company or its Subsidiaries. To the Company's knowledge, no Personnel have
been convicted of, or pled guilty or nolo contendere to any Medicare or
Medicaid program related offense or committed any offense which may
reasonably serve as the basis for suspension or exclusion from the Medicare
and Medicaid programs.
(e) There are no pharmaceutical or other products now being
sold or distributed by the Company or its Subsidiaries which, at the date
hereof, would require any approval of any governmental or administrative
body, whether federal, state, local or foreign, prior to commercial
distribution of such products, for which approval has not been obtained,
except where the failure to obtain such approval would not have a Company
Material Adverse Effect. All pharmaceutical or other products now being
distributed by the Company or its Subsidiaries and all products included in
the inventories of the Company or its Subsidiaries on the date hereof comply
with applicable legal requirements of all jurisdictions in which such
pharmaceutical or other products are now being distributed, except where the
failure to so comply would not have a Company Material Adverse Effect.
Section 3.14. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any
class or series of the Company's capital stock which may be necessary to
approve this Agreement or any of the Transactions.
Section 3.15. ENVIRONMENTAL LAWS.
(a) The Company and its Subsidiaries are in compliance with
all applicable Environmental Laws (as defined below) (which compliance
includes, without limitation, the possession by the Company and its
Subsidiaries of all permits and other governmental authorizations required
under applicable
16
<PAGE>
Environmental Laws, and compliance with the terms and conditions thereof),
except where failure to be in compliance, either individually or in the
aggregate, would not have a Company Material Adverse Effect.
(b) There is no Environmental Claim (as defined below)
pending or, to the Company's knowledge, threatened against the Company or any
of the Subsidiaries or, to the Company's knowledge, against any person or
entity whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law except for such Environmental Claim which would not have,
either individually or in the aggregate, a Company Material Adverse Effect.
(c) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release or presence of any Hazardous Material at any
location, which would reasonably be expected to form the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to the
Company's knowledge, against any person or entity whose liability for any
Environmental Claim the Company or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law, except for
such Environmental Claim which would not have, either individually or in the
aggregate, a Company Material Adverse Effect.
(d) The Company and its Subsidiaries have not, and to the
Company's knowledge, no other person has, generated, treated, placed, stored,
deposited, discharged, buried, dumped or disposed of Hazardous Materials at,
on, beneath or adjacent to any property currently or formerly owned, operated
or leased by the Company or any of its Subsidiaries, except which would not
have, either individually or in the aggregate, a Company Material Adverse
Effect.
(e) Without in any way limiting the generality of the
foregoing, none of the properties owned, operated or leased by the Company or
any of its Subsidiaries contain any: underground storage tanks; asbestos;
polychlorinated biphenyls ("PCBs"); underground injection wells; radioactive
materials; or septic tanks or waste disposal pits in which any Hazardous
Materials have been discharged or disposed except which would not have,
individually or in the aggregate, a Company Material Adverse Effect.
(f) There are no environmental reports, assessments, audits
or studies relating to the Company or any of its Subsidiaries or to any
property currently or formerly owned, operated or leased by the Company or
any of its Subsidiaries (i) in the possession or control of the Company or
any of its Subsidiaries, or (ii) of which the Company otherwise has knowledge.
(g) For purposes of this Agreement, (i) "Environmental Laws"
means all federal, state, local and foreign laws, statutes, codes,
ordinances, rules, directives, orders, common law, judgments, decrees,
consent or settlement agreements, permits and other governmental
authorizations, and regulations relating to pollution or protection of human
health or the environment, including, without limitation, laws relating to
releases or threatened releases of Hazardous Materials or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
release, disposal, transport or handling of Hazardous Materials or
recordkeeping, notification, disclosure and reporting requirements respecting
Hazardous Materials; (ii) "Environmental Claim" means any claim, action,
cause of action, proceeding, suit, investigation or written notice by any
person or entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising under or pursuant to any Environmental Law;
(iii) "Hazardous Materials" means all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency
17
<PAGE>
Plan, 40 C.F.R. Section 300.5, and any other substance (including, without
limitation, wastes, including medical waste) regulated under any
Environmental Law.
Section 3.16. SCHEDULE 14D-9: OFFER DOCUMENTS AND PROXY STATEMENT.
None of the Schedule 14D-9, the Proxy Statement, nor any other document filed
or to be filed by or on behalf of the Company with the SEC or any other
Governmental Entity in connection with the transactions contemplated by this
Agreement, nor any information supplied by or on behalf of the Company
specifically for inclusion in the Offer Documents will, at the respective
times filed with the SEC or other Governmental Entity or first published,
sent or given to stockholders, as the case may be, or, in the case of the
Proxy Statement, at the date mailed to the Company Stockholders and at the
time of the Special Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Schedule 14D-9 and the Proxy
Statement will, when filed by the Company with the SEC or other Governmental
Entity, comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to the statements made in any of the foregoing
documents based on and in conformity with information supplied by or on
behalf of Parent or Purchaser or any of their respective affiliates
specifically for inclusion therein.
Section 3.17. OPINION OF FINANCIAL ADVISOR. The Board of Directors of
the Company has received the opinion of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") addressed to such Board, dated the date
hereof, to the effect that, as of such date, the $18.00 per Share to be
received by the holders of Shares pursuant to this Agreement is fair to such
holders, a copy of which opinion has been delivered to Parent and the
Purchaser for information purposes only. Each of Parent and Purchaser
acknowledges and agrees that it may not, and is not entitled to, rely on the
opinion of DLJ delivered to the Board of Directors of the Company. The
Company will obtain the consent of DLJ to include the opinion of DLJ in the
Offering Documents.
Section 3.18. BROKERS AND FINDERS. No broker, finder or investment
bank has acted directly or indirectly for the Company, nor has the Company
incurred any obligation to pay any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby, other
than DLJ and William Blair & Company, L.L.C., the fees and expenses of which
have been previously disclosed to Parent and which shall be borne by the
Company.
Section 3.19. CERTAIN BUSINESS PRACTICES. None of the Company or any
of its Subsidiaries has made, or to the Company's knowledge, no Personnel or
representative of the Company or its Subsidiaries (in their capacities as
such) has made, directly or indirectly with respect to the business of the
Company, any bribes, kickbacks, or other illegal payments or illegal
political contributions, illegal payments from corporate funds to
governmental officials in their individual capacities, or illegal payments
from corporate funds to obtain or retain business either within the United
States or abroad.
Section 3.20. INSURANCE. True and complete copies of all material
insurance policies maintained by the Company have been made available to the
Parent. Such policies provide coverage for the operations of the Company and
its Subsidiaries in amounts and covering such risks as are adequate in
accordance with customary industry practice to protect the assets and the
business of the Company and its Subsidiaries. Neither the Company nor any of
its Subsidiaries has received notice that any such policy is invalid or
unenforceable or that substantial capital improvements or other expenditures
will have to be made in order to continue such insurance and, so far as known
to the Company and its Subsidiaries, no such improvements or expenditures are
required.
18
<PAGE>
Section 3.21. PRODUCT WARRANTIES. Except as set forth in Section 3.21
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has made any express warranties with respect to products sold or
distributed by the Company and its Subsidiaries (other than passing on
warranties made by the manufacturers thereof) and, to the best of the
Company's knowledge, no other warranties have been made by Personnel. The
Company has no knowledge of any presently existing circumstances that would
constitute a valid basis for any voluntary or governmental recall of any
pharmaceutical or other product sold or distributed by the Company.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE PURCHASER
Except as set forth in the schedule attached to this Agreement setting
forth exceptions to the Parent's and Purchaser's representations and
warranties set forth herein (the "Parent Disclosure Schedule"), the Parent
and Purchaser represent and warrant to the Company as set forth below. The
Parent Disclosure Schedule will be arranged in sections corresponding to
sections of this Agreement to be modified by such disclosure schedule.
Section 4.1. ORGANIZATION. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of Delaware and has all requisite corporate or other power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority, and governmental approvals would not have, individually or
in the aggregate, a Parent Material Adverse Effect. As used in this
Agreement, "Parent Material Adverse Effect," shall mean any event, change or
effect that has, or is reasonably likely to have, a material adverse effect
(A) on the condition (financial or otherwise), business, assets, liabilities,
results of operations or cash flows of Parent and its Subsidiaries, taken as
a whole, or (B) on the ability of Parent or the Purchaser to perform its
obligations under this Agreement or to consummate the transactions
contemplated by this Agreement.
Section 4.2. AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION.
Each of Parent and the Purchaser has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
Transactions. The execution, delivery and performance by Parent and the
Purchaser of this Agreement and of the Transactions have been duly authorized
by the Board of Directors of Parent and the Purchaser and no other corporate
action on the part of Parent and the Purchaser is necessary to authorize this
Agreement or the Transactions. This Agreement has been duly executed and
delivered by Parent and the Purchaser, as the case may be, and, assuming that
this Agreement constitutes the legal, valid and binding obligation of the
Company, constitutes the legal, valid and binding obligation of each of
Parent and the Purchaser, as the case may be, enforceable against each of
them in accordance with its respective terms, except as may be limited by any
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally
or by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
Section 4.3. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the HSR Act,
state securities or blue sky laws, and the DGCL, none of the execution,
delivery or performance of this Agreement by Parent or the Purchaser, the
consummation by Parent or the Purchaser of the Transactions or compliance by
Parent or the Purchaser with any of the provisions
19
<PAGE>
hereof will (i) conflict with or result in any breach of any provision of the
respective certificate of incorporation or by-laws of Parent or Purchaser,
(ii) require any filing with, or permit, authorization, consent or approval
of, any Governmental Entity, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both a default or
give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or the Purchaser is a party or by which any of
them or any of their respective properties or assets may be bound, or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of its Subsidiaries or any of their respective
properties or assets, excluding from the foregoing clauses (ii), (iii) and
(iv) such violations, breaches or defaults which would not, individually or
in the aggregate have a Parent Material Adverse Effect.
Section 4.4. OFFER DOCUMENTS; PROXY STATEMENT; SCHEDULE 14D-9. Neither
the Offer Documents nor any other document filed or to be filed by or on
behalf of Parent or Purchaser with the SEC or any other Governmental Entity
in connection with the transactions contemplated by this Agreement nor any
information supplied by or on behalf of Parent or Purchaser specifically for
inclusion in the Schedule 14D-9 or Proxy Statement will, at the respective
times filed with the SEC or other Governmental Entity, or at any time
thereafter when the information included therein is required to be updated
pursuant to applicable law, or, in the case of the Proxy Statement, at the
date mailed to the Company's stockholders and at the time of the Special
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. The Offer Documents will, when filed by Parent or
Purchaser with the SEC or other Governmental Entity, comply as to form in all
material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to the statements
made in the foregoing documents based on and in conformity with information
supplied by or on behalf of the Company or any of its affiliates specifically
for inclusion therein.
Section 4.5. FINANCING. At the closing of the Offer, and at the
Effective Time, Parent and Purchaser will have sufficient cash resources
available to finance the transactions contemplated hereby.
Section 4.6. LITIGATION. Except as set forth in Parent's Annual Report
on Form 10-K for the year ended December 31, 1996, there are no suits,
claims, actions, proceedings, including without limitation arbitration
proceedings or alternative dispute resolution proceedings, or investigations
pending or, to the knowledge of Parent, threatened against Parent or any of
its Subsidiaries before any Governmental Entity that, either individually or
in the aggregate, would be reasonably likely to have a material adverse
effect on the ability of Parent or the Purchaser to perform its obligations
under this Agreement or to consummate the transactions contemplated by this
Agreement.
ARTICLE V.
COVENANTS
Section 5.1. INTERIM OPERATIONS OF THE COMPANY. The Company covenants
and agrees that, except (i) as expressly contemplated by this Agreement, or
(ii) as agreed in writing by Parent, after the date hereof, and prior to the
time the directors of the Purchaser have been elected to, and shall
constitute a majority of, the Board of Directors of the Company pursuant to
Section 1.3 (the "Appointment Date"):
20
<PAGE>
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary and usual course of business and consistent
with past practice and, to the extent consistent therewith, each of the
Company and its Subsidiaries shall use its reasonable efforts to preserve its
business organizations and business organizations of its Subsidiaries intact
and maintain its existing relations with customers, suppliers, employees,
creditors and business partners;
(b) the Company will not, directly or indirectly, (i) except
upon exercise of employee stock options, pursuant to which up to 517,117
Shares may be issued, outstanding on the date hereof, issue, sell, transfer
or pledge or agree to sell, transfer or pledge any treasury stock of the
Company or any capital stock of any of its Subsidiaries beneficially owned by
it, (ii) amend its Certificate of Incorporation or By-Laws or similar
organizational documents; or (iii) split, subdivide, combine or reclassify
the outstanding Shares or Preferred Stock or any outstanding capital stock of
any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries shall:
(i) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock other than
dividends paid by Subsidiaries of the Company to the Company or any of its
wholly-owned Subsidiaries in the ordinary course of business; (ii) issue,
sell, pledge, grant, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of
any class of the Company or its Subsidiaries, other than Shares reserved for
issuance on the date hereof pursuant to the exercise of Company Options
outstanding on the date hereof, pursuant to which up to 517,117 Shares may be
issued; (iii) transfer, lease, license, sell, mortgage, pledge, dispose of,
or encumber any assets other than in the ordinary and usual course of
business and consistent with past practice; or (iv) redeem, purchase or
otherwise acquire directly or indirectly any of its capital stock;
(d) neither the Company nor any of its Subsidiaries shall:
(i) grant any increase in the compensation payable or to become payable by
the Company or any of its Subsidiaries to any of its executive officers or
employees, enter into any contract or other binding commitment in respect of
any such increase with any of its directors, officers or other employees or
any director, officer or other employee of its Subsidiaries, and not
establish, adopt, enter into, make any new grants or awards under or amend,
any collective bargaining agreement; (ii)(A) adopt any new, or (B) amend or
otherwise increase, or accelerate the payment or vesting of the amounts
payable or to become payable under any existing, bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock option,
stock purchase, insurance, pension, retirement or other employee benefit
plan, agreement or arrangement; or (iii) enter into any employment or
severance agreement with or, except in accordance with the existing written
policies of the Company, grant any severance or termination pay to any
officer, director or employee of the Company or any of its Subsidiaries;
PROVIDED, HOWEVER, that (i) prior to consummation of the Offer, the Company
may enter into severance agreements with the individuals set forth in Section
5.1(d) of the Company Disclosure Schedule (the "Designated Employees") in the
form as approved by the Company's Board of Directors, (ii) the aggregate cost
of payments and benefits provided to the Designated Employees pursuant to the
terms of such severance agreements (unless otherwise amended with the written
consent of, or at the written direction of, Parent or Purchaser) shall not
exceed $2,000,000 in the aggregate, and (iii) with respect to the severance
plan described in Section 3.4 of the Company Disclosure Schedule that covers
individuals other than the Designated Employees (the "Nondesignated
Employees"): (a) the implementation of such plan and the entering into of
agreements with Nondesignated Employees shall be subject to the prior written
consent of the Purchaser, which consent shall not be unreasonably withheld
(with reasonableness to be determined based upon Purchaser's reasonable
business objectives and consistent with Purchaser's past practice), and (b)
the aggregate cost of payments and benefits provided to the Nondesignated
Employees pursuant to the terms
21
<PAGE>
of such severance agreements (unless otherwise amended with the written
consent of, or at the written direction of, Parent or Purchaser) shall not
exceed $1,000,000 in the aggregate;
(e) neither the Company nor any of its Subsidiaries shall
permit any insurance policy naming it as a beneficiary or a loss payable
payee to be canceled or terminated, except in the ordinary course of business
and consistent with past practice;
(f) neither the Company nor any of its Subsidiaries shall
enter into any contracts or transactions relating to the purchase of assets
that exceed $1,000,000 in the aggregate;
(g) neither the Company nor any of its Subsidiaries shall
change any of the accounting methods used by it unless required by GAAP,
neither the Company nor any of its Subsidiaries shall make any material Tax
election except in the ordinary course of business consistent with past
practice, change any material Tax election already made, adopt any material
Tax accounting method except in the ordinary course of business consistent
with past practice, change any material Tax accounting method unless required
by GAAP, enter into any closing agreement, settle any Tax claim or assessment
or consent to any Tax claim or assessment or any waiver of the statute of
limitations for any such claim or assessment;
(h) neither the Company nor any of its Subsidiaries shall:
(i) incur or assume any long-term debt; (ii) except in the ordinary course of
business and consistent with past practice and in an aggregate amount not to
exceed $3,000,000, incur or assume any short-term indebtedness; (iii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person;
(iv) make any loans, advances or capital contributions to, or investment in,
any other person (other than to wholly-owned Subsidiaries of the Company);
(v) enter into any material commitment or transaction (including, but not
limited to, any borrowing, capital expenditure or purchase, sale or lease of
assets); or (vi) modify, amend or terminate any of its material contracts or
waive, release or assign any material rights;
(i) neither the Company nor any of its Subsidiaries shall
settle or compromise any claim, lawsuit, liability or obligation, and neither
the Company nor any of its Subsidiaries shall pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the-payment, discharge or
satisfaction of any such claims, liabilities or obligation, (x) to the extent
reflected or reserved against in, or contemplated by, the Financial
Statements, (y) incurred in the ordinary course of business and consistent
with past practice or (z) which are legally required to be paid, discharged
or satisfied;
(j) neither the Company nor any of its Subsidiaries will
take, or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate in any
respect at, or as of any time prior to, the Effective Time;
(k) except as otherwise permitted by Section 5.6(b) hereof,
neither the Company nor any of its Subsidiaries will take any action with the
intent of causing any of the conditions to the Offer set forth in Annex A not
to be satisfied; and
(l) except as otherwise permitted by Section 5.6(b) hereof,
neither the Company nor any of its Subsidiaries will enter into an agreement,
contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2. ACCESS; CONFIDENTIALITY.
22
<PAGE>
(a) Upon reasonable notice, the Company shall (and shall
cause each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financing sources and other representatives of Parent,
access, during normal business hours during the period prior to the
Appointment Date, to all its properties, employees, books, contracts,
commitments and records and, during such period, the Company shall (and shall
cause each of its Subsidiaries to) furnish promptly to the Parent (a) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. After the
Appointment Date, the Company shall provide Parent and such persons as Parent
shall designate with all such information, at such time as Parent shall
request. The Company shall promptly, and in any event within seven business
days following the date of this Agreement, deliver to Parent true and
complete copies of all Plans not previously delivered to Parent and any
amendments thereto (or if the Plan is not a written Plan, a description
thereof), any related trust or other funding vehicle, any summary plan
description required under ERISA or the Code and the most recent
determination letter received from the Internal Revenue Service with respect
to each Plan intended to qualify under Section 401 of the Code.
(b) Unless otherwise required by law and until the
Appointment Date, Parent will hold any such information which is nonpublic in
confidence in accordance with the provisions of a letter agreement dated June
4, 1997 between the Company and the Parent (the "Confidentiality Agreement").
Section 5.3. PROXY STATEMENT. Unless the Merger is consummated as
contemplated in Section 1.9 hereof, the Company shall, as soon as reasonably
practicable after the consummation of the Offer, prepare a preliminary form
of the Proxy Statement (the "Preliminary Proxy Statement"). The Company
shall (a) file the Preliminary Proxy Statement with the SEC promptly after it
has been prepared in a form reasonably satisfactory to the Company and Parent
and (b) use commercially reasonable efforts to promptly prepare any
amendments to the Preliminary Proxy Statement required in response to
comments of the SEC or its staff or that the Company with the advice of
counsel deems necessary or advisable and to cause the Proxy Statement to be
mailed to the Company's stockholders as soon as reasonably practicable after
the Preliminary Proxy Statement, as so amended, is cleared by the SEC.
Section 5.4. COOPERATION. Subject to the terms and conditions of this
Agreement and applicable law, each of the parties shall act in good faith and
use reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable to consummate
and make effective the Transactions as soon as practicable, including such
actions or things as any other party may reasonably request in order to cause
any of the conditions to such other party's obligation to consummate the
Transactions to be fully satisfied. Without limiting the foregoing, the
parties shall (and shall cause their respective subsidiaries, and use
reasonable efforts to cause their respective affiliates, directors, officers,
employees, agents, attorneys, accountants and representatives, to) consult
and fully cooperate with and provide assistance to each other in (a) the
preparation and filing with the SEC of the Offer Documents, the Schedule
14D-9, and the Preliminary Proxy Statement and the Proxy Statement, and any
necessary amendments or supplements thereto; (b) seeking to have the
Preliminary Proxy Statement cleared by the SEC as soon as reasonably
practicable after filing; (c) obtaining all necessary consents, approvals,
waivers, licenses, permits, authorizations, registrations, qualifications, or
other permissions or actions by, and giving all necessary notices to and
making all necessary filings with and applications and submissions to, any
Governmental Entity or other entity as soon as reasonably practicable after
filing; (d) seeking early termination of any waiting period under the HSR
Act; (e) providing all such information concerning such party, its
subsidiaries and its officers, directors, partners and affiliates and making
all applications and filings as may be necessary or reasonably requested in
connection with any of the foregoing; (f) in general, consummating and making
effective the Transactions; and (g) in the event and to the extent required,
amending this Agreement so that this
23
<PAGE>
Agreement and the Offer and the Merger comply with the DGCL. The parties
shall (and shall cause their respective affiliates, directors, officers,
employees, agents, attorneys, accountants and representatives to) use their
reasonable efforts to cause the lifting of any preliminary injunction or
restraining order or other similar order issued or entered by any court or
other Governmental Entity preventing or restricting consummation of the
transactions contemplated hereby in the manner provided for herein. Prior to
making any application to or filing with a Governmental Entity or other
entity in connection with this Agreement (other than filing under the HSR
Act), each party shall provide the other party with drafts thereof and afford
the other party a reasonable opportunity to comment on such drafts.
Section 5.5. STATE TAKEOVER STATUTES. The Company, Parent and
Purchaser will cooperate to take reasonable steps to (a) exempt the Offer and
the Merger from the requirements of any applicable state takeover law and (b)
assist in any challenge by any of the parties to the validity or
applicability to the Offer or the Merger of any state takeover law.
Section 5.6. NO SOLICITATION. (a) Neither the Company nor any of its
Subsidiaries shall (and the Company shall use its best efforts to cause its
officers, directors, employees, representatives and agents, including, but
not limited to, investment bankers, attorneys and accountants, not to),
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any proposal or offer to
acquire all or a substantial part of the business and properties of the
Company or any of its Subsidiaries or any capital stock of the Company or any
of its Subsidiaries, whether by merger, tender offer, exchange offer, sale of
assets or similar transactions involving the Company or any Subsidiary,
division or operating or principal business unit of the Company (an
"Acquisition Proposal"), except that nothing contained in this Section 5.6 or
any other provision hereof shall prohibit the Company or the Company's Board
from (i) taking and disclosing to the Company's stockholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules
14d-9 and 14e-2 promulgated under the Exchange Act, or (ii) making such
disclosure to the Company's stockholders as, in the good faith judgment of
the Board, after receiving advice from outside counsel, is required under
applicable law, provided that the Company may not, except as permitted by
Section 5.6(b), withdraw or modify, or propose to withdraw or modify, its
position with respect to the Offer or the Merger or approve or recommend, or
propose to approve or recommend any Acquisition Proposal, or enter into any
agreement with respect to any Acquisition Proposal. The Company will
immediately cease any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing. The
Company also shall promptly request each person which has heretofore executed
a confidentiality agreement in connection with its consideration of acquiring
the Company to return all confidential information heretofore furnished to
such person by or on behalf of the Company.
(b) Notwithstanding the foregoing, prior to the acceptance of
Shares pursuant to the Offer, the Company may furnish information concerning
the Company and its Subsidiaries to any corporation, partnership, person or
other entity or group pursuant to appropriate confidentiality agreements, and
may negotiate and participate in discussions and negotiations with such
entity or group concerning an Acquisition Proposal if (x) such entity or
group has submitted a bona fide written proposal to the Company relating to
any such transaction which the Board determines in good faith, after
consulting with a nationally recognized investment banking firm, represents a
superior transaction to the Offer and the Merger and (y) in the opinion of
the Board of Directors of the Company, only after receipt of advice from
outside legal counsel to the Company, the failure to provide such information
or access or to engage in such discussions or negotiations would reasonably
be expected to cause the Board of Directors to violate its fiduciary duties
to the Company's shareholders under applicable law (an Acquisition Proposal
which satisfies clauses (x) and (y) being referred to herein as a "Superior
Proposal"). The Company will immediately notify Parent of the existence of
any proposal or inquiry received by the Company, the
24
<PAGE>
identity of the party making such proposal or inquiry, and the terms (both
initial and modified) of any such proposal or inquiry (and will disclose any
written materials delivered in connection therewith) and the Company will
keep Parent reasonably informed of the status (including amendments or
proposed amendments) of any such proposal or inquiry. The Company will
promptly provide to Parent any material non-public information regarding the
Company provided to any other party which was not previously provided to
Parent. At any time following notification to Parent of the Company's intent
to do so (which notification shall include the identity of the bidder and the
material terms and conditions of the proposal) and if the Company has
otherwise complied with the terms of this Section 5.6(b), the Board of
Directors may withdraw or modify its approval or recommendation of the Offer
and may enter into an agreement with respect to a Superior Proposal, provided
it shall (i) take no such action unless it shall notify Parent promptly of
its intention, and in no event shall such notice be given less than two
business days prior to the earlier of the public announcement of such
withdrawal or modification of its recommendation or the Company's termination
of this Agreement, and (ii) concurrently with entering into such agreement
pay or cause to be paid to Parent the Break-Up Amount (as defined below) plus
any amount payable at the time for reimbursement of expenses pursuant to
Section 8.1(b). If the Company shall have notified Parent of its intent to
enter into an agreement with respect to a Superior Proposal in compliance
with the preceding sentence and has otherwise complied with such sentence,
the Company may enter into an agreement with respect to such Superior
Proposal.
Section 5.7. ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations, or to remove any injunctions or other impediments or
delays, legal or otherwise, to achieve the satisfaction of the Minimum
Condition and all conditions set forth in Annex A and Article VI, and to
consummate and make effective the Merger and the other transactions
contemplated by this Agreement as soon as practicable hereafter. In case at
any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and directors of the Company, Parent and Purchaser shall use all reasonable
efforts to take, or cause to be taken, all such necessary actions.
Section 5.8. PUBLICITY. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to
Parent and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall
issue or cause the publication of any press release or other announcement
with respect to the Merger, this Agreement or the other Transactions without
the prior consultation of the other party, except as such party reasonably
believes, after receiving the advice of outside counsel, may be required by
law or by any listing agreement with a national securities exchange or
trading market.
Section 5.9. NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent and Parent shall give prompt notice to the Company,
of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect at or
prior to the Effective Time and (ii) any material failure of the Company,
Parent or the Purchaser, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.9 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section 5.10. DIRECTORS, AND OFFICERS' INSURANCE AND INDEMNIFICATION.
(a) For five years after the Effective Time, the Surviving Corporation (or
any successor to the Surviving Corporation) shall indemnify, defend and hold
harmless the present and former officers and directors of the Company and its
Subsidiaries, determined as of the Effective Time (each an "Indemnified
Party") against all losses,
25
<PAGE>
claims, damages, liabilities, costs, fees and expenses (including reasonable
fees and disbursements of counsel and judgments, fines, losses, claims,
liabilities and amounts paid in settlement (provided that any such settlement
is effected only upon receipt of the written consent of the Parent or the
Surviving Corporation which consent shall not unreasonably be withheld))
arising out of actions or omissions occurring at or prior to the Effective
Time to the full extent required under applicable Delaware law, the terms of
the Certificate of Incorporation or the By-Laws, as in effect at the date
hereof, and the terms of any indemnification agreement entered into with the
Company prior to the date hereof and disclosed in Schedule 5.10 of the
Company Disclosure Schedule; provided that, in the event any claim or claims
are asserted or made within such five-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims.
(b) Parent or the Surviving Corporation shall maintain the Company's
existing officers, and directors' liability insurance ("D&O Insurance") for a
period of not less than three years after the Effective Time; provided, that
the Parent may substitute therefor policies of substantially equivalent
coverage and amounts containing terms no less favorable to such former
directors or officers; provided, further, if the existing D&O Insurance
expires, is terminated or canceled during such period, Parent or the
Surviving Corporation will use all reasonable efforts to obtain substantially
similar D&O Insurance; provided, further, however, that in no event shall
Parent, the Surviving Corporation or the Company be required to pay aggregate
premiums for insurance under this Section 5.10(b) in excess of 150% of the
aggregate premiums paid by the Company in 1996 on an annualized basis for
such purpose (the "1996 Premium"); and provided, further, that if the Parent
or the Surviving Corporation is unable to obtain the amount of insurance
required by this Section 5.10(b) for such aggregate premium, Parent or the
Surviving Corporation shall obtain as much insurance as can be obtained for
an annual premium not in excess of 150% of the 1996 Premium.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 5.10, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Surviving Corporation thereof, but
the failure to so notify shall not relieve the Surviving Corporation of any
liability or obligation it may have to such Indemnified Party except, and
only to the extent, that such failure prejudices the Surviving Corporation.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before, at or after the Effective Time), the Surviving
Corporation shall have the right to assume the defense thereof and the
Surviving Corporation shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Parties in connection with the defense thereof, except
that if the Surviving Corporation elects not to assume such defense or
counsel reasonably satisfactory to Parent for the Indemnified Parties advises
that there are actual conflicts of interest between the Surviving Corporation
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and the Surviving Corporation shall pay all reasonable
fees and expenses of such counsel.
ARTICLE VI.
CONDITIONS
Section 6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE
MERGER. The respective obligation of each party hereto to effect the Merger
shall be subject to the satisfaction on or prior to the Effective Time of
each of the following conditions, any and all of which may be waived, in
whole or in part, by the Company, Parent or the Purchaser, as the case may
be, to the extent permitted by applicable law:
26
<PAGE>
(a) SHAREHOLDER APPROVAL. This Agreement shall have been adopted and
the Merger shall have been approved by the requisite vote of the holders of
the Shares, if required by applicable law, in order to consummate the Merger.
(b) STATUTES; COURT ORDERS. No federal or state governmental or
regulatory body or court of competent jurisdiction shall have enacted,
issued, promulgated or enforced any statute, rule, regulation, executive
order, decree, judgment, preliminary or permanent injunction or other order
that is in effect and that prohibits, enjoins or otherwise restrains the
consummation of the Merger; provided however, that the parties shall use all
commercially reasonable efforts to cause any such decree, judgment,
injunction or order to be vacated or lifted.
(c) PURCHASE OF SHARES IN OFFER. Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer, except that
this condition shall not apply if Parent, the Purchaser or their affiliates
shall have failed to purchase Shares pursuant to the Offer in breach of their
obligations under this Agreement.
(d) HSR APPROVAL. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
Section 6.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following condition,
unless waived by the Company:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by Parent and Purchaser herein shall be true and correct,
unless the inaccuracies (without giving effect to any materiality or material
adverse effect qualifications or materiality exceptions contained therein)
under such representations and warranties taking all the inaccuracies under
all such representations and warranties together in their entirety, do not,
individually or in the aggregate, result in a Parent Material Adverse Effect.
Section 6.3. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND
PURCHASER. The obligation of the Parent and Purchaser to effect the Merger is
also subject to the satisfaction at or prior to the Effective Time of the
following additional condition, unless waived by either of Parent or
Purchaser.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES.. All representations
and warranties made by the Company herein shall be true and correct, unless
the inaccuracies (without giving effect to any materiality or material
adverse effect qualifications or materiality exceptions contained therein)
under such representations and warranties taking all the inaccuracies under
all such representations and warranties together in their entirety, do not,
individually or in the aggregate, result in a Company Material Adverse Effect.
ARTICLE VII.
TERMINATION
Section 7.1. TERMINATION. This Agreement may be terminated and the
Transactions contemplated herein may be abandoned at any time prior to the
Effective Time, whether before or after shareholder approval thereof:
(a) By the mutual written consent of Parent and the Company.
27
<PAGE>
(b) By either of the Company or Parent:
(i) if the Offer shall have expired without any
Shares being purchased therein; provided, however, that the right
to terminate this Agreement under this Section 7.1(b)(i) shall not
be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the
failure of Parent or the Purchaser, as the case may be, to purchase
the Shares pursuant to the Offer on or prior to such date;
(ii) if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their
reasonable efforts to lift), which permanently restrains, enjoins
or otherwise prohibits the consummation of the Offer or the Merger
and such order, decree, ruling or other action shall have become
final and non-appealable; or
(iii) if the Offer has not been consummated
prior to October 5, 1997; provided, that the right to terminate
this Agreement under this Section 7.1(b)(iii) shall not be
available to any party whose misrepresentation in this Agreement or
whose failure to perform any of its covenants and agreements or to
satisfy any obligation under this Agreement has been the cause of,
or resulted in, the failure of Parent or the Purchaser, as the case
may be, to purchase Shares pursuant to the Offer on or prior to
such date.
(c) By the Company:
(i) if Parent, the Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public
announcement of the Offer; provided, that the Company may not
terminate this Agreement pursuant to this Section 7.1(c)(i) if the
Company is at such time in breach of its obligations under this
Agreement such as to cause a Company Material Adverse Effect;
(ii) in connection with entering into an agreement
with respect to a Superior Proposal in accordance with Section
5.6(b), provided it has complied with all provisions thereof,
including the notice provisions therein, and that it makes
simultaneous payment of the Break-Up Amount as provided in Section
8.1(b); or
(iii) if Parent or the Purchaser shall have
breached in any material respect any of their respective
representations, warranties, covenants or other agreements
contained in this Agreement, which is not cured, in all material
respects, within 30 days after the giving of written notice by the
Company to Parent or the Purchaser, as applicable.
(d) By Parent:
(i) if either Parent or the Purchaser is entitled
to terminate the Offer as a result of the occurrence of any event
set forth in paragraph (d) of Annex A hereto;
(ii) if the Offer is not commenced as provided in
Section 1.1 as a result of actions or inaction by the Company that
result in the failure of a condition specified in Annex A hereto,
or the Offer is terminated or expires as a result of the failure of
a condition specified in Annex A hereto, unless such termination or
expiration has been caused by or resulted from the failure of
Parent or Purchaser to perform any covenants and agreements of
Parent or Purchaser contained in this Agreement; or
28
<PAGE>
(iii) if (A) the Company shall have breached in any
respect any of its representations or warranties contained in this
Agreement, unless the inaccuracies (without giving effect to any
materiality or material adverse effect qualifications or
materiality exceptions contained therein) under such
representations and warranties taking all the inaccuracies under
all such representations and warranties together in their entirety,
do not, individually or in the aggregate, result in a Company
Material Adverse Effect or (B) the Company shall have breached or
failed to perform any obligation or to comply with any agreement or
covenant to be performed or complied with by it under the
Agreement, other than, any breach or failure which would not have,
either individually or in the aggregate, a Company Material Adverse
Effect (in each of cases (A) and (B), which breach or failure has
not been cured within thirty (30) days following receipt of written
notice thereof by Parent specifying in reasonable detail the basis
of such alleged breach or failure).
Section 7.2. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made, and this Agreement shall
forthwith become null and void and of no further force or effect, and no
party hereto (or any of its affiliates, directors, officers, agents or
representatives) shall have any liability or obligation hereunder, except in
any such case (a) as provided in Sections 5.2(b) (Confidentiality), 5.8
(Publicity), 7.2 (Effect of Termination) and 8.1 (Fees and Expenses), which
shall survive any such termination and (b) to the extent such termination
results from the breach by such party of any of its representations,
warranties, covenants or agreements contained in this Agreement, provided,
however, that a party's damages for any such breach shall be limited to such
party's actual damages and neither party shall be entitled to seek
consequential or special damages for any such breach.
ARTICLEV III.
MISCELLANEOUS
Section 8.1. FEES AND EXPENSES. (a) Except as contemplated by this
Agreement, including Section 8.1(b) hereof, all costs and expenses incurred
in connection with this Agreement and the consummation of the Transactions
shall be paid by the party incurring such expenses.
(b) If (x) the Company shall terminate this Agreement pursuant to
Section 7.1(c)(ii), (y) Parent shall terminate this Agreement pursuant to
Section 7.1(d)(i) hereof, or (z) either the Company or Parent terminates this
Agreement pursuant to Section 7.1(b)(i) and (1) prior thereto there shall
have been publicly announced another Acquisition Proposal, or (2) (i) the
Company shall have entered into a definitive agreement relating to an
Acquisition Proposal, or (ii) a business combination or other transaction
contemplated by an Acquisition Proposal shall have been consummated, in each
of cases (i) and (ii) prior to or within six months following such
termination, then the Company agrees that it will immediately thereafter pay
to Parent, in same day funds, an amount (the "Break-Up Amount") equal to
$6,700,000.
Section 8.2. AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the shareholders of the Company
contemplated hereby, by written agreement of the parties hereto, by action
taken by their respective Boards of Directors (which in the case of the
Company shall include approvals as contemplated in Section 1.3(b)), at any
time prior to the Closing Date with respect to any of the terms contained
herein; provided, however, that after the approval of this Agreement by the
stockholders of the Company, no such amendment, modification or supplement
shall reduce the amount or change the form of the Merger Consideration.
29
<PAGE>
Section 8.3. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any
schedule, instrument or other document delivered pursuant to this Agreement
shall survive the Effective Time.
Section 8.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, telecopied (which is confirmed) or sent by
an overnight courier service, such as Federal Express, to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or the Purchaser, to:
Omnicare, Inc.
2800 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45203
Attention: Mr. Joel F. Gemunder
President
Telephone Number: (513) 762-6666
Telecopy Number: (513) 762-6678
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attention: Morton A. Pierce
Telephone Number: (212) 259-8000
Telecopy Number: (212) 259-6333
(b) if to the Company, to:
American Medserve Corporation
184 Shuman Blvd.
Naperville, Illinois 60563
Attention: Mr. Timothy L. Burfield
President
Telephone Number: (630) 717-2904
Telecopy Number: (630) 717-4196
with a copy to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, Illinois 60610
Attention: Glenn W. Reed, Esq.
Telephone Number: (312) 245-8446
Telecopy Number: (312) 644-3381
30
<PAGE>
Section 8.5. INTERPRETATION. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including"
are used in this Agreement they shall be deemed to be followed by the words
"without limitation". As used in this Agreement, the term "affiliates" shall
have the meaning set forth in Rule 12b-2 of the Exchange Act..
Section 8.6. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be. considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties.
Section 8.7. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein and therein): (a) constitute the entire
agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 5.10 is not intended to confer
upon any person other than the parties hereto any rights or remedies
hereunder.
Section 8.8. SEVERABILITY. Any term or provision of this Agreement that
is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
Section 8.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
Section 8.10. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
content of the other parties, except that the Purchaser may assign, in its
sole discretion, any or all of its rights, interests and obligations
hereunder to Parent or to any direct or indirect wholly owned Subsidiary of
Parent. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
Section 8.11. WAIVERS. At any time prior to the Effective Time, Parent
(for Parent and Purchaser), on the one hand, or the Company, on the other
hand, may, to the extent legally allowed, extend the time specified herein
for the performance of any of the obligations or other acts of the other,
waive any inaccuracies in the representations and warranties of the other
contained herein or in any document delivered pursuant hereto, or waive
compliance by the other with any of the agreements or covenants of such other
party or parties (as the case may be) contained herein. Any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of the other party or parties to be bound thereby. No such extension
or waiver shall constitute a waiver of or estoppel with respect to, any
subsequent or other breach or failure to strictly comply with the provisions
of this Agreement. The failure of any party to insist on strict compliance
with this Agreement or to assert any of its rights or remedies hereunder or
with respect hereto shall not constitute a waiver of such rights or remedies.
31
<PAGE>
Section 8.12. CAPTIONS. The Table of Contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
32
<PAGE>
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
OMNICARE, INC.
By /s/ Joel F. Gemunder
---------------------------------
Name: Joel F. Gemunder
Title: President
OMNICARE ACQUISITION CORP.
By /s/ Joel F. Gemunder
---------------------------------
Name:
Title:
AMERICAN MEDSERVE CORPORATION
By /s/ Timothy L. Burfield
---------------------------------
Name: Timothy L. Burfield
Title: President
33
<PAGE>
ANNEX A
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, and in
addition to (and not in limitation of) the Purchaser's rights to extend and
amend the Offer at any time in its sole discretion (subject to the provisions
of the Merger Agreement), the Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-l(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment
of or, subject to the restriction referred to above, the payment for, any
tendered Shares, and may terminate or amend the Offer as to any Shares not
then paid for, if (i) the Minimum Condition has not been satisfied, (ii) if
any applicable waiting period for the Offer under the HSR Act has not
expired, or (iii) at any time on or after the date of the Merger Agreement
and before the time of acceptance for payment for any such Shares, any of the
following events shall have occurred:
(a) there shall be threatened, instituted or pending any
suit, action or proceeding by or before any Governmental Entity against the
Purchaser, Parent, the Company or any Subsidiary of the Company (i) seeking
to prohibit or impose any material limitations on Parent's or the Purchaser's
ownership or operation (or that of any of their respective Subsidiaries or
affiliates) of all or a material portion of their or the Company's businesses
or assets, or to compel Parent or the Purchaser or their respective
Subsidiaries and affiliates to dispose of or hold separate any material
portion of the business or assets of the Company or Parent and their
respective Subsidiaries, in each case taken as a whole, (ii) challenging the
acquisition by Parent or the Purchaser of any Shares under the Offer, seeking
to restrain or prohibit the making or consummation of the Offer or the Merger
or the performance of any of the other transactions contemplated by the
Agreement, or seeking to obtain from the Company, Parent or the Purchaser any
material damages, (iii) seeking to impose material limitations on the ability
of the Purchaser, or render the Purchaser unable, to accept for payment, pay
for or purchase some or all of the Shares pursuant to the Offer and the
merger, (iv) seeking to impose material limitations on the ability of
Purchaser or Parent effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote the Shares purchased
by them on all matters properly presented to the Company's stockholders, or
(v) which otherwise is reasonably likely to have a Company Material Adverse
Effect;
(b) there shall be any action taken by a Governmental
Entity or any statute, rule, regulation, judgment, administrative
interpretation, order or injunction enacted, entered, enforced, promulgated,
or deemed applicable, to the Company, Parent, Purchaser, the Offer or the
Merger, or any other action shall be taken by any Governmental Entity that is
reasonably expected to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any other event, change or
effect after the date of the Agreement which, either individually or in the
aggregate, would have, or be reasonably likely to have, a Company Material
Adverse Effect;
(d)(i) the Board of Directors of the Company or any
committee thereof shall have modified in a manner adverse to Parent or the
Purchaser or withdrawn its approval or recommendation of the Offer, the
Merger or the Agreement, or approved or recommended any Acquisition Proposal;
(ii) the Company shall have entered into any agreement with respect to any
Superior Proposal in accordance with Section 5.6(b) of the Agreement; or
(iii) the Board of Directors of the Company resolves to do any of the
foregoing;
(e) the representations and warranties of the Company
set forth in the Agreement shall not be true and correct, in each case (i)
as of the date referred to in any representation or warranty which
A-1
<PAGE>
addresses matters as of a particular date, or (ii) as to all other
representations and warranties, as of the date of the Agreement and as of the
scheduled expiration of the Offer, unless the inaccuracies (without giving
effect to any materiality or material adverse effect qualifications or
materiality exceptions contained therein) under such representations and
warranties, taking all the inaccuracies under all such representations and
warranties together in their entirety, do not, individually or in the
aggregate, result in a Company Material Adverse Effect;
(f) the Company shall have breached or failed to perform
any obligation or to comply with any agreement or covenant to be performed or
complied with by it under the Agreement other than any breach or failure
which would not have, either individually or in the aggregate, a Company
Material Adverse Effect (which breach or failure has not been cured within
thirty (30) days following receipt of written notice thereof by Parent
specifying in reasonable detail the basis of such alleged breach or failure);
(g) any person, entity or "group" (as such term is used
in Section 13(d)(3) of the Exchange Act) other than Parent or any of its
affiliates acquires beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act), of at least 30% of the outstanding
Shares of the Company;
(h) the Agreement shall have been terminated in
accordance with its terms; which, in the sole judgment of Parent or the
Purchaser, in any such case, and regardless of the circumstances (including
any action or inaction by Parent or the Purchaser) giving rise to such
condition makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payment for Shares; or
(i) there shall have occurred (i) any general suspension
of, or limitation on prices for, trading in securities on any national
securities exchange or in the over-the-counter market in the United States,
(ii) the declaration of any banking moratorium or any suspension of payments
in respect of banks or any limitation (whether or not mandatory) on the
extension of credit by lending institutions in the United States, (iii) the
commencement of a war, material armed hostilities or any other material
international or national calamity involving the United States, (iv) in the
case of any of the foregoing existing at the time of the commencement of the
Offer, a material acceleration or worsening thereof, or (v) any decline,
measured from the date hereof, in the Standard & Poor's 500 Index by an
amount in excess of 25%.
The foregoing conditions are for the sole benefit of
Parent and the Purchaser, may be asserted or waived by Parent or the
Purchaser regardless of the circumstances giving rise to such condition
(including any action or inaction by Parent or the Purchaser not in violation
of the Agreement) and may be asserted or waived by Parent or the Purchaser in
whole or in part at any time and from time to time in the sole discretion of
Parent or the Purchaser, subject in each case to the terms of the Merger
Agreement. The failure by Parent or the Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
A-2
<PAGE>
PRIVILEGED AND CONFIDENTIAL
(Two Year Severance)
Type A
AMERICAN MEDSERVE CORPORATION
184 SHUMAN BLVD.
SUITE 200
NAPERVILLE, ILLINOIS 60563
(630) 717-2904
August 7, 1997
Mr. Michael B. Freedman
Vice President - Business Development
American Medserve Corporation
184 Shuman Boulevard
Naperville, Illinois 60563
Dear Mike:
American Medserve Corporation (the "Company") considers you to be a valued
employee of the Company. In recognition of the value of your continued services
to the Company and its shareholders, the Company proposes the following
agreement (the "Agreement") to provide you with certain severance payments and
benefits if your employment terminates following a "Change of Control" that
occurs on or prior to August 31, 1998 (as defined below).
ARTICLE I.
DEFINITIONS
1.1. DEFINITIONS
Whenever used in this Agreement, the following capitalized terms shall have
the meanings set forth in this Section, certain other capitalized terms being
defined elsewhere in this Agreement.
(a) "Annualized Compensation" means your highest annualized Compensation
within one year of the date on which your employment terminates.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
(c) "Board of Directors" means the Board of Directors of the Company.
(d) "Change of Control" of the Company means and includes either of the
following which occurs on or prior to August 31, 1998:
(i) Any Person or "group" (as that term is defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company, or of any entity
resulting from a merger or consolidation involving the Company,
<PAGE>
representing more than 50% of the combined voting power of the
then outstanding securities of the Company or such entity.
(ii) Any Person or "group" (as that term is defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) acquires all or substantially all of the assets of
the Company.
(e) "Company" means American Medserve Corporation, a Delaware corporation,
and any successor as provided in Article V.
(f) "Compensation" means and includes all of your base wages and/or salary
paid to you by the Company and/or any of its subsidiaries as
consideration for your services that are includible in your gross
income for federal income tax purposes, plus 50% of your target bonus
(even if not yet paid or payable) under the Company's 1997 bonus plan
and any amounts excludable from your gross income for federal income
tax purposes pursuant to Section 125 or Section 401(k) of the Internal
Revenue Code of 1986, as amended.
(g) "Constructive Termination Event" means any of the following events,
which shall not have been remedied by the Company within 15 days
following written notice from you to the Company of the occurrence of
such event:
(i) The Company or any of its subsidiaries reduces your base salary
or rate of Compensation as in effect immediately prior to the
Change of Control, or otherwise fails to provide to you
compensation and benefit plans, arrangements, policies and
procedures which, taken as a whole, are no less favorable to you
(including on an after-tax basis) than those, taken as a whole,
provided by the Company or any of its subsidiaries to you
immediately prior to the Change of Control.
(ii) Without your express written consent, the Company or any of its
subsidiaries significantly reduces your job authority and
responsibility.
(iii) Without your express written consent, the Company or any of
its subsidiaries requires you to change the location of your job
or office, so that you will be based at a location more than 35
miles from the location of your job or office immediately prior
to the Change of Control.
(iv) A successor company fails or refuses to assume the Company's
obligations under this Agreement, as required by Article V.
(v) The Company or any successor company breaches any of the
material provisions of this Agreement.
(h) "ERISA" means the Employee Retirement Income Security Act of 1974 as
amended.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) "Just Cause" means the termination of your employment as a result of
fraud, misappropriation of or intentional material damage to the
property or business of the Company (including its subsidiaries), or
commission of a felony.
-2-
<PAGE>
(k) "Person" shall have the meaning ascribed to such term in Section 3 of
the Exchange Act and the rules and regulations promulgated thereunder.
(l) "Severance Payment" means the payment of severance compensation as
provided in Article II.
ARTICLE II.
SEVERANCE PAYMENT
2.1. RIGHT TO SEVERANCE PAYMENT
You shall be entitled to receive a Severance Payment from the Company in
the amount provided in Section 2.2 if (i) there has been a Change of Control,
(ii) you are an active employee (or on sick leave, military leave or any other
employer-approved leave of absence) at the time of the Change of Control, and
(iii) within 730 calendar days from and including the date of the Change of
Control, your employment is involuntarily terminated for any reason (other than
for Just Cause or your death or retirement after age 65) or you voluntarily
terminate your employment following the occurrence of a Constructive Termination
Event.
2.2. AMOUNT OF SEVERANCE PAYMENT
(a) If you become entitled to a Severance Payment within 183 calendar days
following the Change in Control, you shall receive a lump-sum payment
equal to two times one year's Annualized Compensation. If you become
entitled to a Severance Payment after 183 calendar days following the
Change in Control, your Severance Payment shall be an amount equal to
(a) two times one year's Annualized Compensation less (b) two times
one year's Annualized Compensation times a fraction having a numerator
equal to the number of calendar days that have elapsed since the six-
month anniversary of the Change of Control and a denominator equal to
548 calendar days.
(b) The Severance Payment otherwise calculated under this Section 2.2
shall be reduced by the amount of cash severance-type benefits to
which you may be entitled pursuant to any other severance plan,
employment or other agreement, or policy or program of the Company or
any of its subsidiaries; PROVIDED, that if the amount of cash
severance benefits payable under such other severance plan, employment
or other agreement, policy or program is greater then the amount
payable pursuant to this Agreement, you will be entitled to receive
the amounts payable under such other plan, employment or other
agreement, policy or program. Without limiting other payments which
would not constitute "cash severance-type benefits" hereunder, any
cash settlement of stock options, accelerated vesting of stock options
and retirement, pension and other similar benefits shall not
constitute "cash severance-type benefits" for purposes of this
Section 2.2(b).
2.3. VESTING OF OPTIONS
Any unvested stock options for the purchase of Company stock which you are
holding on the date on which you become entitled to a Severance Payment shall
immediately become fully vested.
-3-
<PAGE>
2.4. NO DUTY OF MITIGATION
The Company acknowledges that it would be very difficult and generally
impracticable to determine your ability to, or extent to which you may, mitigate
any damages or injuries you may incur by reason of the Change of Control. The
Company has taken this into account in entering into this Agreement and,
accordingly, the Company acknowledges and agrees that you shall have no duty to
mitigate any such damages and that you shall be entitled to receive your entire
Severance Payment regardless of any income which you may receive from other
sources following your termination after any Change in Control.
2.5. TIME OF SEVERANCE PAYMENT
The Severance Payment to which you are entitled shall be paid to you, in
cash and in full, not later than 10 calendar days after the termination of your
employment. If you should die before all amounts payable to you have been paid,
such unpaid amounts shall be paid to your beneficiary under this Agreement or,
if you have not designated such a beneficiary in writing to the Company, to the
personal representative(s) of your estate.
2.6. LIFE AND HEALTH INSURANCE COVERAGE
If you are entitled to receive a Severance Payment under Section 2.1, you
will also be entitled to receive the following additional benefits:
(a) Life insurance coverage for you having a face amount at least equal to
the greater of (i) the amount, if any, in effect for you on the date
of the Change of Control, or (ii) the amount, if any, in effect for
you on the date of termination of your service, such coverage to be
provided under the same plan or plans under which you were covered
immediately prior to the termination of your employment or
substantially similar plan(s) established by the Company or any of its
subsidiaries thereafter. Such life insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by
the Company and you will be required to make such payments as you
would be required to make if you were still employed by the Company.
This coverage will continue following the date of termination of your
employment until the date which is 730 calendar days after the Change
in Control.
(b) Health insurance coverage (including any dental coverage) for you and
your dependents under the same plan or plans under which you were
covered immediately prior to the termination of your employment or
substantially similar plan(s) established by the Company or any of its
subsidiaries thereafter. Such health insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by
the Company, and you will be required to make such payments as you
would be required to make if you were still employed by the Company.
This coverage will continue following the date of termination of your
employment until the date which is 730 calendar days after the Change
in Control.
(c) The benefits for medical coverage under the provisions of
Section 2.6(b) shall end as of the date you become covered under any
other group health plan not maintained by the Company or any of its
subsidiaries which provides equal or greater benefits than such
-4-
<PAGE>
plan and which does not exclude any pre-existing condition that you or
your dependents may have a that time.
2.7. WITHHOLDING OF TAXES
The Company may withhold from any amounts payable under this Agreement all
federal, state, city or other taxes required by applicable law to be withheld by
the Company.
2.8. BENEFITS UNDER OTHER PLANS
The benefits that you may be entitled to receive pursuant to Section 2.6
are not intended to be duplicative of any similar benefits to which you may be
entitled from the Company or any of its subsidiaries under any other severance
plan, agreement, policy or program maintained by the Company or any of its
subsidiaries. Accordingly, the benefits to which you are entitled under
Section 2.6 shall be reduced to take account of any other similar benefits to
which you are entitled from the Company or any of its subsidiaries; PROVIDED,
HOWEVER, that if the amount of benefits to which you are entitled under such
other severance plan, agreement, policy or program is greater than the benefits
to which you are entitled under Section 2.6, you will be entitled to receive the
full amount of the benefits to which you are entitled under such other plan,
agreement, policy or program.
2.9. GROSS-UP FOR EXCISE TAXES
(a) In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")), to you or for your benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, your employment
with the Company or any of its subsidiaries or a Change of Control (a
"Payment"), would be subject to the excise tax imposed by Section 4999
of the Code or any interest or penalties are incurred by you with
respect to such excise tax (such excise tax, together with any such
interest and penalties, collectively, the "Excise Tax"), then you will
be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by you of all taxes (including any
interest or penalties imposed with respect to such taxes and the
Excise Tax, other than interest and penalties imposed by reason of
your failure to file timely a tax return or pay taxes shown due on
your return), including any Excise Tax imposed upon the Gross-Up
Payment, you retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
(b) An initial determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by Ernst & Young LLP or, if
such firm is unable to render such a determination, then by an
accounting firm mutually acceptable to you and the Company (the
"Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation to the Company and you within 15
calendar days of the date on which your right to a Severance Payment
hereunder was triggered (if requested at that time by the Company or
you) or such other time as requested by the Company or by you (in
either case provided that you believe in good faith that any of the
Payment may be subject to the Excise Tax); PROVIDED that if the
Accounting Firm determines that no Excise Tax is payable by you with
respect to a Payment, it shall furnish you with an opinion reasonably
acceptable to
-5-
<PAGE>
you that no Excise Tax will be imposed with respect to any such
Payment. Within 10 calendar days of the delivery of the Determination
to you, you shall have the right to dispute the Determination (the
"Dispute"). The Gross-Up Payment, if any, as determined pursuant to
this Section 2.9(b) shall be paid by the Company to you within 5
calendar days of the receipt of the Accounting Firm's determination.
The existence of any Dispute shall not in any way affect your right to
receive the Gross-Up Payment, if any, in accordance with the
Determination. If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Company and you, subject to the
application of Section 2.9(c).
(c) As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that a Gross-Up Payment (or a portion
thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion thereof) which should
have been paid will not have been paid (an "Underpayment"). An
Underpayment shall be deemed to have occurred (i) upon notice (formal
or informal) to you from any governmental taxing authority that your
tax liability (whether in respect of your current taxable year or in
respect of any prior taxable year) may be increased by reason of the
imposition of the Excise Tax on a Payment with respect to which the
Company has failed to make a sufficient Gross-Up Payment, (ii) upon a
determination by a court, (iii) by reason of determination by the
Company (which shall include the position taken by the Company,
together with its consolidated group, on its federal income tax
return) or (iv) upon the resolution of any Dispute to your
satisfaction. If an Underpayment occurs, you shall promptly notify
the Company and the Company shall promptly, but in any event at least
10 calendar days prior to the date on which the applicable government
taxing authority has requested payment, pay to you an additional
Gross-Up Payment equal to the amount of the Underpayment plus any
interest and penalties (other than interest and penalties imposed by
reason of your failure to file timely a tax return or pay taxes shown
due on your return) imposed on the Underpayment. An Excess Payment
shall be deemed to have occurred upon a "Final Determination" (as
defined below) that the Excise Tax will not be imposed upon a Payment
(or portion thereof) with respect to which you had previously received
a Gross-Up Payment. A "Final Determination" shall be deemed to have
occurred when you have received from the applicable government taxing
authority a refund of taxes or other reduction in your tax liability
by reason of the Excise Payment and upon either (x) the date a
determination is made by, or an agreement is entered into with, the
applicable governmental taxing authority which finally and
conclusively binds you and such taxing authority, or in the event that
a claim is brought before a court of competent jurisdiction, the date
upon which a final determination has been made by such court and
either all appeals have been taken and finally resolved or the time
for all appeals has expired or (y) the statue of limitations with
respect to your applicable tax return has expired. If an Excess
Payment is determined to have been made, the amount of the Excess
Payment shall be treated as a loan by the Company to you and you shall
pay to the Company on demand (but not less than 10 calendar days after
the determination of such Excess Payment and written notice has been
delivered to you) the amount of the Excess Payment plus interest at an
annual rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment (to
which the Excess Payment relates) was paid to you until the date of
repayment to the Company.
-6-
<PAGE>
(d) Notwithstanding anything contained in this Agreement to the contrary,
in the event that, according to the Determination, an Excise tax will
be imposed on any Payment, the Company shall pay to the applicable
government taxing authorities, as Excise Tax withholding, the amount
of the Excise Tax that the Company has actually withheld from the
Payment.
ARTICLE III.
CONFIDENTIALITY AND NON-COMPETITION
3.1. CONFIDENTIALITY
You acknowledge that all Confidential Information is the exclusive property
of the Company (for purposes of this Article III, "Company" shall include all of
its subsidiaries) and agree to hold all Confidential Information in trust for
the benefit of the Company or any third party as described below. You further
agree not to use in any manner, during your employment and at all times
thereafter so long as it remains confidential, for your benefit or for the
benefit of any other individual or entity, or divulge or convey to any other
individual or entity, any Confidential Information without the prior written
permission of the Company's Chief Executive Officer (the "CEO"), unless (a) it
is pursuant to your job duties while you are employed by the Company or (b) you
are required to do so by legal process; provided that, before making such
disclosure, you will advise the CEO and will cooperate fully in any legal action
the Company may elect to take in order to attempt to prevent such disclosure.
"Confidential Information" shall be defined as all information, knowledge or
data relating to the Company, including, but not limited to, trade secrets;
financial information; technological and engineering data; business applications
and techniques; research and development activities; preferences and identities
of clients, customers, vendors, suppliers and prospective clients, customers,
vendors and suppliers; current, prospective and ongoing business strategies,
plans and techniques; computer and other programs, software, devices, methods,
techniques, processes and inventions; compilations and other materials developed
by or on behalf of the Company (whether in written, graphic, audiovisual,
electronic or other media, including computer software), which has been or may
be subject to reasonable efforts to maintain its confidentiality, which is not
generally known to the public or by competitors of the Company, and which
derives its value from remaining undisclosed. Confidential Information also
includes information in the above categories of any client, customer, supplier,
vendor or other third party doing business with the Company, which has been or
will be disclosed to the Company. Confidential Information does not include any
information that is in the public domain or otherwise is or becomes publicly
available (other than as a result of a wrongful act by you or any owner, agent
or employee of the Company).
3.2. NON-COMPETITION
You agree that, during your employment by the Company and for a period of
two years following the termination of your employment for any reason, you will
not, directly or indirectly, by any means or device whatsoever, for yourself, or
on behalf of or in conjunction with any person, partnership, corporation,
limited liability company or other entity whatsoever, do any one or more of the
following:
(a) Solicit, induce, entice, hire or employ, or attempt to solicit,
induce, entice, hire or employ any employee of the Company, so as to
cause or attempt to cause such employee to leave the employ of the
Company and/or to accept employment with a business which is
competitive with the Company.
-7-
<PAGE>
(b) Own, operate, manage, consult for, be affiliated with, be employed by,
or render services to, any person, partnership, corporation or other
entity whatsoever, which is competitive with the Company, or otherwise
compete with the Company, in any geographic areas in the United States
where the Company engages in business as of the date of your
termination; or
(c) Call on, contact, solicit or otherwise seek to deal or deal with any
actual or known potential client, customer, vendor or supplier of the
Company which was an actual or known potential client, customer,
vendor or supplier of the Company during your employment or as of the
date of your termination, whichever may be applicable, for the purpose
of interfering with, disrupting or competing with the business of the
Company.
3.3. ENFORCEMENT
(a) You acknowledge that any breach of this Article III would cause
irreparable harm to the Company, and that money damages would be an
inadequate remedy for any such breach. In the event you breach or
threaten to breach any provision of this Article III, the Company or
its successors or assigns, in addition to other rights and remedies
existing in its or their favor, may apply to any court of competent
jurisdiction for specific performance, injunctive and/or other
equitable relief in order to enforce or prevent any violation of this
Article III.
(b) Notwithstanding the requirements of Section 3.3(a), any and all rights
which you may have under this Agreement, including your rights with
respect to the Severance Payment and benefits under Article II, shall
terminate and any payments or other benefits which you are receiving
from the Company shall automatically cease and otherwise be forfeited
in the event you violate any provision of this Article III.
3.4. REVISION
If, at the time of enforcement of this Article III, a court holds that the
restrictions stated herein are unreasonable because they are overly broad, under
the circumstances then existing, as to time, geographic area and/or scope of
conduct and therefore are unenforceable, the parties agree that such court shall
revise this Article III by substituting the maximum time period, geographic area
and/or scope of conduct deemed reasonable and enforceable under such
circumstances.
ARTICLE IV.
OTHER RIGHTS AND BENEFITS NOT AFFECTED
4.1. OTHER BENEFITS
This Agreement does not provide a pension for you nor shall any payment
hereunder be characterized as deferred compensation. Except as set forth in
Sections 2.2(b) and 2.8, neither the provisions of this Agreement nor the
Severance Payment provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish your rights as an employee, whether existing now
or hereafter, under any benefit, incentive, retirement, stock option, stock
bonus or stock purchase plan or any employment agreement or other plan or
arrangement not related to severance. Any such other amounts or benefits
payable shall be included, as necessary, for making any of the calculations
required under Section 2.9.
-8-
<PAGE>
4.2. EMPLOYMENT STATUS
This Agreement does not constitute a contract of employment or impose on
you any obligation to remain in the employ of the Company, nor does it impose on
the Company or any of its subsidiaries any obligation to retain you in your
present or any other position. Nothing in this Agreement shall in any way
require the Company or any of its subsidiaries to provide you with any severance
benefits prior to a Chance of Control, nor shall this Agreement ever be
construed in any way as establishing any policies or requirements of the Company
or any of its subsidiaries for the termination of your employment or the payment
of severance benefits to you if your employment terminates prior to a Change in
Control, nor shall anything in this Agreement in any way affect the right of the
Company or any of its subsidiaries in its absolute discretion to change prior to
a Change of Control one or more benefit plans.
ARTICLE V.
SUCCESSOR TO COMPANY
The Company shall require any successor or assignee, whether direct or indirect,
by purchase, merger, consolidation or otherwise, to all or substantially all of
the business or assets of the Company, expressly and unconditionally to assume
and agree to perform the Company's obligations under this Agreement. In such
event, the term "Company," as used in this Agreement, shall mean the Company as
herein before defined and any successor or assignee to the business or assets
which by reason hereof becomes bound by the terms and provisions of this
Agreement.
ARTICLE VI.
LEGAL FEES AND EXPENSES
The Company shall pay as they become due all legal fees, costs of litigation and
other expenses incurred in good faith by you as a result of the Company's
refusal or failure to make the Severance Payment to which you become entitled
under this Agreement, as a result of the Company's contesting the validity,
enforceability or interpretation of this Agreement or of your right to benefits
hereunder, or with regard to any Dispute (as defined in Section 2.9(b)). You
shall be conclusively presumed to have acted in good faith unless a court makes
a final determination not otherwise subject to appeal to the contrary.
ARTICLE VII.
ARBITRATION
Except as otherwise provided in Section 2.9, you shall have the right and option
(but not the obligation) to elect (in lieu of litigation) to have any dispute or
controversy arising under or in connection with this Agreement, including any
dispute under Section 2.9, settled by arbitration, conducted before a panel of
three arbitrators sitting in a location selected by you within 50 miles from the
location of your job with the Company or any of its subsidiaries, in accordance
with the rules of the American Arbitration Association ("AAA") then in effect.
The arbitrator will be selected by mutual agreement or from a list submitted by
AAA in accordance with AAA rules. All expenses of such arbitration, including
the fees and expenses of your counsel, shall be borne, and paid as incurred, by
the Company; provided, however, that if, in the opinion of the arbitrator, any
claim by you was unreasonable, the arbitrator may assess, as part of his/her
award, all or any part of the arbitration expenses related to such unreasonable
claim against you. Judgment may be entered on the award of the arbitrator in
any court having jurisdiction. Pending the arbitrator's decision as to issuance
of an award, the Company shall pay the Severance Payment and benefits to you
pursuant to Article II, provided you
-9-
<PAGE>
offer suitable security for repayment in the event that the award, or any part
thereof, is not in you favor, such as a bond, letter of credit or escrow
arrangement.
ARTICLE VIII.
MISCELLANEOUS
8.1. APPLICABLE LAW
To the extent not preempted by the laws of the United States and in the
interest of interpreting this Agreement in a uniform manner with other similar
agreements being entered into by the Company with other of its and its
subsidiaries' employees regardless of the jurisdiction in which you are employed
or any other factor, the laws of the State of Illinois shall be the controlling
law in all matters relating to this Agreement, regardless of the choice-of-law
rules of the State of Illinois or any other jurisdiction.
8.2. CONSTRUCTION
No term or provision of this Agreement shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision of this Agreement and any present or future statute, law,
ordinance, or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail, but in such event the affected provision of
this Agreement shall be curtailed and limited only to the extent necessary to
bring such provision within the requirements of the law.
8.3. SEVERABILITY
If a provision of this Agreement shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of this Agreement
and this Agreement shall be construed and enforced as if the illegal or invalid
provision had not been included.
8.4. HEADINGS
The Section headings in this Agreement are inserted only as a matter of
convenience, and in no way define, limit, or extend or interpret the scope of
this Agreement or of any particular Section.
8.5. NOTICE OF TERMINATION
Following a Change in Control, any purported termination of your employment
by the Company or any of its subsidiaries (not involving a Constructive
Termination Event) shall be communicated by a written notice of termination from
the Company to you, which notice shall indicate the specific termination
provision in this Agreement, if any, relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under any provision so indicated. The failure to
provide such notice shall create a rebuttable presumption that you are entitled
to a Severance Payment and the other benefits provided by this Agreement.
8.6. ASSIGNABILITY
Neither this Agreement nor any right or interest therein shall be
assignable or transferable (whether by pledge, grant of a security interest, or
otherwise) by you, your beneficiaries or legal representatives, except by will
or by the laws of descent and distribution. This Agreement shall be
-10-
<PAGE>
binding upon and shall inure to the benefit of the Company, its successors and
assigns, and you and shall be enforceable by them and your legal personal
representatives.
8.7. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Company and you
regarding the subject matter hereof.
8.8. TERM
If a Change of Control has not occurred prior to September 1, 1998, this
Agreement shall expire and be of not further force and effect on such date;
provided that the Board of Directors of the Company may, at any time prior to
the expiration hereof, extend the term of this Agreement for a term of up to two
years, including changing the date set forth in the second line of the
definition of "Change of Control," without any further action on your part.
If a Change of Control occurs prior to September 1, 1998, this Agreement
shall continue in full force and effect, and shall not terminate or expire until
the expiration of 730 calendar days from and including the date of the Change of
Control, at which time this Agreement shall terminate except if you become
entitled to the Severance Payment and benefits hereunder prior to such time. If
you become so entitled to a Severance Payment and benefits hereunder, this
Agreement shall continue and be effective until you (or the person(s) specified
in Section 2.5) shall have received in full the Severance Payment and other
benefits to which you are entitled under this Agreement, at which time this
Agreement shall terminate for all purposes.
8.9. AMENDMENT
Except as set forth in Section 8.8, no provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and the Company. No waiver by the
Company or you at any time or any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or any prior or subsequent time.
8.10. NOTICES
For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or sent by certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses last given by
each party to the other, provided that all notices to the Company shall be
directed to the attention of the Board of Directors with a copy to the Secretary
of the Company. All notices and communications shall be deemed to have been
received on the date of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be effective only
upon actual receipt. No objection to the method of delivery may be made if the
written notice or other communication is actually received.
-11-
<PAGE>
8.11. ADMINISTRATION
The Company has entered into agreements similar to this Agreement herein
with other employees of the Company or its subsidiaries. These agreements,
taken together, constitute a welfare benefit plan within the meaning of
Section 3(1) of ERISA. The Administrator of such plan, within the meaning of
Section 3(16) of ERISA, and the Named Fiduciary thereof, within the meaning of
Section 402 of ERISA, is the Company.
* * * * *
If this Agreement is acceptable to you, please sign the enclosed copy of
this Agreement in the space provided below and return it to me IMMEDIATELY.
Sincerely,
/s/ Timothy L. Burfield
Timothy L. Burfield
President and Chief Executive Officer
ACCEPTED AND AGREED TO:
/s/ Michael B. Freedman
- --------------------------
Michael B. Freedman
-12-
<PAGE>
PRIVILEGED AND CONFIDENTIAL
(Two Year Severance)
Type A
AMERICAN MEDSERVE CORPORATION
184 SHUMAN BLVD.
SUITE 200
NAPERVILLE, ILLINOIS 60563
(630) 717-2904
August 7, 1997
Mr. Charles R. Wallace
Vice President - CFO
American Medserve Corporation
184 Shuman Boulevard
Naperville, Illinois 60563
Dear Chuck:
American Medserve Corporation (the "Company") considers you to be a valued
employee of the Company. In recognition of the value of your continued services
to the Company and its shareholders, the Company proposes the following
agreement (the "Agreement") to provide you with certain severance payments and
benefits if your employment terminates following a "Change of Control" that
occurs on or prior to August 31, 1998 (as defined below).
ARTICLE I.
DEFINITIONS
1.1. DEFINITIONS
Whenever used in this Agreement, the following capitalized terms shall have
the meanings set forth in this Section, certain other capitalized terms being
defined elsewhere in this Agreement.
(a) "Annualized Compensation" means your highest annualized Compensation
within one year of the date on which your employment terminates.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
(c) "Board of Directors" means the Board of Directors of the Company.
(d) "Change of Control" of the Company means and includes either of the
following which occurs on or prior to August 31, 1998:
(i) Any Person or "group" (as that term is defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company, or of any entity
resulting from a merger or consolidation involving the Company,
<PAGE>
representing more than 50% of the combined voting power of the
then outstanding securities of the Company or such entity.
(ii) Any Person or "group" (as that term is defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) acquires all or substantially all of the assets of
the Company.
(e) "Company" means American Medserve Corporation, a Delaware corporation,
and any successor as provided in Article V.
(f) "Compensation" means and includes all of your base wages and/or salary
paid to you by the Company and/or any of its subsidiaries as
consideration for your services that are includible in your gross
income for federal income tax purposes, plus 50% of your target bonus
(even if not yet paid or payable) under the Company's 1997 bonus plan
and any amounts excludable from your gross income for federal income
tax purposes pursuant to Section 125 or Section 401(k) of the Internal
Revenue Code of 1986, as amended.
(g) "Constructive Termination Event" means any of the following events,
which shall not have been remedied by the Company within 15 days
following written notice from you to the Company of the occurrence of
such event:
(i) The Company or any of its subsidiaries reduces your base salary
or rate of Compensation as in effect immediately prior to the
Change of Control, or otherwise fails to provide to you
compensation and benefit plans, arrangements, policies and
procedures which, taken as a whole, are no less favorable to you
(including on an after-tax basis) than those, taken as a whole,
provided by the Company or any of its subsidiaries to you
immediately prior to the Change of Control.
(ii) Without your express written consent, the Company or any of its
subsidiaries significantly reduces your job authority and
responsibility.
(iii) Without your express written consent, the Company or any of
its subsidiaries requires you to change the location of your job
or office, so that you will be based at a location more than 35
miles from the location of your job or office immediately prior
to the Change of Control.
(iv) A successor company fails or refuses to assume the Company's
obligations under this Agreement, as required by Article V.
(v) The Company or any successor company breaches any of the
material provisions of this Agreement.
(h) "ERISA" means the Employee Retirement Income Security Act of 1974 as
amended.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) "Just Cause" means the termination of your employment as a result of
fraud, misappropriation of or intentional material damage to the
property or business of the Company (including its subsidiaries), or
commission of a felony.
-2-
<PAGE>
(k) "Person" shall have the meaning ascribed to such term in Section 3 of
the Exchange Act and the rules and regulations promulgated thereunder.
(l) "Severance Payment" means the payment of severance compensation as
provided in Article II.
ARTICLE II.
SEVERANCE PAYMENT
2.1. RIGHT TO SEVERANCE PAYMENT
You shall be entitled to receive a Severance Payment from the Company in
the amount provided in Section 2.2 if (i) there has been a Change of Control,
(ii) you are an active employee (or on sick leave, military leave or any other
employer-approved leave of absence) at the time of the Change of Control, and
(iii) within 730 calendar days from and including the date of the Change of
Control, your employment is involuntarily terminated for any reason (other than
for Just Cause or your death or retirement after age 65) or you voluntarily
terminate your employment following the occurrence of a Constructive Termination
Event.
2.2. AMOUNT OF SEVERANCE PAYMENT
(a) If you become entitled to a Severance Payment within 183 calendar days
following the Change in Control, you shall receive a lump-sum payment
equal to two times one year's Annualized Compensation. If you become
entitled to a Severance Payment after 183 calendar days following the
Change in Control, your Severance Payment shall be an amount equal to
(a) two times one year's Annualized Compensation less (b) two times
one year's Annualized Compensation times a fraction having a numerator
equal to the number of calendar days that have elapsed since the six-
month anniversary of the Change of Control and a denominator equal to
548 calendar days.
(b) The Severance Payment otherwise calculated under this Section 2.2
shall be reduced by the amount of cash severance-type benefits to
which you may be entitled pursuant to any other severance plan,
employment or other agreement, or policy or program of the Company or
any of its subsidiaries; PROVIDED, that if the amount of cash
severance benefits payable under such other severance plan, employment
or other agreement, policy or program is greater then the amount
payable pursuant to this Agreement, you will be entitled to receive
the amounts payable under such other plan, employment or other
agreement, policy or program. Without limiting other payments which
would not constitute "cash severance-type benefits" hereunder, any
cash settlement of stock options, accelerated vesting of stock options
and retirement, pension and other similar benefits shall not
constitute "cash severance-type benefits" for purposes of this
Section 2.2(b).
2.3. VESTING OF OPTIONS
Any unvested stock options for the purchase of Company stock which you are
holding on the date on which you become entitled to a Severance Payment shall
immediately become fully vested.
-3-
<PAGE>
2.4. NO DUTY OF MITIGATION
The Company acknowledges that it would be very difficult and generally
impracticable to determine your ability to, or extent to which you may, mitigate
any damages or injuries you may incur by reason of the Change of Control. The
Company has taken this into account in entering into this Agreement and,
accordingly, the Company acknowledges and agrees that you shall have no duty to
mitigate any such damages and that you shall be entitled to receive your entire
Severance Payment regardless of any income which you may receive from other
sources following your termination after any Change in Control.
2.5. TIME OF SEVERANCE PAYMENT
The Severance Payment to which you are entitled shall be paid to you, in
cash and in full, not later than 10 calendar days after the termination of your
employment. If you should die before all amounts payable to you have been paid,
such unpaid amounts shall be paid to your beneficiary under this Agreement or,
if you have not designated such a beneficiary in writing to the Company, to the
personal representative(s) of your estate.
2.6. LIFE AND HEALTH INSURANCE COVERAGE
If you are entitled to receive a Severance Payment under Section 2.1, you
will also be entitled to receive the following additional benefits:
(a) Life insurance coverage for you having a face amount at least equal to
the greater of (i) the amount, if any, in effect for you on the date
of the Change of Control, or (ii) the amount, if any, in effect for
you on the date of termination of your service, such coverage to be
provided under the same plan or plans under which you were covered
immediately prior to the termination of your employment or
substantially similar plan(s) established by the Company or any of its
subsidiaries thereafter. Such life insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by
the Company and you will be required to make such payments as you
would be required to make if you were still employed by the Company.
This coverage will continue following the date of termination of your
employment until the date which is 730 calendar days after the Change
in Control.
(b) Health insurance coverage (including any dental coverage) for you and
your dependents under the same plan or plans under which you were
covered immediately prior to the termination of your employment or
substantially similar plan(s) established by the Company or any of its
subsidiaries thereafter. Such health insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by
the Company, and you will be required to make such payments as you
would be required to make if you were still employed by the Company.
This coverage will continue following the date of termination of your
employment until the date which is 730 calendar days after the Change
in Control.
(c) The benefits for medical coverage under the provisions of
Section 2.6(b) shall end as of the date you become covered under any
other group health plan not maintained by the Company or any of its
subsidiaries which provides equal or greater benefits than such
-4-
<PAGE>
plan and which does not exclude any pre-existing condition that you or
your dependents may have a that time.
2.7. WITHHOLDING OF TAXES
The Company may withhold from any amounts payable under this Agreement all
federal, state, city or other taxes required by applicable law to be withheld by
the Company.
2.8. BENEFITS UNDER OTHER PLANS
The benefits that you may be entitled to receive pursuant to Section 2.6
are not intended to be duplicative of any similar benefits to which you may be
entitled from the Company or any of its subsidiaries under any other severance
plan, agreement, policy or program maintained by the Company or any of its
subsidiaries. Accordingly, the benefits to which you are entitled under
Section 2.6 shall be reduced to take account of any other similar benefits to
which you are entitled from the Company or any of its subsidiaries; PROVIDED,
HOWEVER, that if the amount of benefits to which you are entitled under such
other severance plan, agreement, policy or program is greater than the benefits
to which you are entitled under Section 2.6, you will be entitled to receive the
full amount of the benefits to which you are entitled under such other plan,
agreement, policy or program.
2.9. GROSS-UP FOR EXCISE TAXES
(a) In the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")), to you or for your benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, your employment
with the Company or any of its subsidiaries or a Change of Control (a
"Payment"), would be subject to the excise tax imposed by Section 4999
of the Code or any interest or penalties are incurred by you with
respect to such excise tax (such excise tax, together with any such
interest and penalties, collectively, the "Excise Tax"), then you will
be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by you of all taxes (including any
interest or penalties imposed with respect to such taxes and the
Excise Tax, other than interest and penalties imposed by reason of
your failure to file timely a tax return or pay taxes shown due on
your return), including any Excise Tax imposed upon the Gross-Up
Payment, you retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
(b) An initial determination as to whether a Gross-Up Payment is required
pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by Ernst & Young LLP or, if
such firm is unable to render such a determination, then by an
accounting firm mutually acceptable to you and the Company (the
"Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation to the Company and you within 15
calendar days of the date on which your right to a Severance Payment
hereunder was triggered (if requested at that time by the Company or
you) or such other time as requested by the Company or by you (in
either case provided that you believe in good faith that any of the
Payment may be subject to the Excise Tax); PROVIDED that if the
Accounting Firm determines that no Excise Tax is payable by you with
respect to a Payment, it shall furnish you with an opinion reasonably
acceptable to
-5-
<PAGE>
you that no Excise Tax will be imposed with respect to any such
Payment. Within 10 calendar days of the delivery of the Determination
to you, you shall have the right to dispute the Determination (the
"Dispute"). The Gross-Up Payment, if any, as determined pursuant to
this Section 2.9(b) shall be paid by the Company to you within 5
calendar days of the receipt of the Accounting Firm's determination.
The existence of any Dispute shall not in any way affect your right to
receive the Gross-Up Payment, if any, in accordance with the
Determination. If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Company and you, subject to the
application of Section 2.9(c).
(c) As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that a Gross-Up Payment (or a portion
thereof) will be paid which should not have been paid (an "Excess
Payment") or a Gross-Up Payment (or a portion thereof) which should
have been paid will not have been paid (an "Underpayment"). An
Underpayment shall be deemed to have occurred (i) upon notice (formal
or informal) to you from any governmental taxing authority that your
tax liability (whether in respect of your current taxable year or in
respect of any prior taxable year) may be increased by reason of the
imposition of the Excise Tax on a Payment with respect to which the
Company has failed to make a sufficient Gross-Up Payment, (ii) upon a
determination by a court, (iii) by reason of determination by the
Company (which shall include the position taken by the Company,
together with its consolidated group, on its federal income tax
return) or (iv) upon the resolution of any Dispute to your
satisfaction. If an Underpayment occurs, you shall promptly notify
the Company and the Company shall promptly, but in any event at least
10 calendar days prior to the date on which the applicable government
taxing authority has requested payment, pay to you an additional
Gross-Up Payment equal to the amount of the Underpayment plus any
interest and penalties (other than interest and penalties imposed by
reason of your failure to file timely a tax return or pay taxes shown
due on your return) imposed on the Underpayment. An Excess Payment
shall be deemed to have occurred upon a "Final Determination" (as
defined below) that the Excise Tax will not be imposed upon a Payment
(or portion thereof) with respect to which you had previously received
a Gross-Up Payment. A "Final Determination" shall be deemed to have
occurred when you have received from the applicable government taxing
authority a refund of taxes or other reduction in your tax liability
by reason of the Excise Payment and upon either (x) the date a
determination is made by, or an agreement is entered into with, the
applicable governmental taxing authority which finally and
conclusively binds you and such taxing authority, or in the event that
a claim is brought before a court of competent jurisdiction, the date
upon which a final determination has been made by such court and
either all appeals have been taken and finally resolved or the time
for all appeals has expired or (y) the statue of limitations with
respect to your applicable tax return has expired. If an Excess
Payment is determined to have been made, the amount of the Excess
Payment shall be treated as a loan by the Company to you and you shall
pay to the Company on demand (but not less than 10 calendar days after
the determination of such Excess Payment and written notice has been
delivered to you) the amount of the Excess Payment plus interest at an
annual rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment (to
which the Excess Payment relates) was paid to you until the date of
repayment to the Company.
-6-
<PAGE>
(d) Notwithstanding anything contained in this Agreement to the contrary,
in the event that, according to the Determination, an Excise tax will
be imposed on any Payment, the Company shall pay to the applicable
government taxing authorities, as Excise Tax withholding, the amount
of the Excise Tax that the Company has actually withheld from the
Payment.
ARTICLE III.
CONFIDENTIALITY AND NON-COMPETITION
3.1. CONFIDENTIALITY
You acknowledge that all Confidential Information is the exclusive property
of the Company (for purposes of this Article III, "Company" shall include all of
its subsidiaries) and agree to hold all Confidential Information in trust for
the benefit of the Company or any third party as described below. You further
agree not to use in any manner, during your employment and at all times
thereafter so long as it remains confidential, for your benefit or for the
benefit of any other individual or entity, or divulge or convey to any other
individual or entity, any Confidential Information without the prior written
permission of the Company's Chief Executive Officer (the "CEO"), unless (a) it
is pursuant to your job duties while you are employed by the Company or (b) you
are required to do so by legal process; provided that, before making such
disclosure, you will advise the CEO and will cooperate fully in any legal action
the Company may elect to take in order to attempt to prevent such disclosure.
"Confidential Information" shall be defined as all information, knowledge or
data relating to the Company, including, but not limited to, trade secrets;
financial information; technological and engineering data; business applications
and techniques; research and development activities; preferences and identities
of clients, customers, vendors, suppliers and prospective clients, customers,
vendors and suppliers; current, prospective and ongoing business strategies,
plans and techniques; computer and other programs, software, devices, methods,
techniques, processes and inventions; compilations and other materials developed
by or on behalf of the Company (whether in written, graphic, audiovisual,
electronic or other media, including computer software), which has been or may
be subject to reasonable efforts to maintain its confidentiality, which is not
generally known to the public or by competitors of the Company, and which
derives its value from remaining undisclosed. Confidential Information also
includes information in the above categories of any client, customer, supplier,
vendor or other third party doing business with the Company, which has been or
will be disclosed to the Company. Confidential Information does not include any
information that is in the public domain or otherwise is or becomes publicly
available (other than as a result of a wrongful act by you or any owner, agent
or employee of the Company).
3.2. NON-COMPETITION
You agree that, during your employment by the Company and for a period of
two years following the termination of your employment for any reason, you will
not, directly or indirectly, by any means or device whatsoever, for yourself, or
on behalf of or in conjunction with any person, partnership, corporation,
limited liability company or other entity whatsoever, do any one or more of the
following:
(a) Solicit, induce, entice, hire or employ, or attempt to solicit,
induce, entice, hire or employ any employee of the Company, so as to
cause or attempt to cause such employee to leave the employ of the
Company and/or to accept employment with a business which is
competitive with the Company.
-7-
<PAGE>
(b) Own, operate, manage, consult for, be affiliated with, be employed by,
or render services to, any person, partnership, corporation or other
entity whatsoever, which is competitive with the Company, or otherwise
compete with the Company, in any geographic areas in the United States
where the Company engages in business as of the date of your
termination; or
(c) Call on, contact, solicit or otherwise seek to deal or deal with any
actual or known potential client, customer, vendor or supplier of the
Company which was an actual or known potential client, customer,
vendor or supplier of the Company during your employment or as of the
date of your termination, whichever may be applicable, for the purpose
of interfering with, disrupting or competing with the business of the
Company.
3.3. ENFORCEMENT
(a) You acknowledge that any breach of this Article III would cause
irreparable harm to the Company, and that money damages would be an
inadequate remedy for any such breach. In the event you breach or
threaten to breach any provision of this Article III, the Company or
its successors or assigns, in addition to other rights and remedies
existing in its or their favor, may apply to any court of competent
jurisdiction for specific performance, injunctive and/or other
equitable relief in order to enforce or prevent any violation of this
Article III.
(b) Notwithstanding the requirements of Section 3.3(a), any and all rights
which you may have under this Agreement, including your rights with
respect to the Severance Payment and benefits under Article II, shall
terminate and any payments or other benefits which you are receiving
from the Company shall automatically cease and otherwise be forfeited
in the event you violate any provision of this Article III.
3.4. REVISION
If, at the time of enforcement of this Article III, a court holds that the
restrictions stated herein are unreasonable because they are overly broad, under
the circumstances then existing, as to time, geographic area and/or scope of
conduct and therefore are unenforceable, the parties agree that such court shall
revise this Article III by substituting the maximum time period, geographic area
and/or scope of conduct deemed reasonable and enforceable under such
circumstances.
ARTICLE IV.
OTHER RIGHTS AND BENEFITS NOT AFFECTED
4.1. OTHER BENEFITS
This Agreement does not provide a pension for you nor shall any payment
hereunder be characterized as deferred compensation. Except as set forth in
Sections 2.2(b) and 2.8, neither the provisions of this Agreement nor the
Severance Payment provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish your rights as an employee, whether existing now
or hereafter, under any benefit, incentive, retirement, stock option, stock
bonus or stock purchase plan or any employment agreement or other plan or
arrangement not related to severance. Any such other amounts or benefits
payable shall be included, as necessary, for making any of the calculations
required under Section 2.9.
-8-
<PAGE>
4.2. EMPLOYMENT STATUS
This Agreement does not constitute a contract of employment or impose on
you any obligation to remain in the employ of the Company, nor does it impose on
the Company or any of its subsidiaries any obligation to retain you in your
present or any other position. Nothing in this Agreement shall in any way
require the Company or any of its subsidiaries to provide you with any severance
benefits prior to a Chance of Control, nor shall this Agreement ever be
construed in any way as establishing any policies or requirements of the Company
or any of its subsidiaries for the termination of your employment or the payment
of severance benefits to you if your employment terminates prior to a Change in
Control, nor shall anything in this Agreement in any way affect the right of the
Company or any of its subsidiaries in its absolute discretion to change prior to
a Change of Control one or more benefit plans.
ARTICLE V.
SUCCESSOR TO COMPANY
The Company shall require any successor or assignee, whether direct or indirect,
by purchase, merger, consolidation or otherwise, to all or substantially all of
the business or assets of the Company, expressly and unconditionally to assume
and agree to perform the Company's obligations under this Agreement. In such
event, the term "Company," as used in this Agreement, shall mean the Company as
herein before defined and any successor or assignee to the business or assets
which by reason hereof becomes bound by the terms and provisions of this
Agreement.
ARTICLE VI.
LEGAL FEES AND EXPENSES
The Company shall pay as they become due all legal fees, costs of litigation and
other expenses incurred in good faith by you as a result of the Company's
refusal or failure to make the Severance Payment to which you become entitled
under this Agreement, as a result of the Company's contesting the validity,
enforceability or interpretation of this Agreement or of your right to benefits
hereunder, or with regard to any Dispute (as defined in Section 2.9(b)). You
shall be conclusively presumed to have acted in good faith unless a court makes
a final determination not otherwise subject to appeal to the contrary.
ARTICLE VII.
ARBITRATION
Except as otherwise provided in Section 2.9, you shall have the right and option
(but not the obligation) to elect (in lieu of litigation) to have any dispute or
controversy arising under or in connection with this Agreement, including any
dispute under Section 2.9, settled by arbitration, conducted before a panel of
three arbitrators sitting in a location selected by you within 50 miles from the
location of your job with the Company or any of its subsidiaries, in accordance
with the rules of the American Arbitration Association ("AAA") then in effect.
The arbitrator will be selected by mutual agreement or from a list submitted by
AAA in accordance with AAA rules. All expenses of such arbitration, including
the fees and expenses of your counsel, shall be borne, and paid as incurred, by
the Company; provided, however, that if, in the opinion of the arbitrator, any
claim by you was unreasonable, the arbitrator may assess, as part of his/her
award, all or any part of the arbitration expenses related to such unreasonable
claim against you. Judgment may be entered on the award of the arbitrator in
any court having jurisdiction. Pending the arbitrator's decision as to issuance
of an award, the Company shall pay the Severance Payment and benefits to you
pursuant to Article II, provided you
-9-
<PAGE>
offer suitable security for repayment in the event that the award, or any part
thereof, is not in you favor, such as a bond, letter of credit or escrow
arrangement.
ARTICLE VIII.
MISCELLANEOUS
8.1. APPLICABLE LAW
To the extent not preempted by the laws of the United States and in the
interest of interpreting this Agreement in a uniform manner with other similar
agreements being entered into by the Company with other of its and its
subsidiaries' employees regardless of the jurisdiction in which you are employed
or any other factor, the laws of the State of Illinois shall be the controlling
law in all matters relating to this Agreement, regardless of the choice-of-law
rules of the State of Illinois or any other jurisdiction.
8.2. CONSTRUCTION
No term or provision of this Agreement shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision of this Agreement and any present or future statute, law,
ordinance, or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail, but in such event the affected provision of
this Agreement shall be curtailed and limited only to the extent necessary to
bring such provision within the requirements of the law.
8.3. SEVERABILITY
If a provision of this Agreement shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of this Agreement
and this Agreement shall be construed and enforced as if the illegal or invalid
provision had not been included.
8.4. HEADINGS
The Section headings in this Agreement are inserted only as a matter of
convenience, and in no way define, limit, or extend or interpret the scope of
this Agreement or of any particular Section.
8.5. NOTICE OF TERMINATION
Following a Change in Control, any purported termination of your employment
by the Company or any of its subsidiaries (not involving a Constructive
Termination Event) shall be communicated by a written notice of termination from
the Company to you, which notice shall indicate the specific termination
provision in this Agreement, if any, relied upon and which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under any provision so indicated. The failure to
provide such notice shall create a rebuttable presumption that you are entitled
to a Severance Payment and the other benefits provided by this Agreement.
8.6. ASSIGNABILITY
Neither this Agreement nor any right or interest therein shall be
assignable or transferable (whether by pledge, grant of a security interest, or
otherwise) by you, your beneficiaries or legal representatives, except by will
or by the laws of descent and distribution. This Agreement shall be
-10-
<PAGE>
binding upon and shall inure to the benefit of the Company, its successors and
assigns, and you and shall be enforceable by them and your legal personal
representatives.
8.7. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Company and you
regarding the subject matter hereof.
8.8. TERM
If a Change of Control has not occurred prior to September 1, 1998, this
Agreement shall expire and be of not further force and effect on such date;
provided that the Board of Directors of the Company may, at any time prior to
the expiration hereof, extend the term of this Agreement for a term of up to two
years, including changing the date set forth in the second line of the
definition of "Change of Control," without any further action on your part.
If a Change of Control occurs prior to September 1, 1998, this Agreement
shall continue in full force and effect, and shall not terminate or expire until
the expiration of 730 calendar days from and including the date of the Change of
Control, at which time this Agreement shall terminate except if you become
entitled to the Severance Payment and benefits hereunder prior to such time. If
you become so entitled to a Severance Payment and benefits hereunder, this
Agreement shall continue and be effective until you (or the person(s) specified
in Section 2.5) shall have received in full the Severance Payment and other
benefits to which you are entitled under this Agreement, at which time this
Agreement shall terminate for all purposes.
8.9. AMENDMENT
Except as set forth in Section 8.8, no provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and the Company. No waiver by the
Company or you at any time or any breach by the other party of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or any prior or subsequent time.
8.10. NOTICES
For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or sent by certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses last given by
each party to the other, provided that all notices to the Company shall be
directed to the attention of the Board of Directors with a copy to the Secretary
of the Company. All notices and communications shall be deemed to have been
received on the date of delivery thereof or on the third business day after the
mailing thereof, except that notice of change of address shall be effective only
upon actual receipt. No objection to the method of delivery may be made if the
written notice or other communication is actually received.
-11-
<PAGE>
8.11. ADMINISTRATION
The Company has entered into agreements similar to this Agreement herein
with other employees of the Company or its subsidiaries. These agreements,
taken together, constitute a welfare benefit plan within the meaning of
Section 3(1) of ERISA. The Administrator of such plan, within the meaning of
Section 3(16) of ERISA, and the Named Fiduciary thereof, within the meaning of
Section 402 of ERISA, is the Company.
* * * * *
If this Agreement is acceptable to you, please sign the enclosed copy of
this Agreement in the space provided below and return it to me IMMEDIATELY.
Sincerely,
/s/ Timothy L. Burfield
Timothy L. Burfield
President and Chief Executive Officer
ACCEPTED AND AGREED TO:
/s/ Charles R. Wallace
- -------------------------
Charles R. Wallace
-12-
<PAGE>
PRIVILEGED AND CONFIDENTIAL
(18 Months Severance)
Type A
AMERICAN MEDSERVE CORPORATION
184 SHUMAN BLVD.
SUITE 200
NAPERVILLE, ILLINOIS 60563
(630) 717-2904
August 7, 1997
Mr. J. Jeffrey Gephart
American Medserve Corporation
184 Shuman Boulevard
Naperville, Illinois 60563
Dear Jeff:
American Medserve Corporation (the "Company") considers you to be a valued
employee. In recognition of the value of your continued services to the Company
and its shareholders, the Company proposes the following agreement (the
"Agreement") to provide you with certain severance payments and benefits if your
employment terminates following a "Change of Control" that occurs on or prior to
August 31, 1998 (as defined below).
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS
Whenever used in this Agreement, the following capitalized terms shall have
the meanings set forth in this Section, certain other capitalized terms being
defined elsewhere in this Agreement.
(a) "Annualized Compensation" means your highest annualized Compensation
within one year of the date on which your employment terminates.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
(c) "Board of Directors" means the Board of Directors of the Company.
(d) "Change of Control" of the Company means and includes either of the
following which occurs on or prior to August 31, 1998:
(i) Any Person or "group" (as that term is defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company, or of any entity
resulting from a merger or consolidation involving the Company,
<PAGE>
representing more than 50% of the combined voting power of the
then outstanding securities of the Company or such entity.
(ii) Any Person or "group" (as that term is defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) acquires all or substantially all of the assets of
the Company.
(e) "Company" means American Medserve Corporation, a Delaware corporation,
and any successor as provided in Article V.
(f) "Compensation" means and includes all of your base wages and/or salary
paid to you by the Company and/or any of its subsidiaries as
consideration for your services that are includible in your gross
income for federal income tax purposes, plus 50% of your target bonus
(even if not yet paid or payable) under the Company's 1997 bonus plan
and any amounts excludable from your gross income for federal income
tax purposes pursuant to Section 125 or Section 401(k) of the Internal
Revenue Code of 1986, as amended.
(g) "Constructive Termination Event" means any of the following events,
which shall not have been remedied by the Company within 15 days
following written notice from you to the Company of the occurrence of
such event:
(i) The Company or any of its subsidiaries reduces your base salary
or rate of Compensation as in effect immediately prior to the
Change of Control, or otherwise fails to provide to you
compensation and benefit plans, arrangements, policies and
procedures which, taken as a whole, are no less favorable to you
(including on an after-tax basis) than those, taken as a whole,
provided by the Company or any of its subsidiaries to you
immediately prior to the Change of Control.
(ii) Without your express written consent, the Company or any of its
subsidiaries significantly reduces your job authority and
responsibility.
(iii) Without your express written consent, the Company or any of its
subsidiaries requires you to change the location of your job or
office, so that you will be based at a location more than 35
miles from the location of your job or office immediately prior
to the Change of Control.
(iv) A successor company fails or refuses to assume the Company's
obligations under this Agreement, as required by Article V.
(v) The Company or any successor company breaches any of the
material provisions of this Agreement.
(h) "ERISA" means the Employee Retirement Income Security Act of 1974 as
amended.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) "Just Cause" means the termination of your employment as a result of
fraud, misappropriation of or intentional material damage to the
property or business of the Company (including its subsidiaries), or
commission of a felony.
-2-
<PAGE>
(k) "Person" shall have the meaning ascribed to such term in Section 3 of
the Exchange Act and the rules and regulations promulgated thereunder.
(l) "Severance Payment" means the payment of severance compensation as
provided in Article II.
ARTICLE II.
SEVERANCE PAYMENT
2.1. RIGHT TO SEVERANCE PAYMENT
You shall be entitled to receive a Severance Payment from the Company in
the amount provided in Section 2.2 if (i) there has been a Change of Control,
(ii) you are an active employee (or on sick leave, military leave or any other
employer-approved leave of absence) at the time of the Change of Control, and
(iii) within 548 calendar days from and including the date of the Change of
Control, your employment is involuntarily terminated for any reason (other than
for Just Cause or your death or retirement after age 65) or you voluntarily
terminate your employment following the occurrence of a Constructive Termination
Event.
2.2. AMOUNT OF SEVERANCE PAYMENT
(a) If you become entitled to a Severance Payment within 183 calendar days
following the Change in Control, you shall receive a lump-sum payment
equal to 1.5 times one year's Annualized Compensation. If you become
entitled to a Severance Payment after 183 calendar days following the
Change in Control, your Severance Payment shall be an amount equal to
(a) 1.5 times one year's Annualized Compensation less (b) 1.5 times
one year's Annualized Compensation times a fraction having a numerator
equal to the number of calendar days that have elapsed since the six-
month anniversary of the Change of Control and a denominator equal to
365 calendar days.
(b) The Severance Payment otherwise calculated under this Section 2.2
shall be reduced by the amount of cash severance-type benefits to
which you may be entitled pursuant to any other severance plan,
employment or other agreement, or policy or program of the Company or
any of its subsidiaries; PROVIDED, that if the amount of cash
severance benefits payable under such other severance plan, employment
or other agreement, policy or program is greater then the amount
payable pursuant to this Agreement, you will be entitled to receive
the amounts payable under such other plan, employment or other
agreement, policy or program. Without limiting other payments which
would not constitute "cash severance-type benefits" hereunder, any
cash settlement of stock options, accelerated vesting of stock options
and retirement, pension and other similar benefits shall not
constitute "cash severance-type benefits" for purposes of this
Section 2.2(b).
2.3. VESTING OF OPTIONS
Any unvested stock options for the purchase of Company stock which you are
holding on the date on which you become entitled to a Severance Payment shall
immediately become fully vested.
-3-
<PAGE>
2.4. NO DUTY OF MITIGATION
The Company acknowledges that it would be very difficult and generally
impracticable to determine your ability to, or extent to which you may, mitigate
any damages or injuries you may incur by reason of the Change of Control. The
Company has taken this into account in entering into this Agreement and,
accordingly, the Company acknowledges and agrees that you shall have no duty to
mitigate any such damages and that you shall be entitled to receive your entire
Severance Payment regardless of any income which you may receive from other
sources following your termination after any Change in Control.
2.5. TIME OF SEVERANCE PAYMENT
The Severance Payment to which you are entitled shall be paid to you, in
cash and in full, not later than 10 calendar days after the termination of your
employment. If you should die before all amounts payable to you have been paid,
such unpaid amounts shall be paid to your beneficiary under this Agreement or,
if you have not designated such a beneficiary in writing to the Company, to the
personal representative(s) of your estate.
2.6. LIFE AND HEALTH INSURANCE COVERAGE
If you are entitled to receive a Severance Payment under Section 2.1, you
will also be entitled to receive the following additional benefits:
(a) Life insurance coverage for you having a face amount at least equal to
the greater of (i) the amount, if any, in effect for you on the date
of the Change of Control, or (ii) the amount, if any, in effect for
you on the date of termination of your service, such coverage to be
provided under the same plan or plans under which you were covered
immediately prior to the termination of your employment or
substantially similar plan(s) established by the Company or any of its
subsidiaries thereafter. Such life insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by
the Company and you will be required to make such payments as you
would be required to make if you were still employed by the Company.
This coverage will continue following the date of termination of your
employment until the date which is 548 calendar days after the Change
in Control.
(b) Health insurance coverage (including any dental coverage) for you and
your dependents under the same plan or plans under which you were
covered immediately prior to the termination of your employment or
substantially similar plan(s) established by the Company or any of its
subsidiaries thereafter. Such health insurance coverage shall be paid
for by the Company to the same extent as if you were still employed by
the Company, and you will be required to make such payments as you
would be required to make if you were still employed by the Company.
This coverage will continue following the date of termination of your
employment until the date which is 548 calendar days after the Change
in Control.
(c) The benefits for medical coverage under the provisions of
Section 2.6(b) shall end as of the date you become covered under any
other group health plan not maintained by the Company or any of its
subsidiaries which provides equal or greater benefits than such
-4-
<PAGE>
plan and which does not exclude any pre-existing condition that you
or your dependents may have a that time.
2.7. WITHHOLDING OF TAXES
The Company may withhold from any amounts payable under this Agreement all
federal, state, city or other taxes required by applicable law to be withheld by
the Company.
2.8. BENEFITS UNDER OTHER PLANS
The benefits that you may be entitled to receive pursuant to Section 2.6
are not intended to be duplicative of any similar benefits to which you may be
entitled from the Company or any of its subsidiaries under any other severance
plan, agreement, policy or program maintained by the Company or any of its
subsidiaries. Accordingly, the benefits to which you are entitled under
Section 2.6 shall be reduced to take account of any other similar benefits to
which you are entitled from the Company or any of its subsidiaries; PROVIDED,
HOWEVER, that if the amount of benefits to which you are entitled under such
other severance plan, agreement, policy or program is greater than the benefits
to which you are entitled under Section 2.6, you will be entitled to receive the
full amount of the benefits to which you are entitled under such other plan,
agreement, policy or program.
ARTICLE III.
CONFIDENTIALITY AND NON-COMPETITION
3.1. CONFIDENTIALITY
You acknowledge that all Confidential Information is the exclusive
property of the Company (for purposes of this Article III, "Company" shall
include all of its subsidiaries) and agree to hold all Confidential
Information in trust for the benefit of the Company or any third party as
described below. You further agree not to use in any manner, during your
employment and at all times thereafter so long as it remains confidential,
for your benefit or for the benefit of any other individual or entity, or
divulge or convey to any other individual or entity, any Confidential
Information without the prior written permission of the Company's Chief
Executive Officer (the "CEO"), unless (a) it is pursuant to your job duties
while you are employed by the Company or (b) you are required to do so by
legal process; provided that, before making such disclosure, you will advise
the CEO and will cooperate fully in any legal action the Company may elect to
take in order to attempt to prevent such disclosure. "Confidential
Information" shall be defined as all information, knowledge or data relating
to the Company, including, but not limited to, trade secrets; financial
information; technological and engineering data; business applications and
techniques; research and development activities; preferences and identities
of clients, customers, vendors, suppliers and prospective clients, customers,
vendors and suppliers; current, prospective and ongoing business strategies,
plans and techniques; computer and other programs, software, devices,
methods, techniques, processes and inventions; compilations and other
materials developed by or on behalf of the Company (whether in written,
graphic, audiovisual, electronic or other media, including computer
software), which has been or may be subject to reasonable efforts to maintain
its confidentiality, which is not generally known to the public or by
competitors of the Company, and which derives its value from remaining
undisclosed. Confidential Information also includes information in the above
categories of any client, customer, supplier, vendor or other third party
doing business with the Company, which has been or will be disclosed to the
Company. Confidential Information does not include any information that is
in the public domain or otherwise is or becomes publicly available (other
than as a result of a wrongful act by you or any owner, agent or employee of
the Company).
-5-
<PAGE>
3.2. Non-Competition
You agree that, during your employment by the Company and for a period of
18 months following the termination of your employment for any reason, you will
not, directly or indirectly, by any means or device whatsoever, for yourself, or
on behalf of or in conjunction with any person, partnership, corporation,
limited liability company or other entity whatsoever, do any one or more of the
following:
(a) Solicit, induce, entice, hire or employ, or attempt to solicit,
induce, entice, hire or employ any employee of the Company, so as to
cause or attempt to cause such employee to leave the employ of the
Company and/or to accept employment with a business which is
competitive with the Company.
(b) Own, operate, manage, consult for, be affiliated with, be employed by,
or render services to, any person, partnership, corporation or other
entity whatsoever, which is competitive with the Company, or otherwise
compete with the Company, in any geographic areas in the United States
where the Company engages in business as of the date of your
termination; or
(c) Call on, contact, solicit or otherwise seek to deal or deal with any
actual or known potential client, customer, vendor or supplier of the
Company which was an actual or known potential client, customer,
vendor or supplier of the Company during your employment or as of the
date of your termination, whichever may be applicable, for the purpose
of interfering with, disrupting or competing with the business of the
Company.
3.3. ENFORCEMENT
(a) You acknowledge that any breach of this Article III would cause
irreparable harm to the Company, and that money damages would be an
inadequate remedy for any such breach. In the event you breach or
threaten to breach any provision of this Article III, the Company or
its successors or assigns, in addition to other rights and remedies
existing in its or their favor, may apply to any court of competent
jurisdiction for specific performance, injunctive and/or other
equitable relief in order to enforce or prevent any violation of this
Article III.
(b) Notwithstanding the requirements of Section 3.3(a), any and all rights
which you may have under this Agreement, including your rights with
respect to the Severance Payment and benefits under Article II, shall
terminate and any payments or other benefits which you are receiving
from the Company shall automatically cease and otherwise be forfeited
in the event you violate any provision of this Article III.
3.4. REVISION
If, at the time of enforcement of this Article III, a court holds that
the restrictions stated herein are unreasonable because they are overly
broad, under the circumstances then existing, as to time, geographic area
and/or scope of conduct and therefore are unenforceable, the parties agree
that such court shall revise this Article III by substituting the maximum
time period, geographic area and/or scope of conduct deemed reasonable and
enforceable under such circumstances.
-6-
<PAGE>
ARTICLE IV.
OTHER RIGHTS AND BENEFITS NOT AFFECTED
4.1. OTHER BENEFITS
This Agreement does not provide a pension for you nor shall any payment
hereunder be characterized as deferred compensation. Except as set forth in
Sections 2.2(b) and 2.8, neither the provisions of this Agreement nor the
Severance Payment provided for hereunder shall reduce any amounts otherwise
payable, or in any way diminish your rights as an employee, whether existing now
or hereafter, under any benefit, incentive, retirement, stock option, stock
bonus or stock purchase plan or any employment agreement or other plan or
arrangement not related to severance.
4.2. EMPLOYMENT STATUS
This Agreement does not constitute a contract of employment or impose on
you any obligation to remain in the employ of the Company, nor does it impose on
the Company or any of its subsidiaries any obligation to retain you in your
present or any other position. Nothing in this Agreement shall in any way
require the Company or any of its subsidiaries to provide you with any severance
benefits prior to a Chance of Control, nor shall this Agreement ever be
construed in any way as establishing any policies or requirements of the Company
or any of its subsidiaries for the termination of your employment or the payment
of severance benefits to you if your employment terminates prior to a Change in
Control, nor shall anything in this Agreement in any way affect the right of the
Company or any of its subsidiaries in its absolute discretion to change prior to
a Change of Control one or more benefit plans.
ARTICLE V.
SUCCESSOR TO COMPANY
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all of the business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's obligations
under this Agreement. In such event, the term "Company," as used in this
Agreement, shall mean the Company as herein before defined and any successor
or assignee to the business or assets which by reason hereof becomes bound by
the terms and provisions of this Agreement.
ARTICLE VI.
LEGAL FEES AND EXPENSES
The Company shall pay as they become due all legal fees, costs of
litigation and other expenses incurred in good faith by you as a result of
the Company's refusal or failure to make the Severance Payment to which you
become entitled under this Agreement, as a result of the Company's contesting
the validity, enforceability or interpretation of this Agreement or of your
right to benefits hereunder. You shall be conclusively presumed to have
acted in good faith unless a court makes a final determination not otherwise
subject to appeal to the contrary.
ARTICLE VII.
ARBITRATION
You shall have the right and option (but not the obligation) to elect
(in lieu of litigation) to have any dispute or controversy arising under or
in connection with this Agreement settled by arbitration,
-7-
<PAGE>
conducted before a panel of three arbitrators sitting in a location selected
by you within 50 miles from the location of your job with the Company or any
of its subsidiaries, in accordance with the rules of the American Arbitration
Association ("AAA") then in effect. The arbitrator will be selected by mutual
agreement or from a list submitted by AAA in accordance with AAA rules. All
expenses of such arbitration, including the fees and expenses of your
counsel, shall be borne, and paid as incurred, by the Company; provided,
however, that if, in the opinion of the arbitrator, any claim by you was
unreasonable, the arbitrator may assess, as part of his/her award, all or any
part of the arbitration expenses related to such unreasonable claim against
you. Judgment may be entered on the award of the arbitrator in any court
having jurisdiction. Pending the arbitrator's decision as to issuance of an
award, the Company shall pay the Severance Payment and benefits to you
pursuant to Article II, provided you offer suitable security for repayment in
the event that the award, or any part thereof, is not in you favor, such as a
bond, letter of credit or escrow arrangement.
ARTICLE VIII.
MISCELLANEOUS
8.1. APPLICABLE LAW
To the extent not preempted by the laws of the United States and in the
interest of interpreting this Agreement in a uniform manner with other similar
agreements being entered into by the Company with other of its and its
subsidiaries' employees regardless of the jurisdiction in which you are employed
or any other factor, the laws of the State of Illinois shall be the controlling
law in all matters relating to this Agreement, regardless of the choice-of-law
rules of the State of Illinois or any other jurisdiction.
8.2. CONSTRUCTION
No term or provision of this Agreement shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision of this Agreement and any present or future statute, law,
ordinance, or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail, but in such event the affected provision of
this Agreement shall be curtailed and limited only to the extent necessary to
bring such provision within the requirements of the law.
8.3. SEVERABILITY
If a provision of this Agreement shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of this
Agreement and this Agreement shall be construed and enforced as if the
illegal or invalid provision had not been included.
8.4. HEADINGS
The Section headings in this Agreement are inserted only as a matter of
convenience, and in no way define, limit, or extend or interpret the scope of
this Agreement or of any particular Section.
8.5. NOTICE OF TERMINATION
Following a Change in Control, any purported termination of your employment
by the Company or any of its subsidiaries (not involving a Constructive
Termination Event) shall be communicated by a written notice of termination from
the Company to you, which notice shall indicate the specific
-8-
<PAGE>
termination provision in this Agreement, if any, relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under any provision so indicated.
The failure to provide such notice shall create a rebuttable presumption that
you are entitled to a Severance Payment and the other benefits provided by
this Agreement.
8.6. ASSIGNABILITY
Neither this Agreement nor any right or interest therein shall be
assignable or transferable (whether by pledge, grant of a security interest,
or otherwise) by you, your beneficiaries or legal representatives, except by
will or by the laws of descent and distribution. This Agreement shall be
binding upon and shall inure to the benefit of the Company, its successors
and assigns, and you and shall be enforceable by them and your legal personal
representatives.
8.7. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Company and
you regarding the subject matter hereof.
8.8. TERM
If a Change of Control has not occurred prior to September 1, 1998, this
Agreement shall expire and be of not further force and effect on such date;
provided that the Board of Directors of the Company may, at any time prior to
the expiration hereof, extend the term of this Agreement for a term of up to
two years, including changing the date set forth in the second line of the
definition of "Change of Control," without any further action on your part.
If a Change of Control occurs prior to September 1, 1998, this Agreement
shall continue in full force and effect, and shall not terminate or expire
until the expiration of 548 calendar days from and including the date of the
Change of Control, at which time this Agreement shall terminate except if you
become entitled to the Severance Payment and benefits hereunder prior to such
time. If you become so entitled to a Severance Payment and benefits
hereunder, this Agreement shall continue and be effective until you (or the
person(s) specified in Section 2.5) shall have received in full the Severance
Payment and other benefits to which you are entitled under this Agreement, at
which time this Agreement shall terminate for all purposes.
8.9. AMENDMENT
Except as set forth in Section 8.8, no provision of this Agreement may
be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by you and the Company. No
waiver by the Company or you at any time or any breach by the other party of,
or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent
time.
8.10. NOTICES
For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or sent by certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses last given
by each
- - -9-
<PAGE>
party to the other, provided that all notices to the Company shall be
directed to the attention of the Board of Directors with a copy to the
Secretary of the Company. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the third business
day after the mailing thereof, except that notice of change of address shall
be effective only upon actual receipt. No objection to the method of
delivery may be made if the written notice or other communication is actually
received.
8.11. ADMINISTRATION
The Company has entered into agreements similar to this Agreement
herein with other employees of the Company or its subsidiaries. These
agreements, taken together, constitute a welfare benefit plan within the
meaning of Section 3(1) of ERISA. The Administrator of such plan, within the
meaning of Section 3(16) of ERISA, and the Named Fiduciary thereof, within
the meaning of Section 402 of ERISA, is the Company.
* * * * *
If this Agreement is acceptable to you, please sign the enclosed copy
of this Agreement in the space provided below and return it to me IMMEDIATELY.
Sincerely,
/s/ Timothy L. Burfield
Timothy L. Burfield
President and Chief Executive Officer
ACCEPTED AND AGREED TO:
/s/ J. Jeffrey Gephart
- -----------------------
J. Jeffrey Gephart
-10-
<PAGE>
AMENDMENT NO. 1 TO
SENIOR MANAGEMENT AGREEMENT
This Amendment No. 1 to Senior Management Agreement is made as of June 30,
1997 between American Medserve Corporation (the "Company") and Timothy L.
Burfield ("Executive").
The Company and the Executive entered into a Senior Management Agreement as
of December 3, 1993 (the "Original Senior Management Agreement").
Executive purchased 6,977.40 shares of Class B Common Stock (the "Class B
Common") pursuant to the Original Senior Management Agreement and the terms of
the Class B Common are governed by the Original Senior Management Agreement.
In November 1997, the Company adopted a Restated Certificate of
Incorporation pursuant to which each share of Class B Common was reclassified as
69.6502323 shares of Common Stock. As a result of the reclassification,
Executive now owns 485,978 shares of Common Stock purchased pursuant to the
Original Senior Management Agreement.
In September 1996, Executive purchased 340 shares of Class B Common, and as
a result of the reclassification, Executive now owns an additional 23,681
shares of Common Stock.
Executive and the Company now wish (i) to amend those terms of the Original
Senior Management Agreement that pertain to the vesting of certain of the
Executive's Common Stock and payments to be made to the Executive in the event
of his termination without Cause (as defined in the Original Senior Management
Agreement) and (ii) clarify the terms of the 23,681 shares of Common Stock
purchased in September 1996.
The parties hereto now agree as follows:
1. Section 2 of the Original Senior Management Agreement shall be
deleted in its entirety and replaced with the following: "Effective upon
June 30, 1997, all shares of Executive Stock which have not yet become vested
are vested, and therefore, as of June 30, 1997, all shares of Executive Stock
held by Executive are now vested and subject to no contractual restrictions."
2. Sections 3, 4 and 6 are deleted in their entirety and replaced with
the following: "INTENTIONALLY OMITTED".
3. Section 7 is deleted in its entirety and replaced with the following:
"Executive's co-sale rights are set forth in that certain Amended and Restated
Stockholders Agreement made as of August 23, 1996 by and among the Company,
Golder, Thoma, Cressey, Rauner Fund IV, L.P. and the investors listed on the
signature page thereof.
<PAGE>
4. Section 8 is deleted in its entirety and replaced with the following:
"Executive's registration rights are set forth in that certain Registration
Agreement made as of August 23, 1996 by and among the Company, Golder, Thoma,
Cressey, Rauner Fund IV and those investors listed on the signature page
thereof.
5. Section 11(b) is deleted in its entirety and replaced with the
following: "Subject to Section 11(c) below, if Executive's employment with
the Company is terminated by the Company without Cause, Executive shall be
entitled to receive payments at the rate of the Annual Base Salary for
eighteen months (or, at the Company's option, for a greater period of up to
two years) following the date of Termination, payable in monthly
installments. The Company may cease making payments pursuant to this Section
11(b) at any time after which Executive breaches any of the provisions of
Section 12 or 13; provided that no such cessation shall relieve Executive of
his obligations under Section 12 or 13.
6. Section 13(a) is deleted in its entirety and replaced with the
following: "NONCOMPETITION. Executive acknowledges that in the course of
his employment with the Company, he will become familiar with the Company's
trade secrets and with other confidential information concerning the Company
and that his services will be of special, unique and extraordinary value to
the Company. Therefore, Executive agrees that, during the Employment Period
and (i) if Executive's employment is terminated by the Company for Cause or
as a result of voluntary termination by Executive, for two years thereafter,
or (ii) if Executive's employment is terminated for any other reason, the
period during which the Company is required or has elected (without giving
effect to the last sentence of Section 11(b)) to make payments to Executive
pursuant to Section 11(b) (the "Noncompete Period"), he shall not directly or
indirectly own, manage, control, participate in, consult with, render
services for, or in any manner engage in any business competing with the
businesses of the Company or its Subsidiaries as such businesses exist on the
date of the termination of Executive's employment, within those limited
states or metropolitan areas in which the Company is engaged in business (or
in which the Company is in the process of attempting to engage in business)
during the Employment Period or at the time of termination of Executive's
employment."
7. The Company, Executive and Golder, Thoma, Cressey, Rauner Fund IV
agree and acknowledge that the 23,681 shares of Common Stock purchased by
Executive in September 1996 are fully vested and subject to no contractual
restrictions.
8. Except as specifically set forth herein, all provisions of the
Original Senior Management Agreement shall remain in full force and effect.
9. (a) This Agreement, those documents expressly referred to herein and
other documents of even date herewith embody the complete agreement and
understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject mater hereof in any way.
-2-
<PAGE>
(b) This Agreement may be executed in separate counterparts, each
of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
(c) Except as otherwise provided herein, this Agreement shall bind
and inure to the benefit of and be enforceable by Executive, the Company,
Golder, Thoma, Cressey, Rauner Fund IV, L.P. and their respective successors and
assigns; provided that the rights and obligations of Executive under this
Agreement shall not be assignable except in connection with a permitted transfer
of Executive's Common Stock.
(d) All questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by and construed in accordance with the internal laws of the State of
Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware.
(e) All capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Original Senior Management Agreement.
(f) The provisions of this Agreement may be amended and waived only
with the prior written consent of the Company, Executive and Golder, Thoma,
Cressey, Rauner Fund IV, L.P.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
AMERICAN MEDSERVE CORPORATION
By: /s/ Timothy L. Burfield
----------------------------------
Its:
----------------------------------
/s/ Timothy L. Burfield
----------------------------------
Timothy L. Burfield
Agreed and Accepted:
GOLDER, THOMA, CRESSEY,
RAUNER FUND IV, L.P.
By: GTCR IV, L.P.
Its: General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.
Its: General Partner
By: /s/ Bryan C. Cressey
------------------------------------
Its:
------------------------------------
-4-
<PAGE>
AMENDED AND RESTATED
SENIOR MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED SENIOR MANAGEMENT AGREEMENT (the "Agreement")
is made as of September 5, 1996 and amended and restated as of November 11,
1996, between American Medserve Corporation, a Delaware corporation (the
"Company"), and Michael B. Freedman ("Executive").
The Company and Executive entered into a Senior Management Agreement
dated September 5, 1996 (the "Original Senior Management Agreement") pursuant
to which Executive purchased, and the Company sold 1156.0843 shares of Class
B Common Stock, par value $.01 per share (the "Class B Common") and pursuant
to which Executive was employed by the Company as the Company's Vice
President-Business Development. Certain definitions are set forth in Section
15 of this Agreement.
In November 1996, the Company adopted an Amended and Restated Certificate
of Incorporation, pursuant to which each share of Class B Common was
reclassified as 69.650323 shares of the Company's Common Stock, $.01 par
value (the "Common Stock"). Executive now holds 80,522 shares of Common Stock
(as reclassified). All such shares of Common Stock and all shares of Common
Stock hereafter acquired by Executive pursuant to this Agreement are herein
referred to as "Executive Stock."
Executive and the Company now wish to amend and restate the terms of the
Original Senior Management Agreement.
Certain provisions of the Original Senior Management Agreement as amended
and restated by this Agreement are intended for the benefit of, and will be
enforceable by, Golder, Thoma, Cressey, Rauner Fund IV, L.P. (the "Investor"),
and the Investor is an intended third party beneficiary of this Agreement.
The parties hereto agree as follows:
PROVISIONS RELATING TO EXECUTIVE STOCK
1. PURCHASE AND SALE OF EXECUTIVE STOCK.
(a) On September 5, 1996, Executive purchased from the Company, and
the Company sold to Executive, 1,156.0843 shares of Class B Common (80,522
shares of Common Stock as reclassified). The purchase price per share of
Class B Common (the "Purchase Price") was $98.46.
(b) At the closing of the purchase and sale of the Class B Common
(the "Closing"), the Company delivered to the Executive stock certificates
evidencing the Class B Common purchased by the Executive, registered in the
Executive's name, upon payment of the
<PAGE>
purchase price thereof by a cashier's or certified check, or by wire transfer
of immediately available funds to such account as designated by the Company
in an amount not less than $11,383.00 and by delivery of a promissory note
substantially in the form attached hereto as EXHIBIT A (the "Executive Note")
in the amount of the balance of the Purchase Price owed in respect of the
Class B Common purchased hereunder. Executive's obligations under the
Executive Note are secured by a pledge of such collateral as the Company
shall approve.
(c) Within 30 days after the purchase of Executive Stock by
Executive from the Company, Executive made an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and
the regulations promulgated thereunder substantially in the form of EXHIBIT C
attached hereto and notified the Company of such election.
(d) As of the date of the Original Senior Management Agreement,
Executive represented and warranted to the Company, and as of the date
hereof, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of
the Securities Act, or any applicable state securities laws, and the
Executive Stock will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) Executive is sophisticated in financial matters and is able
to evaluate the risks and benefits of the investment in the Executive
Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time
because the Executive Stock has not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such
registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
the Executive Stock and has had access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and
the execution, delivery and performance of this Agreement by Executive
does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
(e) As an inducement to the Company to issue the Executive Stock
to Executive, and as a condition thereto and in consideration for entering
into this Agreement, Executive acknowledges and agrees that:
2
<PAGE>
(i) Neither the issuance of any of the Executive Stock to
Executive nor any provision hereof shall entitle Executive to remain
in the employment of the Company and its Subsidiaries or affect the
right of the Company to terminate Executive's employment at any time
for any reason.
(ii) The Company shall have no duty or obligation to disclose to
Executive, and Executive shall have no right to be advised of, any
material information regarding the Company or any Subsidiary at any
time prior to, upon or in connection with the repurchase of the
Executive Stock upon the termination of Executive's employment with
the Company or any Subsidiary or as otherwise provided hereunder.
(f) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive covenants and agrees to
enter into an Amended and Restated Stockholders Agreement in the form of
EXHIBIT D attached hereto.
2. VESTING OF EXECUTIVE STOCK.
The Executive Stock was vested as provided in this Section 2. On
September 5, 1996, 675.1523 shares of Class B Common (47,024.848 shares of
Common Stock as reclassified), were vested, and on November 11, 1996,
480.932 shares of Class B Common (33,497.152 shares of Common Stock as
reclassified) were vested by determination of the Board.
3. REPURCHASE OPTION.
(a) Subject to Section 3(f) below, in the event Executive ceases to
be employed by the Company or its Subsidiaries for any reason (the
"Termination"), the Executive Stock, which is Repurchasable Stock (as defined
below) (whether held by Executive or one or more of Executive's transferees),
will be subject to repurchase by the Company pursuant to the terms and
conditions set forth in this Section 3 (the "Repurchase Option").
(b) The purchase price for each share of Repurchasable Stock will be
the fair market value for such shares as reasonably determined by the
Company's Board.
(c) The Board may elect, in its sole discretion, to purchase all or
any portion of the Repurchasable Stock by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Repurchasable Stock
within 100 days after the Termination. The Repurchase Notice will set forth
the number of shares of Repurchasable Stock to be acquired from each holder,
the aggregate consideration to be paid for such shares and the time and place
for the closing of the transaction. The number of shares to be repurchased
by the Company shall first be satisfied to the extent possible from the
shares of Repurchasable Stock held by Executive at the time of delivery of
the Repurchase Notice. If the number of shares of Repurchasable Stock then
held by Executive is less than the total number of shares of Repurchasable
Stock which the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Repurchasable Stock under this Agreement, pro rata according to the number of
shares of Repurchasable Stock held by such other holder(s) at the
3
<PAGE>
time of delivery of such Repurchase Notice (determined as nearly as
practicable to the nearest share). The number of shares of Repurchasable
Stock to be repurchased hereunder will be allocated among Executive and the
other holders of Repurchasable Stock (if any) pro rata according to the
number of shares of Repurchasable Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Repurchasable Stock pursuant to the Repurchase Option, the Investor shall
be entitled, in its sole discretion, to exercise the Repurchase Option for
the shares of Repurchasable Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 60
days after the Termination, the Company shall give written notice (the
"Option Notice") to the Investor setting forth the number of Available Shares
and the purchase price for the Available Shares. The Investor may elect to
purchase any or all of the Available Shares by giving written notice to the
Company within thirty days after the Option Notice has been given by the
Company. As soon as practicable, and in any event within ten days after the
expiration of the thirty day period set forth above, the Company shall notify
each holder of Repurchasable Stock as to the number of shares being purchased
from such holder by the Investor (the "Supplemental Repurchase Notice"). At
the time the Company delivers the Supplemental Repurchase Notice to the
holder(s) of Repurchasable Stock, the Company shall also deliver written
notice to the Investor setting forth the number of shares the Investor is
entitled to purchase, the aggregate purchase price and the time and place of
the closing of the transaction.
(e) The closing of the purchase of the Repurchasable Stock pursuant
to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which
date shall not be more than thirty days nor less than five days after the
delivery of the later of either such notice to be delivered. The Company
and/or the Investor will pay for the Repurchasable Stock to be purchased
pursuant to the Repurchase Option by delivery of a check, a wire transfer of
funds and/or a note (payable in three equal annual installments commencing on
the first anniversary of such closing and bearing interest at the corporate
base rate as determined by the First National Bank of Chicago at the time the
note is issued) in form and substance determined by the Board in good faith
in the aggregate amount of the purchase price for such shares. In addition,
the Company may pay the purchase price for such shares by offsetting amounts
outstanding under the Executive Note issued to the Company hereunder and any
other debts owed by Executive to the Company. The Company and the Investor
will be entitled to receive customary representations and warranties from the
sellers regarding such sale and to require all sellers' signatures be
guaranteed.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Repurchasable Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and any Subsidiary's debt and equity
financing agreements. If any such restrictions prohibit the repurchase of
Repurchasable Stock hereunder which the Company is otherwise entitled to
make, the Company may make such repurchases as soon as it is permitted to do
so under such restrictions.
4
<PAGE>
(g) PERFORMANCE BASED REPURCHASABLE STOCK.
(i) Except as otherwise provided in Section 3(g)(ii) below, 20%
of the shares of Executive Stock purchased hereunder (the "Performance
Based Repurchasable Stock") shall cease to be Repurchasable Stock on
the seventh anniversary of the Start Date, if as of such date
Executive is still employed by the Company or any Subsidiary, provided
that if at the end of any of the first five fiscal years of the
Company following the date hereof, both the Company's EBITDA and
EBITDA Percentage equal or exceed 90% of the Company's Projected
EBITDA and Projected EBITDA Percentage, as determined in good faith by
the Board, respectively, for such fiscal years, then 20% of the
Performance Based Repurchasable Stock shall cease to be Repurchasable
Stock as of the end of each fiscal year in which such requirement is
satisfied. In the event the Company does not satisfy the requirement
for 20% of the Performance Based Repurchasable Stock to cease to be
Repurchasable Stock as of the end of any fiscal year, IF (i) the sum
of the Company's EBITDA for the fiscal year in which such requirement
is not met and the immediately succeeding fiscal year equals or
exceeds 90% of the sum of the Company's Projected EBITDA for such two
fiscal years, and (ii) the average of the Company's EBITDA Percentages
for such two years equals or exceeds 90% of the average of the
Company's Projected EBITDA Percentages for such two fiscal years, THEN
40% of the Performance Based Repurchasable Stock shall cease to be
Repurchasable Stock as of the end of the second of such two fiscal
years.
(ii) In the event Executive ceases to be employed by the Company
for any reason, then any Performance Based Repurchasable Stock which
has not ceased to be Repurchasable Stock on or prior to such date
shall remain Repurchasable Stock. Upon the occurrence of a Sale of
the Company while the Executive is still employed by the Company or
its Subsidiaries, all Performance Based Repurchasable Stock which is
still Repurchasable Stock shall cease to be Repurchasable Stock at the
time of such event.
(h) TIME BASED REPURCHASABLE STOCK.
(i) Except as otherwise provided in Section 3(h)(ii) below, 45%
of the shares of Executive Stock purchased hereunder (the "Time Based
Repurchasable Stock") will cease to be Repurchasable Stock in
accordance with the following schedule, if as of each such date
Executive is still employed by the Company or any Subsidiary:
5
<PAGE>
Cumulative Percentage of
Time Based
Date Repurchasable Stock
---- ------------------------
At the Start Date 20%
1st Anniversary of the Start Date 36%
2nd Anniversary of the Start Date 52%
3rd Anniversary of the Start Date 68%
4th Anniversary of the Start Date 84%
5th Anniversary of the Start Date 100%
(ii) If Executive ceases to be employed by the Company or its
Subsidiaries on any date prior to an anniversary date listed above,
the cumulative percentage of Time Based Repurchasable Stock to cease
being Repurchasable Stock will be determined on a pro rata basis
according to the number of days elapsed since the prior anniversary
date. Upon the occurrence of a Sale of the Company while Executive is
still employed by the Company or its Subsidiaries, all Time Based
Repurchasable Stock which has not yet ceased to be Repurchasable Stock
will cease to be Repurchasable Stock at the time of such event. Any
Time Based Repurchasable Stock which has not ceased to be
Repurchasable Stock as of the date that Executive ceases to be
employed by the Company or its Subsidiaries shall remain Repurchasable
Stock.
(i) Repurchasable Stock shall consist of Performance Based
Repurchasable Stock and Time Based Repurchasable Stock until such shares
cease to be Repurchasable Stock in accordance with the provisions of Sections
3(g) and 3(h).
4. RESTRICTIONS ON TRANSFER.
(a) TRANSFER OF EXECUTIVE STOCK. Until 100 days following
Termination, Executive shall not be permitted to sell, transfer, assign,
pledge or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any interest in
any Repurchasable Stock (a "Transfer"), other than to the Company or the
Investor pursuant to Section 3 hereof.
(b) CERTAIN PERMITTED TRANSFERS. The restrictions contained in
this Section 4 will not apply with respect to (i) transfers of shares of
Repurchasable Stock pursuant to applicable laws of descent and distribution
or (ii) transfers of shares of Repurchasable Stock among Executive's Family
Group; provided that such restrictions will continue to be applicable to the
Repurchasable Stock after any such transfer and the transferees of such
Repurchasable Stock will have agreed in writing to be bound by the provisions
of this Agreement.
6
<PAGE>
5. ADDITIONAL RESTRICTIONS ON TRANSFER.
(a) LEGEND. The certificates representing the Executive Stock will
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
AS OF SEPTEMBER 5, 1996, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER AND IN COMPLIANCE WITH STATE SECURITIES LAWS. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A SENIOR MANAGEMENT AGREEMENT
BETWEEN THE ISSUER (THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF
DATED AS OF SEPTEMBER 5, 1996 AND AMENDED AND RESTATED AS OF
NOVEMBER 11, 1996. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
(b) OPINION OF COUNSEL. No holder of Executive Stock may sell,
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to
the Company an opinion of counsel (reasonably acceptable in form and
substance to the Company) that neither registration nor qualification under
the Securities Act and applicable state securities laws is required in
connection with such transfer.
6. INTENTIONALLY OMITTED.
PROVISIONS RELATING TO EMPLOYMENT
7. EMPLOYMENT. The Company agrees to employ Executive and Executive
accepts such employment for the period beginning as of August 1, 1994 (the
"Start Date") and ending upon termination pursuant to Section 9 hereof (the
"Employment Period"). During the Employment Period, Executive shall serve as
the Vice President-Business Development of the Company and shall have the
normal duties, responsibilities and authority of a Vice President-Business
Development, including, without limitation, responsibility for all aspects of
the negotiation and integration of acquisitions, subject to the power of the
Board and the CEO to supervise, and to override any related actions.
7
<PAGE>
8. SALARY, BONUS AND BENEFITS. During the Employment Period, the
Company will pay Executive a base salary (the "Annual Base Salary") as the
Board or the Compensation Committee of the Board may designate from time to
time, in its sole discretion. Following the end of each fiscal year, the
Board may, in its sole discretion, award a bonus to Executive in an amount
not to exceed 40% of Executive's Annual Base Salary for such year, as
determined by the Board based upon the Company's achievement of budgetary and
other objectives. Executive's Annual Base Salary for any partial year will
be prorated based upon the number of days elapsed in such year. Executive
will also receive an automobile allowance of $550 per month and be eligible
to participate in group insurance, vacation and retirement savings (401(k))
plans as the Company may make available to its executives.
9. TERMINATION.
(a) The Employment Period will continue until Executive's
resignation, disability (as reasonably determined by the Board or the CEO) or
death or until the Board or the CEO determines in its good faith judgment
that termination of Executive's employment is in the best interests of the
Company.
(b) If the Company terminates Executive's employment without
Cause, the Company shall provide at least six months written notice to the
Executive prior to the effectiveness of such termination (the "Notice
Period"); provided, however, that if the Company terminates Executive's
employment without Cause and determines that Executive's employment with the
Company shall immediately cease, Executive shall be entitled to receive
payments (payable in monthly installments) equal to the lower of (i) the rate
of the Annual Base Salary for six months following the date of such
termination or (ii) the rate of the Annual Base Salary for the portion of the
Notice Period during which Executive is no longer employed by the Company.
Amounts payable by the Company to Executive pursuant to this Section 9(b)
shall be reduced by the amount of any payments received by Executive from
other employment (whether as an employee, consultant or otherwise) during or
in respect of the period in which payments are being made pursuant to this
Section 9(b), and Executive hereby agrees that upon the termination of
Executive, Executive shall use his best efforts to seek employment with
similar responsibilities and similar compensation to the position with the
Company contemplated by the terms of this Agreement. The Company may cease
making payments to Executive pursuant to this Section 9(b) at any time after
which Executive breaches any of the provisions of Section 10 or 11; provided
that no such cessation shall relieve Executive of his obligations under
Section 10 or 11.
(c) If Executive's employment with the Company is terminated by
the Company for Cause or as a result of a voluntary termination by Executive,
then Executive's right to receive the Annual Base Salary and other benefits
shall cease on the date of such termination and no severance payments shall
be made.
(d) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or the commission of any other act which is materially
injurious to the Company or any Subsidiary involving dishonesty, disloyalty
or fraud with respect to the Company or any
8
<PAGE>
Subsidiary, (ii) gross negligence or willful misconduct with respect to the
Company or any Subsidiary which is materially injurious to the Company or any
Subsidiary, (iii) willful, substantial and repeated failure to perform duties
commensurate with his position as reasonably directed in writing by the Board
or the CEO in good faith, or (iv) any other material breach of this Agreement
which is not cured within 21 days after written notice thereof to Executive.
10. CONFIDENTIAL INFORMATION. Executive acknowledges that the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company. Therefore,
Executive agrees that he will not disclose to any unauthorized person or use
for his own account or for the account of any third party any of such
information, observations or data without the Board's written consent, unless
and to the extent that the aforementioned matters become generally known to
and available for use by the public other than as a result of Executive's
acts or omissions to act. Executive shall use his best efforts to prevent
the unauthorized misuse, espionage, loss or theft of the aforementioned
matters. Executive agrees to deliver to the Company at the termination of
his employment, or at any other time the Company may request in writing, all
memoranda, notes, plans, records, reports and other documents (and copies
thereof) relating to the business of the Company and its affiliates
(including, without limitation, all acquisition prospects, lists and contact
information) which he may then possess or have under his control.
11. NONCOMPETITION AND NONSOLICITATION.
(a) NONCOMPETITION. Executive acknowledges that in the course of
his employment with the Company he will become familiar with the Company's
trade secrets and with other confidential information concerning the Company
and that his services will be of special, unique and extraordinary value to
the Company. Therefore, in consideration of the opportunity to purchase
Executive Stock and in consideration of the other rights given to Executive
hereunder, Executive agrees that, during the Employment Period and (i) if
Executive's employment is terminated by the Company for Cause or as a result
of voluntary termination by Executive, for two years thereafter, or (ii) if
Executive's employment is terminated for any other reason, the period during
which the Company is required (without giving effect to the last two
sentences of Section 9(b)) to make payments to Executive pursuant to Section
9(b) (the "Noncompete Period"), he shall not directly or indirectly own,
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company or
its Subsidiaries as such businesses exist on the date of the termination of
Executive's employment, within those limited states or metropolitan areas in
which the Company is engaged in business (or in which the Company is in the
process of attempting to engage in business) during the Employment Period or
at the time of termination of Executive's employment.
(b) NONSOLICITATION. During the Employment Period and for two
years thereafter, Executive shall not directly or indirectly through another
person or entity (i) induce or attempt to induce any employee of the Company
or any Subsidiary to leave the employ of the Company or such Subsidiary, or
in any way interfere with the relationship between the Company
9
<PAGE>
or any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment
Period, or (iii) induce or attempt to induce any customer, supplier, licensee
or other business relationship of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere
with the relationship between any such customer, supplier, licensee or
business relationship and the Company or any Subsidiary.
(c) ENFORCEMENT. If, at the time of enforcement of Section 10 or
11 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and
that the court shall be allowed to revise the restrictions contained herein
to cover the maximum duration, scope and area permitted by law. Because
Executive's services are unique and because Executive has access to
confidential information, the parties hereto agree that money damages would
be an inadequate remedy for any breach of this Agreement. Therefore, in the
event of a breach or threatened breach of this Agreement, the Company or its
successors or assigns may, in addition to other rights and remedies existing
in their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof (without posting a bond or other
security).
12. CONFIDENTIAL INFORMATION OF PRIOR EMPLOYERS.
(a) DISCLOSURE AND USE. Executive acknowledges and agrees that
Executive has been employed based upon personal and professional attributes
attained through his experience and education and that his employment with
the Company is not predicated on any implied or explicit understanding or
inference that Executive shall disclose or use any proprietary or
confidential information that Executive has acquired or been made privy to as
a result of his prior employment or relationships. Executive acknowledges
and affirms that he has been directed by the Company not to display or
otherwise make available to the Company, directly or indirectly (including by
undisclosed incorporation in his work product), any such proprietary or
confidential information. Executive represents and warrants that: (i) he
has not misappropriated, infringed or otherwise improperly disclosed or used
any proprietary or confidential information (in whatever form or medium) that
he has acquired or been made privy to as a result of his prior employment or
relationships; (ii) no claim by any of Executive's former employers or any
other third parties alleging misappropriation, infringement or improper
disclosure or use of same has been made, is currently outstanding or is
threatened, and there are no grounds therefor; and (iii) no injunction or
judgment has been imposed on Executive that restricts him from disclosing or
using same.
(b) PRIOR AGREEMENTS. Executive represents and warrants that: (i)
Executive has provided the Company with copies of any and all written
agreements or other arrangements that restrict or limit his conduct or
activities; (ii) Executive has no oral agreements or constraints with respect
to his conduct or activities; and (iii) all such written and oral agreements,
arrangements and constraints are listed on SCHEDULE 14(b) attached hereto and
incorporated herein. Executive recognizes that the Company is not in a
position to evaluate the scope or
10
<PAGE>
extent of his obligations and agreements and is not a party to such
agreements. His disclosure of such agreements in no way creates an
imputation or assumption of such agreements to or by the Company.
(c) PERFORMANCE OF EMPLOYMENT DUTIES. The Company has explained to
Executive the scope and responsibilities of his employment, and Executive
hereby represents and warrants that the performance of his employment duties
shall not place him in breach or violation of any pre-existing fiduciary
duty, covenant, agreement, restriction or limitation. Executive acknowledges
and agrees that Executive has been directed by the Company not to engage in
any conduct or activity that would cause him to violate any pre-existing
fiduciary duty, covenant, agreement, restriction or limitation and that, if
requested to engage in any activity or job function or to disclose any
information that would result in any such violation, Executive shall report
such request immediately and is relieved from any obligation to comply with
such request.
13. NO CONFLICTS. Executive represents and warrants that there is no
other contract in existence, written or oral, between him and any third party
that relates to the grant or assignment to others of any interest in
intellectual property hereafter contributed to, or conceived or made by, him
and that his performance of his duties to the Company will not place him in
breach of any existing agreement.
GENERAL PROVISIONS
14. CODE SECTION 280G. Notwithstanding any provision in this Agreement
to the contrary, if all or any portion of the payments or benefits received
or realized by Executive either alone or together with other payments or
benefits which Executive receives or realizes or is then entitled to receive
or realize from the Company or any of its affiliates would constitute a
"parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (or any successor section) and the
regulations promulgated thereunder (the "Code") and/or any corresponding and
applicable state law provision, such payments or benefits provided to
Executive shall be reduced by reducing the amount of payments or benefits
payable to Executive pursuant to Section 9 of this Agreement to the extent
necessary so that no portion of such payments shall be subject to the excise
tax imposed by Section 4999 of the Code and any corresponding and/or
applicable state law provision; provided, however, that such reduction shall
only be made if, by reason of such reduction, Executive's net after tax
benefit shall exceed the net after tax benefit if such reduction were not
made. For purposes of this Section 14, "net after tax benefit" shall mean
the sum of (i) the total amount received or realized by Executive pursuant to
this Agreement that would constitute a "parachute payment" within the meaning
of Section 280G of the Code and any corresponding and applicable state law
provision plus (ii) all other payments or benefits which Executive receives
or realizes or is then entitled to receive or realize from the Company and
any of its affiliates that would constitute a "parachute payment" within the
meaning of Section 280G of the Code and any corresponding and applicable
state law provision, less (iii) the amount of federal or state income taxes
payable with respect to the payments or benefits described in (i) and (ii)
above calculated at the maximum marginal individual income tax rate for each
year in which payments or benefits shall be realized by Executive (based upon
the rate in effect for such year as set forth in the Code at the time of the
11
<PAGE>
first receipt or realization of the foregoing), less (iv) the amount of
excise taxes imposed with respect to the payments or benefits described in
(i) and (ii) above by Section 4999 of the Code and any corresponding and
applicable state law provision.
15. DEFINITIONS.
"BOARD" means the Company's Board of Directors.
"CEO" means the Company's Chief Executive Officer.
"EBITDA" for any fiscal period of the Company means the Company's
consolidated earnings from continuing operations before interest, taxes,
depreciation and amortization for such fiscal period, as determined in
accordance with GAAP.
"EBITDA PERCENTAGE" as of the end of any fiscal period of the Company
means the quotient of (a) the Company's EBITDA for such period divided by (b)
the sum of (1) the monthly average amount of equity invested (not including
retained earnings) in the Company during such period plus (2) the monthly
average amount of Indebtedness of the Company during such period, all as
determined in accordance with GAAP.
"EXECUTIVE'S FAMILY GROUP" means Executive's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of
Executive and/or Executive's spouse and/or descendants. Executive Stock will
also include shares of the Company's capital stock issued with respect to
Executive Stock by way of a stock split, stock dividend or other
recapitalization.
"EXECUTIVE STOCK" will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company and the Investor and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock will succeed to all rights
and obligations attributable to Executive as a holder of Executive Stock
hereunder.
"GAAP" means generally accepted accounting principles, as in effect from
time to time.
"INDEBTEDNESS" shall mean at a particular time, without duplication, (i)
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which any Person is liable, as obligor or
otherwise (other than trade payables and other current liabilities incurred
in the ordinary course of business) or any commitment by which any Person
assures a creditor against loss, including contingent reimbursement
obligations with respect to letters of credit and (ii) indebtedness
guaranteed in any manner by any Person, including guarantees in the form of
an agreement to repurchase or reimburse.
"PROJECTED EBITDA" for any fiscal period of the Company shall mean the
EBITDA of the Company for such fiscal period set forth on Appendix 1 attached
hereto.
12
<PAGE>
"PROJECTED EBITDA PERCENTAGE" for any fiscal period of the Company shall
mean the EBITDA Percentage of the Company for such fiscal period set forth on
Appendix 1 attached hereto.
"PUBLIC SALE" means any sale pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or
market maker.
"QUALIFIED PUBLIC OFFERING" means the sale in an underwritten public
offering registered under the Securities Act of shares of the Company's
Common Stock having an aggregate offering value of at least $30 million.
"SALE OF THE COMPANY" means any transaction or series of related
transactions pursuant to which any person or entity (other than the Investor)
acquires (i) capital stock of the Company possessing the voting power to
elect a majority of the Board (whether by merger, consolidation,
reorganization, combination, sale or transfer of the Company's capital stock
or otherwise) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"START DATE" shall have the meaning set forth in Section 7.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated Stockholders
Agreement by and among the Company, the Investor, Timothy L. Burfield,
Michael B. Freedman, Charles R. Wallace, J. Jeffrey Gephart, Thomas C.
Loftus, George E. Pepe, James H.S. Cooper, Charles C. Halberg, Mark A.
Jerstad, William J. Gatti, Mary Jane Gatti, Sterling Acquisition Partners,
Pharmed, Inc., Nelson C. Showalter, Bruce Gerlick, Mitch Overstreet, Lee R.
Youngberg, Frank R. Gelafio, Ronald E. Keith, James Pietryga, Pharmed of
Baton Rouge, Joseph F. Dellantonio, Thomas C. Loftus and George E. Pepe.
"SUBSIDIARY" means any corporation of which the Company owns securities
having a majority of the ordinary voting power in electing the board of
directors directly or through one or more subsidiaries.
16. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
13
<PAGE>
IF TO THE COMPANY:
American Medserve Corporation
Park Lake Center
184 Shuman Boulevard, Suite 200
Naperville, Illinois 60563
Attention: CEO
WITH A COPY TO:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bryan C. Cressey
AND
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, Suite 3400
Chicago, Illinois 60610-4795
IF TO THE EXECUTIVE:
Michael B. Freedman
2022 North Dayton
Chicago, Illinois 60614
IF TO THE INVESTOR:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bryan C. Cressey
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Gary R. Silverman, Esq.
or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be deemed to have been given
when so delivered or sent or, if mailed, five days after deposit in the U.S.
mail.
14
<PAGE>
17. MISCELLANEOUS.
(a) TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or
attempted Transfer of any Executive Stock in violation of any provision of
this Agreement shall be void, and the Company shall not record such Transfer
on its books or treat any purported transferee of such Executive Stock as the
owner of such stock for any purpose.
(b) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
(c) COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
(d) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one and the same agreement.
(e) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be
assignable except in connection with a permitted transfer of Executive Stock
hereunder.
(f) GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by and construed in accordance with the internal
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(g) OTHER AGREEMENTS. Provisions pertaining to Executive's
co-sale rights are set forth in that certain Amended and Restated
Stockholders Agreement dated as of August 23, 1996 and provisions pertaining
to Executive's registration rights are set forth in that certain Registration
Agreement dated as of August 23, 1996.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
AMERICAN MEDSERVE CORPORATION
By: /s/ Timothy L. Burfield
----------------------------
Its: Chief Executive Officer
---------------------------
/s/ Michael B. Freedman
-------------------------------
Michael B. Freedman
Agreed and Accepted:
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P.
By: GTCR IV, L.P.
Its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.
Its General Partner
By: /s/ Lee M. Mitchell
-------------------------
Its:
------------------------
16
<PAGE>
SCHEDULE 14(b)
None
<PAGE>
APPENDIX 1
Projected
Year Projected EBITDA EBITDA Percentage
---- ---------------- -------------------
1996 $5,368,000 12.75%
1997 $9,337,000 16.95%
1998 $13,976,000 20.68%
1999 $19,387,000 24.43%
2000 $24,233,750 28.00%
NOTE: Projected EBITDA Percentage will be recalculated to reflect any
significant recapitalization, including a Qualified Public
Offering, of the Company.
<PAGE>
AMENDED AND RESTATED
SENIOR MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED SENIOR MANAGEMENT AGREEMENT (the "Agreement")
is made as of September 5, 1996 and amended and restated as of November 11,
1996, between American Medserve Corporation, a Delaware corporation (the
"Company"), and Charles R. Wallace ("Executive").
The Company and Executive entered into a Senior Management Agreement
dated September 5, 1996 (the "Original Senior Management Agreement") pursuant
to which Executive purchased, and the Company sold 1496.4457 shares of Class
B Common Stock, par value $.01 per share (the "Class B Common") and pursuant
to which Executive was employed by the Company as the Company's Vice
President-Finance and Chief Financial Officer. Certain definitions are set
forth in Section 15 of this Agreement.
In November 1996, the Company adopted an Amended and Restated Certificate
of Incorporation, pursuant to which each share of Class B Common was
reclassified as 69.650323 shares of the Company's Common Stock, $.01 par
value (the "Common Stock") Executive now holds 104,228 shares of Common Stock
(as reclassified). All such shares of Common Stock and all shares of Common
Stock hereafter acquired by Executive pursuant to this Agreement are herein
referred to as "Executive Stock."
Executive and the Company now wish to amend and restate the terms of the
Original Senior Management Agreement.
Certain provisions of the Original Senior Management Agreement as amended
and restated by this Agreement are intended for the benefit of, and will be
enforceable by, Golder, Thoma, Cressey, Rauner Fund IV, L.P. (the
"Investor"), and the Investor is an intended third party beneficiary of this
Agreement.
The parties hereto agree as follows:
PROVISIONS RELATING TO EXECUTIVE STOCK
1. PURCHASE AND SALE OF EXECUTIVE STOCK.
(a) On September 5, 1996, Executive purchased from the Company,
and the Company sold to Executive, 1,496.4457 shares of Class B Common
(104,228 shares of Common Stock as reclassified). The purchase price per
share of Class B Common (the "Purchase Price") was $98.46.
(b) At the closing of the purchase and sale of the Class B Common
(the "Closing"), the Company delivered to the Executive stock certificates
evidencing the Class B Common purchased by the Executive, registered in the
Executive's name, upon payment of the purchase price thereof by a cashier's
or certified check, or by wire transfer of immediately
<PAGE>
available funds to such account as designated by the Company
in an amount not less than $14,734.00 and by delivery of a promissory note
substantially in the form attached hereto as EXHIBIT A (the "Executive Note")
in the amount of the balance of the Purchase Price owed in respect of the
Class B Common purchased hereunder. Executive's obligations under the
Executive Note are secured by a pledge of such collateral as the Company
shall approve.
(c) Within 30 days after the purchase of Executive Stock by
Executive from the Company, Executive made an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and
the regulations promulgated thereunder substantially in the form of EXHIBIT C
attached hereto and notified the Company of such election.
(d) As of the date of the Original Senior Management Agreement,
Executive represented and warranted to the Company, and as of the date
hereof, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of
the Securities Act, or any applicable state securities laws, and the
Executive Stock will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) Executive is sophisticated in financial matters and is able
to evaluate the risks and benefits of the investment in the Executive
Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time
because the Executive Stock has not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such
registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
the Executive Stock and has had access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and
the execution, delivery and performance of this Agreement by Executive
does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
(e) As an inducement to the Company to issue the Executive Stock
to Executive, and as a condition thereto and in consideration for entering
into this Agreement, Executive acknowledges and agrees that:
2
<PAGE>
(i) Neither the issuance of any of the Executive Stock to
Executive nor any provision hereof shall entitle Executive to remain
in the employment of the Company and its Subsidiaries or affect the
right of the Company to terminate Executive's employment at any time
for any reason.
(ii) The Company shall have no duty or obligation to disclose to
Executive, and Executive shall have no right to be advised of, any
material information regarding the Company or any Subsidiary at any
time prior to, upon or in connection with the repurchase of the
Executive Stock upon the termination of Executive's employment with
the Company or any Subsidiary or as otherwise provided hereunder.
(f) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive covenants and agrees to
enter into an Amended and Restated Stockholders Agreement in the form of
EXHIBIT D attached hereto.
2. VESTING OF EXECUTIVE STOCK.
The Executive Stock was vested as provided in this Section 2. On
September 5, 1996, 616.5356 shares of Class B Common (42,942 shares of
Common Stock as reclassified), were vested, and on November 11, 1996,
879.9101 shares of Class B Common (61,286 shares of Common Stock as
reclassified) were vested by determination of the Board.
3. REPURCHASE OPTION.
(a) Subject to Section 3(f) below, in the event Executive ceases to
be employed by the Company or its Subsidiaries for any reason (the
"Termination"), the Executive Stock, which is Repurchasable Stock (as defined
below) (whether held by Executive or one or more of Executive's transferees),
will be subject to repurchase by the Company pursuant to the terms and
conditions set forth in this Section 3 (the "Repurchase Option").
(b) The purchase price for each share of Repurchasable Stock will be
the fair market value for such shares as reasonably determined by the
Company's Board.
(c) The Board may elect, in its sole discretion, to purchase all or
any portion of the Repurchasable Stock by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Repurchasable Stock
within 100 days after the Termination. The Repurchase Notice will set forth
the number of shares of Repurchasable Stock to be acquired from each holder,
the aggregate consideration to be paid for such shares and the time and place
for the closing of the transaction. The number of shares to be repurchased
by the Company shall first be satisfied to the extent possible from the
shares of Repurchasable Stock held by Executive at the time of delivery of
the Repurchase Notice. If the number of shares of Repurchasable Stock then
held by Executive is less than the total number of shares of Repurchasable
Stock which the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Repurchasable Stock under this Agreement, pro rata according to the number of
shares of Repurchasable Stock held by such other holder(s) at the
3
<PAGE>
time of delivery of such Repurchase Notice (determined as nearly as
practicable to the nearest share). The number of shares of Repurchasable
Stock to be repurchased hereunder will be allocated among Executive and the
other holders of Repurchasable Stock (if any) pro rata according to the
number of shares of Repurchasable Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Repurchasable Stock pursuant to the Repurchase Option, the Investor shall
be entitled, in its sole discretion, to exercise the Repurchase Option for
the shares of Repurchasable Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 60
days after the Termination, the Company shall give written notice (the
"Option Notice") to the Investor setting forth the number of Available Shares
and the purchase price for the Available Shares. The Investor may elect to
purchase any or all of the Available Shares by giving written notice to the
Company within thirty days after the Option Notice has been given by the
Company. As soon as practicable, and in any event within ten days after the
expiration of the thirty day period set forth above, the Company shall notify
each holder of Repurchasable Stock as to the number of shares being purchased
from such holder by the Investor (the "Supplemental Repurchase Notice"). At
the time the Company delivers the Supplemental Repurchase Notice to the
holder(s) of Repurchasable Stock, the Company shall also deliver written
notice to the Investor setting forth the number of shares the Investor is
entitled to purchase, the aggregate purchase price and the time and place of
the closing of the transaction.
(e) The closing of the purchase of the Repurchasable Stock pursuant
to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which
date shall not be more than thirty days nor less than five days after the
delivery of the later of either such notice to be delivered. The Company
and/or the Investor will pay for the Repurchasable Stock to be purchased
pursuant to the Repurchase Option by delivery of a check, a wire transfer of
funds and/or a note (payable in three equal annual installments commencing on
the first anniversary of such closing and bearing interest at the corporate
base rate as determined by the First National Bank of Chicago at the time the
note is issued) in form and substance determined by the Board in good faith
in the aggregate amount of the purchase price for such shares. In addition,
the Company may pay the purchase price for such shares by offsetting amounts
outstanding under the Executive Note issued to the Company hereunder and any
other debts owed by Executive to the Company. The Company and the Investor
will be entitled to receive customary representations and warranties from the
sellers regarding such sale and to require all sellers' signatures be
guaranteed.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Repurchasable Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and any Subsidiary's debt and equity
financing agreements. If any such restrictions prohibit the repurchase of
Repurchasable Stock hereunder which the Company is otherwise entitled to
make, the Company may make such repurchases as soon as it is permitted to do
so under such restrictions.
4
<PAGE>
(g) PERFORMANCE BASED REPURCHASABLE STOCK.
(i) Except as otherwise provided in Section 3(g)(ii) below, 30%
of the shares of Executive Stock purchased hereunder (the "Performance
Based Repurchasable Stock") shall cease to be Repurchasable Stock on
the seventh anniversary of the Start Date, if as of such date
Executive is still employed by the Company or any Subsidiary, provided
that if at the end of any of the first five fiscal years of the
Company following the date hereof, both the Company's EBITDA and
EBITDA Percentage equal or exceed 90% of the Company's Projected
EBITDA and Projected EBITDA Percentage, as determined in good faith by
the Board, respectively, for such fiscal years, then 20% of the
Performance Based Repurchasable Stock shall cease to be Repurchasable
Stock as of the end of each fiscal year in which such requirement is
satisfied. In the event the Company does not satisfy the requirement
for 20% of the Performance Based Repurchasable Stock to cease to be
Repurchasable Stock as of the end of any fiscal year, IF (i) the sum
of the Company's EBITDA for the fiscal year in which such requirement
is not met and the immediately succeeding fiscal year equals or
exceeds 90% of the sum of the Company's Projected EBITDA for such two
fiscal years, and (ii) the average of the Company's EBITDA Percentages
for such two years equals or exceeds 90% of the average of the
Company's Projected EBITDA Percentages for such two fiscal years, THEN
40% of the Performance Based Repurchasable Stock shall cease to be
Repurchasable Stock as of the end of the second of such two fiscal
years.
(ii) In the event Executive ceases to be employed by the Company
for any reason, then any Performance Based Repurchasable Stock which
has not ceased to be Repurchasable Stock on or prior to such date
shall remain Repurchasable Stock. Upon the occurrence of a Sale of
the Company while the Executive is still employed by the Company or
its Subsidiaries, all Performance Based Repurchasable Stock which is
still Repurchasable Stock shall cease to be Repurchasable Stock at the
time of such event.
(h) TIME BASED REPURCHASABLE STOCK.
(i) Except as otherwise provided in Section 3(h)(ii) below, 45%
of the shares of Executive Stock purchased hereunder (the "Time Based
Repurchasable Stock") will cease to be Repurchasable Stock in
accordance with the following schedule, if as of each such date
Executive is still employed by the Company or any Subsidiary:
5
<PAGE>
Cumulative Percentage of
Time Based
Date Repurchasable Stock
At the Start Date 20%
1st Anniversary of the Start Date 36%
2nd Anniversary of the Start Date 52%
3rd Anniversary of the Start Date 68%
4th Anniversary of the Start Date 84%
5th Anniversary of the Start Date 100%
(ii) If Executive ceases to be employed by the Company or its
Subsidiaries on any date prior to an anniversary date listed above,
the cumulative percentage of Time Based Repurchasable Stock to cease
being Repurchasable Stock will be determined on a pro rata basis
according to the number of days elapsed since the prior anniversary
date. Upon the occurrence of a Sale of the Company while Executive is
still employed by the Company or its Subsidiaries, all Time Based
Repurchasable Stock which has not yet ceased to be Repurchasable Stock
will cease to be Repurchasable Stock at the time of such event. Any
Time Based Repurchasable Stock which has not ceased to be
Repurchasable Stock as of the date that Executive ceases to be
employed by the Company or its Subsidiaries shall remain Repurchasable
Stock.
(i) Repurchasable Stock shall consist of Performance Based
Repurchasable Stock and Time Based Repurchasable Stock until such shares
cease to be Repurchasable Stock in accordance with the provisions of Sections
3(g) and 3(h).
4. RESTRICTIONS ON TRANSFER.
(a) TRANSFER OF EXECUTIVE STOCK. Until 100 days following
Termination, Executive shall not be permitted to sell, transfer, assign,
pledge or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any interest in
any Repurchasable Stock (a "Transfer"), other than to the Company or the
Investor pursuant to Section 3 hereof.
(b) CERTAIN PERMITTED TRANSFERS. The restrictions contained in
this Section 4 will not apply with respect to (i) transfers of shares of
Repurchasable Stock pursuant to applicable laws of descent and distribution
or (ii) transfers of shares of Repurchasable Stock among Executive's Family
Group; provided that such restrictions will continue to be applicable to the
Repurchasable Stock after any such transfer and the transferees of such
Repurchasable Stock will have agreed in writing to be bound by the provisions
of this Agreement.
6
<PAGE>
5. ADDITIONAL RESTRICTIONS ON TRANSFER.
(a) LEGEND. The certificates representing the Executive Stock will
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
AS OF SEPTEMBER 5, 1996, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER AND IN COMPLIANCE WITH STATE SECURITIES LAWS. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A SENIOR MANAGEMENT AGREEMENT
BETWEEN THE ISSUER (THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF
DATED AS OF SEPTEMBER 5, 1996 AND AMENDED AND RESTATED AS OF
NOVEMBER 11, 1996. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
(b) OPINION OF COUNSEL. No holder of Executive Stock may sell,
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to
the Company an opinion of counsel (reasonably acceptable in form and
substance to the Company) that neither registration nor qualification under
the Securities Act and applicable state securities laws is required in
connection with such transfer.
6. INTENTIONALLY OMITTED.
7
<PAGE>
PROVISIONS RELATING TO EMPLOYMENT
7. EMPLOYMENT. The Company agrees to employ Executive and Executive
accepts such employment for the period beginning as of September 25, 1995
(the "Start Date") and ending upon termination pursuant to Section 9 hereof
(the "Employment Period"). During the Employment Period, Executive shall
serve as the Vice President-Finance and Chief Financial Officer of the
Company and shall have the normal duties, responsibilities and authority of a
Vice President-Finance and Chief Financial Officer, including, without
limitation, responsibility for all aspects of financial management, subject
to the power of the Board and the CEO to supervise, and to override any
related actions.
8. SALARY, BONUS AND BENEFITS. During the Employment Period, the
Company will pay Executive a base salary (the "Annual Base Salary") as the
Board or the Compensation Committee of the Board may designate from time to
time, in its sole discretion. Following the end of each fiscal year, the
Board may, in its sole discretion, award a bonus to Executive in an amount
not to exceed 40% of Executive's Annual Base Salary for such year, as
determined by the Board based upon the Company's achievement of budgetary and
other objectives. Executive's Annual Base Salary for any partial year will
be prorated based upon the number of days elapsed in such year. Executive
will also receive an automobile allowance of $550 per month and be eligible
to participate in group insurance, vacation and retirement savings (401(k))
plans as the Company may make available to its executives.
9. TERMINATION.
(a) The Employment Period will continue until Executive's
resignation, disability (as reasonably determined by the Board or the CEO) or
death or until the Board or the CEO determines in its good faith judgment
that termination of Executive's employment is in the best interests of the
Company.
(b) If the Company terminates Executive's employment without
Cause, the Company shall provide at least six months written notice to the
Executive prior to the effectiveness of such termination (the "Notice
Period"); provided, however, that if the Company terminates Executive's
employment without Cause and determines that Executive's employment with the
Company shall immediately cease, Executive shall be entitled to receive
payments (payable in monthly installments) equal to the lower of (i) the rate
of the Annual Base Salary for six months following the date of such
termination or (ii) the rate of the Annual Base Salary for the portion of the
Notice Period during which Executive is no longer employed by the Company.
Amounts payable by the Company to Executive pursuant to this Section 9(b)
shall be reduced by the amount of any payments received by Executive from
other employment (whether as an employee, consultant or otherwise) during or
in respect of the period in which payments are being made pursuant to this
Section 9(b), and Executive hereby agrees that upon the termination of
Executive, Executive shall use his best efforts to seek employment with
similar responsibilities and similar compensation to the position with the
Company contemplated by the terms of this Agreement. The Company may cease
making payments to Executive pursuant to this Section 9(b) at any time after
which Executive breaches any of the provisions of Section 10
8
<PAGE>
or 11; provided that no such cessation shall relieve Executive of his
obligations under Section 10 or 11.
(c) If Executive's employment with the Company is terminated by
the Company for Cause or as a result of a voluntary termination by Executive,
then Executive's right to receive the Annual Base Salary and other benefits
shall cease on the date of such termination and no severance payments shall
be made.
(d) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or the commission of any other act which is materially
injurious to the Company or any Subsidiary involving dishonesty, disloyalty
or fraud with respect to the Company or any Subsidiary, (ii) gross negligence
or willful misconduct with respect to the Company or any Subsidiary which is
materially injurious to the Company or any Subsidiary, (iii) willful,
substantial and repeated failure to perform duties commensurate with his
position as reasonably directed in writing by the Board or the CEO in good
faith, or (iv) any other material breach of this Agreement which is not cured
within 21 days after written notice thereof to Executive.
10. CONFIDENTIAL INFORMATION. Executive acknowledges that the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company. Therefore,
Executive agrees that he will not disclose to any unauthorized person or use
for his own account or for the account of any third party any of such
information, observations or data without the Board's written consent, unless
and to the extent that the aforementioned matters become generally known to
and available for use by the public other than as a result of Executive's
acts or omissions to act. Executive shall use his best efforts to prevent
the unauthorized misuse, espionage, loss or theft of the aforementioned
matters. Executive agrees to deliver to the Company at the termination of
his employment, or at any other time the Company may request in writing, all
memoranda, notes, plans, records, reports and other documents (and copies
thereof) relating to the business of the Company and its affiliates
(including, without limitation, all acquisition prospects, lists and contact
information) which he may then possess or have under his control.
11. NONCOMPETITION AND NONSOLICITATION.
(a) NONCOMPETITION. Executive acknowledges that in the course of
his employment with the Company he will become familiar with the Company's
trade secrets and with other confidential information concerning the Company
and that his services will be of special, unique and extraordinary value to
the Company. Therefore, in consideration of the opportunity to purchase
Executive Stock and in consideration of the other rights given to Executive
hereunder, Executive agrees that, during the Employment Period and (i) if
Executive's employment is terminated by the Company for Cause or as a result
of voluntary termination by Executive, for two years thereafter, or (ii) if
Executive's employment is terminated for any other reason, the period during
which the Company is required (without giving effect to the last two
sentences of Section 9(b)) to make payments to Executive pursuant to Section
9(b) (the "Noncompete Period"), he shall not directly or indirectly own,
manage, control, participate in,
9
<PAGE>
consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its Subsidiaries as such
businesses exist on the date of the termination of Executive's employment,
within those limited states or metropolitan areas in which the Company is
engaged in business (or in which the Company is in the process of attempting
to engage in business) during the Employment Period or at the time of
termination of Executive's employment.
(b) NONSOLICITATION. During the Employment Period and for two
years thereafter, Executive shall not directly or indirectly through another
person or entity (i) induce or attempt to induce any employee of the Company
or any Subsidiary to leave the employ of the Company or such Subsidiary, or
in any way interfere with the relationship between the Company
or any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment
Period, or (iii) induce or attempt to induce any customer, supplier, licensee
or other business relationship of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere
with the relationship between any such customer, supplier, licensee or
business relationship and the Company or any Subsidiary.
(c) ENFORCEMENT. If, at the time of enforcement of Section 10 or
11 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and
that the court shall be allowed to revise the restrictions contained herein
to cover the maximum duration, scope and area permitted by law. Because
Executive's services are unique and because Executive has access to
confidential information, the parties hereto agree that money damages would
be an inadequate remedy for any breach of this Agreement. Therefore, in the
event of a breach or threatened breach of this Agreement, the Company or its
successors or assigns may, in addition to other rights and remedies existing
in their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof (without posting a bond or other
security).
12. CONFIDENTIAL INFORMATION OF PRIOR EMPLOYERS.
(a) DISCLOSURE AND USE. Executive acknowledges and agrees that
Executive has been employed based upon personal and professional attributes
attained through his experience and education and that his employment with
the Company is not predicated on any implied or explicit understanding or
inference that Executive shall disclose or use any proprietary or
confidential information that Executive has acquired or been made privy to as
a result of his prior employment or relationships. Executive acknowledges
and affirms that he has been directed by the Company not to display or
otherwise make available to the Company, directly or indirectly (including by
undisclosed incorporation in his work product), any such proprietary or
confidential information. Executive represents and warrants that: (i) he
has not misappropriated, infringed or otherwise improperly disclosed or used
any proprietary or confidential information (in whatever form or medium) that
he has acquired or been made privy to as a result of his prior employment or
relationships; (ii) no claim by any of Executive's former employers or any
other
10
<PAGE>
third parties alleging misappropriation, infringement or improper
disclosure or use of same has been made, is currently outstanding or is
threatened, and there are no grounds therefor; and (iii) no injunction or
judgment has been imposed on Executive that restricts him from disclosing or
using same.
(b) PRIOR AGREEMENTS. Executive represents and warrants that: (i)
Executive has provided the Company with copies of any and all written
agreements or other arrangements that restrict or limit his conduct or
activities; (ii) Executive has no oral agreements or constraints with respect
to his conduct or activities; and (iii) all such written and oral agreements,
arrangements and constraints are listed on SCHEDULE 14(b) attached hereto and
incorporated herein. Executive recognizes that the Company is not in a
position to evaluate the scope or extent of his obligations and agreements
and is not a party to such agreements. His disclosure of such agreements in
no way creates an imputation or assumption of such agreements to or by the
Company.
(c) PERFORMANCE OF EMPLOYMENT DUTIES. The Company has explained to
Executive the scope and responsibilities of his employment, and Executive
hereby represents and warrants that the performance of his employment duties
shall not place him in breach or violation of any pre-existing fiduciary
duty, covenant, agreement, restriction or limitation. Executive acknowledges
and agrees that Executive has been directed by the Company not to engage in
any conduct or activity that would cause him to violate any pre-existing
fiduciary duty, covenant, agreement, restriction or limitation and that, if
requested to engage in any activity or job function or to disclose any
information that would result in any such violation, Executive shall report
such request immediately and is relieved from any obligation to comply with
such request.
13. NO CONFLICTS. Executive represents and warrants that there is no
other contract in existence, written or oral, between him and any third party
that relates to the grant or assignment to others of any interest in
intellectual property hereafter contributed to, or conceived or made by, him
and that his performance of his duties to the Company will not place him in
breach of any existing agreement.
GENERAL PROVISIONS
14. CODE SECTION 280G. Notwithstanding any provision in this Agreement
to the contrary, if all or any portion of the payments or benefits received
or realized by Executive either alone or together with other payments or
benefits which Executive receives or realizes or is then entitled to receive
or realize from the Company or any of its affiliates would constitute a
"parachute payment" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (or any successor section) and the
regulations promulgated thereunder (the "Code") and/or any corresponding and
applicable state law provision, such payments or benefits provided to
Executive shall be reduced by reducing the amount of payments or benefits
payable to Executive pursuant to Section 9 of this Agreement to the extent
necessary so that no portion of such payments shall be subject to the excise
tax imposed by Section 4999 of the Code and any corresponding and/or
applicable state law provision; provided, however, that such reduction shall
only be made if, by reason of such reduction, Executive's net after tax
benefit shall exceed the
11
<PAGE>
net after tax benefit if such reduction were not made. For purposes of this
Section 14, "net after tax benefit" shall mean the sum of (i) the total
amount received or realized by Executive pursuant to this Agreement that
would constitute a "parachute payment" within the meaning of Section 280G of
the Code and any corresponding and applicable state law provision plus (ii)
all other payments or benefits which Executive receives or realizes or is
then entitled to receive or realize from the Company and any of its
affiliates that would constitute a "parachute payment" within the meaning of
Section 280G of the Code and any corresponding and applicable state law
provision, less (iii) the amount of federal or state income taxes payable
with respect to the payments or benefits described in (i) and (ii) above
calculated at the maximum marginal individual income tax rate for each year
in which payments or benefits shall be realized by Executive (based upon the
rate in effect for such year as set forth in the Code at the time of the
first receipt or realization of the foregoing), less (iv) the amount of
excise taxes imposed with respect to the payments or benefits described in
(i) and (ii) above by Section 4999 of the Code and any corresponding and
applicable state law provision.
15. DEFINITIONS.
"BOARD" means the Company's Board of Directors.
"CEO" means the Company's Chief Executive Officer.
"EBITDA" for any fiscal period of the Company means the Company's
consolidated earnings from continuing operations before interest, taxes,
depreciation and amortization for such fiscal period, as determined in
accordance with GAAP.
"EBITDA PERCENTAGE" as of the end of any fiscal period of the Company
means the quotient of (a) the Company's EBITDA for such period divided by (b)
the sum of (1) the monthly average amount of equity invested (not including
retained earnings) in the Company during such period plus (2) the monthly
average amount of Indebtedness of the Company during such period, all as
determined in accordance with GAAP.
"EXECUTIVE'S FAMILY GROUP" means Executive's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of
Executive and/or Executive's spouse and/or descendants. Executive Stock will
also include shares of the Company's capital stock issued with respect to
Executive Stock by way of a stock split, stock dividend or other
recapitalization.
"EXECUTIVE STOCK" will continue to be Executive Stock in the hands of
any holder other than Executive (except for the Company and the Investor and
except for transferees in a Public Sale), and except as otherwise provided
herein, each such other holder of Executive Stock will succeed to all rights
and obligations attributable to Executive as a holder of Executive Stock
hereunder.
"GAAP" means generally accepted accounting principles, as in effect from
time to time.
"INDEBTEDNESS" shall mean at a particular time, without duplication, (i)
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which
12
<PAGE>
any Person is liable, as obligor or otherwise (other than trade payables and
other current liabilities incurred in the ordinary course of business) or any
commitment by which any Person assures a creditor against loss, including
contingent reimbursement obligations with respect to letters of credit and
(ii) indebtedness guaranteed in any manner by any Person, including
guarantees in the form of an agreement to repurchase or reimburse.
"PROJECTED EBITDA" for any fiscal period of the Company shall mean the
EBITDA of the Company for such fiscal period set forth on Appendix 1 attached
hereto.
"PROJECTED EBITDA PERCENTAGE" for any fiscal period of the Company shall
mean the EBITDA Percentage of the Company for such fiscal period set forth on
Appendix 1 attached hereto.
"PUBLIC SALE" means any sale pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act effected through a broker, dealer or
market maker.
"QUALIFIED PUBLIC OFFERING" means the sale in an underwritten public
offering registered under the Securities Act of shares of the Company's
Common Stock having an aggregate offering value of at least $30 million.
"SALE OF THE COMPANY" means any transaction or series of related
transactions pursuant to which any person or entity (other than the Investor)
acquires (i) capital stock of the Company possessing the voting power to
elect a majority of the Board (whether by merger, consolidation,
reorganization, combination, sale or transfer of the Company's capital stock
or otherwise) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"START DATE" shall have the meaning set forth in Section 7.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated Stockholders
Agreement by and among the Company, the Investor, Timothy L. Burfield,
Michael B. Freedman, Charles R. Wallace, J. Jeffrey Gephart, Thomas C.
Loftus, George E. Pepe, James H.S. Cooper, Charles C. Halberg, Mark A.
Jerstad, William J. Gatti, Mary Jane Gatti, Sterling Acquisition Partners,
Pharmed, Inc., Nelson C. Showalter, Bruce Gerlick, Mitch Overstreet, Lee R.
Youngberg, Frank R. Gelafio, Ronald E. Keith, James Pietryga, Pharmed of
Baton Rouge, Joseph F. Dellantonio, Thomas C. Loftus and George E. Pepe.
"SUBSIDIARY" means any corporation of which the Company owns securities
having a majority of the ordinary voting power in electing the board of
directors directly or through one or more subsidiaries.
16. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt
13
<PAGE>
requested) or sent by reputable overnight courier service (charges prepaid)
to the recipient at the address below indicated:
IF TO THE COMPANY:
American Medserve Corporation
Park Lake Center
184 Shuman Boulevard, Suite 200
Naperville, Illinois 60563
Attention: CEO
WITH A COPY TO:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bryan C. Cressey
AND
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, Suite 3400
Chicago, Illinois 60610-4795
IF TO THE EXECUTIVE:
Charles R. Wallace
393 Prairie Avenue
Elmhurst, Illinois 60126
IF TO THE INVESTOR:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bryan C. Cressey
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Gary R. Silverman, Esq.
or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the sending
party. Any notice under this Agreement will be
14
<PAGE>
deemed to have been given when so delivered or sent or, if mailed, five days
after deposit in the U.S. mail.
17. MISCELLANEOUS.
(a) TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or
attempted Transfer of any Executive Stock in violation of any provision of
this Agreement shall be void, and the Company shall not record such Transfer
on its books or treat any purported transferee of such Executive Stock as the
owner of such stock for any purpose.
(b) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision had never been contained
herein.
(c) COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
(d) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one and the same agreement.
(e) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investor and their respective successors and
assigns (including subsequent holders of Executive Stock); provided that the
rights and obligations of Executive under this Agreement shall not be
assignable except in connection with a permitted transfer of Executive Stock
hereunder.
(f) GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by and construed in accordance with the internal
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(g) OTHER AGREEMENTS. Provisions pertaining to Executive's
co-sale rights are set forth in that certain Amended and Restated
Stockholders Agreement dated as of August 23, 1996 and provisions pertaining
to Executive's registration rights are set forth in that certain Registration
Agreement dated as of August 23, 1996.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
AMERICAN MEDSERVE CORPORATION
By: /s/ Timothy L. Burfield
----------------------------
Its: Chief Executive Officer
---------------------------
/s/ Charles R. Wallace
-------------------------------
Charles R. Wallace
Agreed and Accepted:
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P.
By: GTCR IV, L.P.
Its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.
Its General Partner
By: /s/ Lee M. Mitchell
-------------------------
Its:
------------------------
16
<PAGE>
SCHEDULE 14(b)
None
<PAGE>
APPENDIX 1
Projected
Year Projected EBITDA EBITDA Percentage
---- ---------------- -------------------
1996 $5,368,000 12.75%
1997 $9,337,000 16.95%
1998 $13,976,000 20.68%
1999 $19,387,000 24.43%
2000 $24,233,750 28.00%
NOTE: Projected EBITDA Percentage will be recalculated to reflect any
significant recapitalization, including a Qualified Public
Offering, of the Company.
<PAGE>
AMENDED AND RESTATED
SENIOR MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED SENIOR MANAGEMENT AGREEMENT (the "Agreement")
is made as of September 5, 1996 and amended and restated as of November 11,
1996, between American Medserve Corporation, a Delaware corporation (the
"Company"), and J. Jeffrey Gephart ("Executive").
The Company and Executive entered into a Senior Management Agreement
dated September 5, 1996 (the "Original Senior Management Agreement") pursuant
to which Executive purchased, and the Company sold 750.7229 shares of Class B
Common Stock, par value $.01 per share (the "Class B Common") and pursuant to
which Executive was employed by the Company as the Company's Vice
President-Sales. Certain definitions are set forth in Section 15 of this
Agreement.
In November 1996, the Company adopted an Amended and Restated
Certificate of Incorporation, pursuant to which each share of Class B Common
was reclassified as 69.650323 shares of the Company's Common Stock, $.01 par
value (the "Common Stock"). Executive now holds 52,288 shares of Common
Stock (as reclassified). All such shares of Common Stock and all shares of
Common Stock hereafter acquired by Executive pursuant to this Agreement are
herein referred to as "Executive Stock."
Executive and the Company now wish to amend and restate the terms of the
Original Senior Management Agreement.
Certain provisions of the Original Senior Management Agreement as
amended and restated by this Agreement are intended for the benefit of, and
will be enforceable by, Golder, Thoma, Cressey, Rauner Fund IV, L.P. (the
"Investor"), and the Investor is an intended third party beneficiary of this
Agreement.
The parties hereto agree as follows:
PROVISIONS RELATING TO EXECUTIVE STOCK
1. PURCHASE AND SALE OF EXECUTIVE STOCK.
(a) On September 5, 1996, Executive purchased from the Company, and
the Company sold to Executive, 750.7229 shares of Class B Common (52,288
shares of Common Stock as reclassified). The purchase price per share of
Class B Common (the "Purchase Price") was $98.46.
(b) At the closing of the purchase and sale of the Class B Common
(the "Closing"), the Company delivered to the Executive stock certificates
evidencing the Class B Common purchased by the Executive, registered in the
Executive's name, upon payment of the purchase price thereof by a cashier's
or certified check, or by wire transfer of immediately
<PAGE>
available funds to such account as designated by the Company in an amount not
less than $7,392.00 and by delivery of a promissory note substantially in the
form attached hereto as EXHIBIT A (the "Executive Note") in the amount of the
balance of the Purchase Price owed in respect of the Class B Common purchased
hereunder. Executive's obligations under the Executive Note are secured by a
pledge of such collateral as the Company shall approve.
(c) Within 30 days after the purchase of Executive Stock by
Executive from the Company, Executive made an effective election with the
Internal Revenue Service under Section 83(b) of the Internal Revenue Code and
the regulations promulgated thereunder substantially in the form of EXHIBIT C
attached hereto and notified the Company of such election.
(d) As of the date of the Original Senior Management Agreement,
Executive represented and warranted to the Company, and as of the date
hereof, Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by Executive pursuant to
this Agreement will be acquired for Executive's own account and not
with a view to, or intention of, distribution thereof in violation of
the Securities Act, or any applicable state securities laws, and the
Executive Stock will not be disposed of in contravention of the
Securities Act or any applicable state securities laws.
(ii) Executive is sophisticated in financial matters and is able
to evaluate the risks and benefits of the investment in the Executive
Stock.
(iii) Executive is able to bear the economic risk of his
investment in the Executive Stock for an indefinite period of time
because the Executive Stock has not been registered under the
Securities Act and, therefore, cannot be sold unless subsequently
registered under the Securities Act or an exemption from such
registration is available.
(iv) Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
the Executive Stock and has had access to such other information
concerning the Company as he has requested.
(v) This Agreement constitutes the legal, valid and binding
obligation of Executive, enforceable in accordance with its terms, and
the execution, delivery and performance of this Agreement by Executive
does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Executive is a party or any
judgment, order or decree to which Executive is subject.
(e) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto and in consideration for entering into
this Agreement, Executive acknowledges and agrees that:
2
<PAGE>
(i) Neither the issuance of any of the Executive Stock to
Executive nor any provision hereof shall entitle Executive to remain
in the employment of the Company and its Subsidiaries or affect the
right of the Company to terminate Executive's employment at any time
for any reason.
(ii) The Company shall have no duty or obligation to disclose to
Executive, and Executive shall have no right to be advised of, any
material information regarding the Company or any Subsidiary at any
time prior to, upon or in connection with the repurchase of the
Executive Stock upon the termination of Executive's employment with
the Company or any Subsidiary or as otherwise provided hereunder.
(f) As an inducement to the Company to issue the Executive Stock to
Executive, and as a condition thereto, Executive covenants and agrees to
enter into an Amended and Restated Stockholders Agreement in the form of
EXHIBIT D attached hereto.
2. VESTING OF EXECUTIVE STOCK.
The Executive Stock was vested as provided in this Section 2. On
September 5, 1996, 346.834 shares of Class B Common (24,157 shares of Common
Stock as reclassified) were vested, and on November 11, 1996, 403.8889 shares
of Class B Common (28,131 shares of Common Stock as reclassified) were vested
by determination of the Board.
3. REPURCHASE OPTION.
(a) Subject to Section 3(f) below, in the event Executive ceases to
be employed by the Company or its Subsidiaries for any reason (the
"Termination"), the Executive Stock, which is Repurchasable Stock (as defined
below) (whether held by Executive or one or more of Executive's transferees),
will be subject to repurchase by the Company pursuant to the terms and
conditions set forth in this Section 3 (the "Repurchase Option").
(b) The purchase price for each share of Repurchasable Stock will
be the fair market value for such shares as reasonably determined by the
Company's Board.
(c) The Board may elect, in its sole discretion, to purchase all or
any portion of the Repurchasable Stock by delivering written notice (the
"Repurchase Notice") to the holder or holders of the Repurchasable Stock
within 100 days after the Termination. The Repurchase Notice will set forth
the number of shares of Repurchasable Stock to be acquired from each holder,
the aggregate consideration to be paid for such shares and the time and place
for the closing of the transaction. The number of shares to be repurchased
by the Company shall first be satisfied to the extent possible from the
shares of Repurchasable Stock held by Executive at the time of delivery of
the Repurchase Notice. If the number of shares of Repurchasable Stock then
held by Executive is less than the total number of shares of Repurchasable
Stock which the Company has elected to purchase, the Company shall purchase
the remaining shares elected to be purchased from the other holder(s) of
Repurchasable Stock under this Agreement, pro rata according to the number of
shares of Repurchasable Stock held by such other holder(s) at the
3
<PAGE>
time of delivery of such Repurchase Notice (determined as nearly as
practicable to the nearest share). The number of shares of Repurchasable
Stock to be repurchased hereunder will be allocated among Executive and the
other holders of Repurchasable Stock (if any) pro rata according to the
number of shares of Repurchasable Stock to be purchased from such person.
(d) If for any reason the Company does not elect to purchase all of
the Repurchasable Stock pursuant to the Repurchase Option, the Investor shall
be entitled, in its sole discretion, to exercise the Repurchase Option for
the shares of Repurchasable Stock the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 60
days after the Termination, the Company shall give written notice (the
"Option Notice") to the Investor setting forth the number of Available Shares
and the purchase price for the Available Shares. The Investor may elect to
purchase any or all of the Available Shares by giving written notice to the
Company within thirty days after the Option Notice has been given by the
Company. As soon as practicable, and in any event within ten days after the
expiration of the thirty day period set forth above, the Company shall notify
each holder of Repurchasable Stock as to the number of shares being purchased
from such holder by the Investor (the "Supplemental Repurchase Notice"). At
the time the Company delivers the Supplemental Repurchase Notice to the
holder(s) of Repurchasable Stock, the Company shall also deliver written
notice to the Investor setting forth the number of shares the Investor is
entitled to purchase, the aggregate purchase price and the time and place of
the closing of the transaction.
(e) The closing of the purchase of the Repurchasable Stock pursuant
to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which
date shall not be more than thirty days nor less than five days after the
delivery of the later of either such notice to be delivered. The Company
and/or the Investor will pay for the Repurchasable Stock to be purchased
pursuant to the Repurchase Option by delivery of a check, a wire transfer of
funds and/or a note (payable in three equal annual installments commencing on
the first anniversary of such closing and bearing interest at the corporate
base rate as determined by the First National Bank of Chicago at the time the
note is issued) in form and substance determined by the Board in good faith
in the aggregate amount of the purchase price for such shares. In addition,
the Company may pay the purchase price for such shares by offsetting amounts
outstanding under the Executive Note issued to the Company hereunder and any
other debts owed by Executive to the Company. The Company and the Investor
will be entitled to receive customary representations and warranties from the
sellers regarding such sale and to require all sellers' signatures be
guaranteed.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Repurchasable Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and any Subsidiary's debt and equity
financing agreements. If any such restrictions prohibit the repurchase of
Repurchasable Stock hereunder which the Company is otherwise entitled to
make, the Company may make such repurchases as soon as it is permitted to do
so under such restrictions.
4
<PAGE>
(g) PERFORMANCE BASED REPURCHASABLE STOCK.
(i) Except as otherwise provided in Section 3(g)(ii) below,
25% of the shares of Executive Stock purchased hereunder (the
"Performance Based Repurchasable Stock") shall cease to be
Repurchasable Stock on the seventh anniversary of the Start Date, if
as of such date Executive is still employed by the Company or any
Subsidiary, provided that if at the end of any of the first five
fiscal years of the Company following the date hereof, both the
Company's EBITDA and EBITDA Percentage equal or exceed 90% of the
Company's Projected EBITDA and Projected EBITDA Percentage, as
determined in good faith by the Board, respectively, for such fiscal
years, then 20% of the Performance Based Repurchasable Stock shall
cease to be Repurchasable Stock as of the end of each fiscal year in
which such requirement is satisfied. In the event the Company does
not satisfy the requirement for 20% of the Performance Based
Repurchasable Stock to cease to be Repurchasable Stock as of the end
of any fiscal year, IF (i) the sum of the Company's EBITDA for the
fiscal year in which such requirement is not met and the immediately
succeeding fiscal year equals or exceeds 90% of the sum of the
Company's Projected EBITDA for such two fiscal years, and (ii) the
average of the Company's EBITDA Percentages for such two years
equals or exceeds 90% of the average of the Company's Projected
EBITDA Percentages for such two fiscal years, THEN 40% of the
Performance Based Repurchasable Stock shall cease to be
Repurchasable Stock as of the end of the second of such two fiscal
years.
(ii) In the event Executive ceases to be employed by the
Company for any reason, then any Performance Based Repurchasable
Stock which has not ceased to be Repurchasable Stock on or prior to
such date shall remain Repurchasable Stock. Upon the occurrence of
a Sale of the Company while the Executive is still employed by the
Company or its Subsidiaries, all Performance Based Repurchasable
Stock which is still Repurchasable Stock shall cease to be
Repurchasable Stock at the time of such event.
(h) TIME BASED REPURCHASABLE STOCK.
(i) Except as otherwise provided in Section 3(h)(ii) below, 45%
of the shares of Executive Stock purchased hereunder (the "Time Based
Repurchasable Stock") will cease to be Repurchasable Stock in
accordance with the following schedule, if as of each such date
Executive is still employed by the Company or any Subsidiary:
5
<PAGE>
Cumulative Percentage of
Time Based
Date Repurchasable Stock
---- ------------------------
At the Start Date 20%
1st Anniversary of the Start Date 36%
2nd Anniversary of the Start Date 52%
3rd Anniversary of the Start Date 68%
4th Anniversary of the Start Date 84%
5th Anniversary of the Start Date 100%
(ii) If Executive ceases to be employed by the Company or its
Subsidiaries on any date prior to an anniversary date listed above,
the cumulative percentage of Time Based Repurchasable Stock to cease
being Repurchasable Stock will be determined on a pro rata basis
according to the number of days elapsed since the prior anniversary
date. Upon the occurrence of a Sale of the Company while Executive is
still employed by the Company or its Subsidiaries, all Time Based
Repurchasable Stock which has not yet ceased to be Repurchasable Stock
will cease to be Repurchasable Stock at the time of such event. Any
Time Based Repurchasable Stock which has not ceased to be
Repurchasable Stock as of the date Executive ceases to be employed by
the Company or its subsidiaries shall remain Repurchasable Stock.
(i) Repurchasable Stock shall consist of Performance Based
Repurchasable Stock and Time Based Repurchasable Stock until such shares
cease to be Repurchasable Stock in accordance with the provisions of Sections
3(g) and 3(h).
4. RESTRICTIONS ON TRANSFER.
(a) TRANSFER OF EXECUTIVE STOCK. Until 100 days following
Termination, Executive shall not be permitted to sell, transfer, assign,
pledge or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any interest in
any Repurchasable Stock (a "Transfer"), other than to the Company or the
Investor pursuant to Section 3 hereof.
(b) CERTAIN PERMITTED TRANSFERS. The restrictions contained in
this Section 4 will not apply with respect to (i) transfers of shares of
Repurchasable Stock pursuant to applicable laws of descent and distribution
or (ii) transfers of shares of Repurchasable Stock among Executive's Family
Group; provided that such restrictions will continue to be applicable to the
Repurchasable Stock after any such transfer and the transferees of such
Repurchasable Stock will have agreed in writing to be bound by the provisions
of this Agreement.
6
<PAGE>
5. ADDITIONAL RESTRICTIONS ON TRANSFER.
(a) LEGEND. The certificates representing the Executive Stock will
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
AS OF SEPTEMBER 5, 1996, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER AND IN COMPLIANCE WITH STATE SECURITIES LAWS. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A SENIOR MANAGEMENT AGREEMENT
BETWEEN THE ISSUER (THE "COMPANY") AND THE ORIGINAL HOLDER HEREOF
DATED AS OF SEPTEMBER 5, 1996 AND AMENDED AND RESTATED AS OF NOVEMBER
11, 1996. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER
HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) OPINION OF COUNSEL. No holder of Executive Stock may sell,
transfer or dispose of any Executive Stock (except pursuant to an effective
registration statement under the Securities Act) without first delivering to
the Company an opinion of counsel (reasonably acceptable in form and
substance to the Company) that neither registration nor qualification under
the Securities Act and applicable state securities laws is required in
connection with such transfer.
6. INTENTIONALLY OMITTED.
PROVISIONS RELATING TO EMPLOYMENT
7. EMPLOYMENT. The Company agrees to employ Executive and Executive
accepts such employment for the period beginning as of January 30, 1995 (the
"Start Date") and ending upon termination pursuant to Section 9 hereof (the
"Employment Period"). During the Employment Period, Executive shall serve as
the Vice President-Sales of the Company and shall have the normal duties,
responsibilities and authority of a Vice President-Sales, including, without
limitation, responsibility for all aspects of national sales activity,
subject to the power of the Board and the CEO to supervise, and to override
any related actions.
8. SALARY, BONUS AND BENEFITS. During the Employment Period, the
Company will pay Executive a base salary (the "Annual Base Salary") and a
bonus ("Revenue Incentive
7
<PAGE>
Bonus") payable quarterly of up to 3% of revenue growth over the comparable
quarter from the prior year in each case as the Board or the Compensation
Committee of the Board may designate from time to time, in its sole
discretion. Executive will also receive an automobile allowance of $550 per
month and be eligible to participate in group insurance, vacation and
retirement savings (401(k)) plans as the Company may make available to its
executives.
9. TERMINATION.
(a) The Employment Period will continue until Executive's
resignation, disability (as reasonably determined by the Board or the CEO) or
death or until the Board or the CEO determines in its good faith judgment
that termination of Executive's employment is in the best interests of the
Company.
(b) If the Company terminates Executive's employment without Cause,
the Company shall provide at least six months written notice to the Executive
prior to the effectiveness of such termination (the "Notice Period");
provided, however, that if the Company terminates Executive's employment
without Cause and determines that Executive's employment with the Company
shall immediately cease, Executive shall be entitled to receive payments
(payable in monthly installments) equal to the lower of (i) the rate of the
Annual Base Salary for six months following the date of such termination or
(ii) the rate of the Annual Base Salary for the portion of the Notice Period
during which Executive is no longer employed by the Company. Amounts payable
by the Company to Executive pursuant to this Section 9(b) shall be reduced by
the amount of any payments received by Executive from other employment
(whether as an employee, consultant or otherwise) during or in respect of the
period in which payments are being made pursuant to this Section 9(b), and
Executive hereby agrees that upon the termination of Executive, Executive
shall use his best efforts to seek employment with similar responsibilities
and similar compensation to the position with the Company contemplated by the
terms of this Agreement. The Company may cease making payments to Executive
pursuant to this Section 9(b) at any time after which Executive breaches any
of the provisions of Section 10 or 11; provided that no such cessation shall
relieve Executive of his obligations under Section 10 or 11.
(c) If Executive's employment with the Company is terminated by the
Company for Cause or as a result of a voluntary termination by Executive,
then Executive's right to receive the Annual Base Salary, Revenue Incentive
Bonus and other benefits shall cease on the date of such termination and no
severance payments shall be made.
(d) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or the commission of any other act which is materially
injurious to the Company or any Subsidiary involving dishonesty, disloyalty
or fraud with respect to the Company or any Subsidiary, (ii) gross negligence
or willful misconduct with respect to the Company or any Subsidiary which is
materially injurious to the Company or any Subsidiary, (iii) willful,
substantial and repeated failure to perform duties commensurate with his
position as reasonably directed in writing by the Board or the CEO in good
faith, or (iv) any other material breach of this Agreement which is not cured
within 21 days after written notice thereof to Executive.
8
<PAGE>
10. CONFIDENTIAL INFORMATION. Executive acknowledges that the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company. Therefore,
Executive agrees that he will not disclose to any unauthorized person or use
for his own account or for the account of any third party any of such
information, observations or data without the Board's written consent, unless
and to the extent that the aforementioned matters become generally known to
and available for use by the public other than as a result of Executive's
acts or omissions to act. Executive shall use his best efforts to prevent
the unauthorized misuse, espionage, loss or theft of the aforementioned
matters. Executive agrees to deliver to the Company at the termination of
his employment, or at any other time the Company may request in writing, all
memoranda, notes, plans, records, reports and other documents (and copies
thereof) relating to the business of the Company and its affiliates
(including, without limitation, all acquisition prospects, lists and contact
information) which he may then possess or have under his control.
11. NONCOMPETITION AND NONSOLICITATION.
(a) NONCOMPETITION. Executive acknowledges that in the course of
his employment with the Company he will become familiar with the Company's
trade secrets and with other confidential information concerning the Company
and that his services will be of special, unique and extraordinary value to
the Company. Therefore, in consideration of the opportunity to purchase
Executive Stock and in consideration of the other rights given to Executive
hereunder, Executive agrees that, during the Employment Period and (i) if
Executive's employment is terminated by the Company for Cause or as a result
of voluntary termination by Executive, for two years thereafter, or (ii) if
Executive's employment is terminated for any other reason, the period during
which the Company is required (without giving effect to the last two
sentences of Section 9(b)) to make payments to Executive pursuant to Section
9(b) (the "Noncompete Period"), he shall not directly or indirectly own,
manage, control, participate in, consult with, render services for, or in any
manner engage in any business competing with the businesses of the Company or
its Subsidiaries as such businesses exist on the date of the termination of
Executive's employment, within those limited states or metropolitan areas in
which the Company is engaged in business (or in which the Company is in the
process of attempting to engage in business) during the Employment Period or
at the time of termination of Executive's employment.
(b) NONSOLICITATION. During the Employment Period and for two
years thereafter, Executive shall not directly or indirectly through another
person or entity (i) induce or attempt to induce any employee of the Company
or any Subsidiary to leave the employ of the Company or such Subsidiary, or
in any way interfere with the relationship between the Company or any
Subsidiary and any employee thereof, (ii) hire any person who was an employee
of the Company or any Subsidiary at any time during the Employment Period, or
(iii) induce or attempt to induce any customer, supplier, licensee or other
business relationship of the Company or any Subsidiary to cease doing
business with the Company or such Subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee or business
relationship and the Company or any Subsidiary.
9
<PAGE>
(c) ENFORCEMENT. If, at the time of enforcement of Section 10 or 11
of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover
the maximum duration, scope and area permitted by law. Because Executive's
services are unique and because Executive has access to confidential
information, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
12. CONFIDENTIAL INFORMATION OF PRIOR EMPLOYERS.
(a) DISCLOSURE AND USE. Executive acknowledges and agrees that
Executive has been employed based upon personal and professional attributes
attained through his experience and education and that his employment with the
Company is not predicated on any implied or explicit understanding or inference
that Executive shall disclose or use any proprietary or confidential information
that Executive has acquired or been made privy to as a result of his prior
employment or relationships. Executive acknowledges and affirms that he has
been directed by the Company not to display or otherwise make available to the
Company, directly or indirectly (including by undisclosed incorporation in his
work product), any such proprietary or confidential information. Executive
represents and warrants that: (i) he has not misappropriated, infringed or
otherwise improperly disclosed or used any proprietary or confidential
information (in whatever form or medium) that he has acquired or been made privy
to as a result of his prior employment or relationships; (ii) no claim by any of
Executive's former employers or any other third parties alleging
misappropriation, infringement or improper disclosure or use of same has been
made, is currently outstanding or is threatened, and there are no grounds
therefor; and (iii) no injunction or judgment has been imposed on Executive that
restricts him from disclosing or using same.
(b) PRIOR AGREEMENTS. Executive represents and warrants that:
(i) Executive has provided the Company with copies of any and all written
agreements or other arrangements that restrict or limit his conduct or
activities; (ii) Executive has no oral agreements or constraints with respect to
his conduct or activities; and (iii) all such written and oral agreements,
arrangements and constraints are listed on SCHEDULE 14(b) attached hereto and
incorporated herein. Executive recognizes that the Company is not in a position
to evaluate the scope or extent of his obligations and agreements and is not a
party to such agreements. His disclosure of such agreements in no way creates
an imputation or assumption of such agreements to or by the Company.
(c) PERFORMANCE OF EMPLOYMENT DUTIES. The Company has explained to
Executive the scope and responsibilities of his employment, and Executive hereby
represents and warrants that the performance of his employment duties shall not
place him in breach or violation
10
<PAGE>
of any pre-existing fiduciary duty, covenant, agreement, restriction or
limitation. Executive acknowledges and agrees that Executive has been
directed by the Company not to engage in any conduct or activity that would
cause him to violate any pre-existing fiduciary duty, covenant, agreement,
restriction or limitation and that, if requested to engage in any activity or
job function or to disclose any information that would result in any such
violation, Executive shall report such request immediately and is relieved
from any obligation to comply with such request.
13. NO CONFLICTS. Executive represents and warrants that there is no
other contract in existence, written or oral, between him and any third party
that relates to the grant or assignment to others of any interest in
intellectual property hereafter contributed to, or conceived or made by, him and
that his performance of his duties to the Company will not place him in breach
of any existing agreement.
GENERAL PROVISIONS
GENERAL PROVISIONS
14. CODE SECTION 280G. Notwithstanding any provision in this
Agreement to the contrary, if all or any portion of the payments or benefits
received or realized by Executive either alone or together with other
payments or benefits which Executive receives or realizes or is then entitled
to receive or realize from the Company or any of its affiliates would
constitute a "parachute payment" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (or any successor section) and the
regulations promulgated thereunder (the "Code") and/or any corresponding and
applicable state law provision, such payments or benefits provided to
Executive shall be reduced by reducing the amount of payments or benefits
payable to Executive pursuant to Section 9 of this Agreement to the extent
necessary so that no portion of such payments shall be subject to the excise
tax imposed by Section 4999 of the Code and any corresponding and/or
applicable state law provision; provided, however, that such reduction shall
only be made if, by reason of such reduction, Executive's net after tax
benefit shall exceed the net after tax benefit if such reduction were not
made. For purposes of this Section 14, "net after tax benefit" shall mean
the sum of (i) the total amount received or realized by Executive pursuant to
this Agreement that would constitute a "parachute payment" within the meaning
of Section 280G of the Code and any corresponding and applicable state law
provision plus (ii) all other payments or benefits which Executive receives
or realizes or is then entitled to receive or realize from the Company and
any of its affiliates that would constitute a "parachute payment" within the
meaning of Section 280G of the Code and any corresponding and applicable
state law provision, less (iii) the amount of federal or state income taxes
payable with respect to the payments or benefits described in (i) and (ii)
above calculated at the maximum marginal individual income tax rate for each
year in which payments or benefits shall be realized by Executive (based upon
the rate in effect for such year as set forth in the Code at the time of the
first receipt or realization of the foregoing), less (iv) the amount of
excise taxes imposed with respect to the payments or benefits described in
(i) and (ii) above by Section 4999 of the Code and any corresponding and
applicable state law provision.
15. DEFINITIONS.
"BOARD" means the Company's Board of Directors.
11
<PAGE>
"CEO" means the Company's Chief Executive Officer.
"EBITDA" for any fiscal period of the Company means the Company's
consolidated earnings from continuing operations before interest, taxes,
depreciation and amortization for such fiscal period, as determined in
accordance with GAAP.
"EBITDA PERCENTAGE" as of the end of any fiscal period of the Company means
the quotient of (a) the Company's EBITDA for such period divided by (b) the sum
of (1) the monthly average amount of equity invested (not including retained
earnings) in the Company during such period plus (2) the monthly average amount
of Indebtedness of the Company during such period, all as determined in
accordance with GAAP.
"EXECUTIVE'S FAMILY GROUP" means Executive's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of Executive
and/or Executive's spouse and/or descendants. Executive Stock will also include
shares of the Company's capital stock issued with respect to Executive Stock by
way of a stock split, stock dividend or other recapitalization.
"EXECUTIVE STOCK" will continue to be Executive Stock in the hands of any
holder other than Executive (except for the Company and the Investor and except
for transferees in a Public Sale), and except as otherwise provided herein, each
such other holder of Executive Stock will succeed to all rights and obligations
attributable to Executive as a holder of Executive Stock hereunder.
"GAAP" means generally accepted accounting principles, as in effect from
time to time.
"INDEBTEDNESS" shall mean at a particular time, without duplication,
(i) indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which any Person is liable, as obligor or
otherwise (other than trade payables and other current liabilities incurred in
the ordinary course of business) or any commitment by which any Person assures a
creditor against loss, including contingent reimbursement obligations with
respect to letters of credit and (ii) indebtedness guaranteed in any manner by
any Person, including guarantees in the form of an agreement to repurchase or
reimburse.
"PROJECTED EBITDA" for any fiscal period of the Company shall mean the
EBITDA of the Company for such fiscal period set forth on Appendix 1 attached
hereto.
"PROJECTED EBITDA PERCENTAGE" for any fiscal period of the Company shall
mean the EBITDA Percentage of the Company for such fiscal period set forth on
Appendix 1 attached hereto.
"PUBLIC SALE" means any sale pursuant to a registered public offering under
the Securities Act or any sale to the public pursuant to Rule 144 promulgated
under the Securities Act effected through a broker, dealer or market maker.
12
<PAGE>
"QUALIFIED PUBLIC OFFERING" means the sale in an underwritten public
offering registered under the Securities Act of shares of the Company's Common
Stock having an aggregate offering value of at least $30 million.
"SALE OF THE COMPANY" means any transaction or series of related
transactions pursuant to which any person or entity (other than the Investor)
acquires (i) capital stock of the Company possessing the voting power to elect a
majority of the Board (whether by merger, consolidation, reorganization,
combination, sale or transfer of the Company's capital stock or otherwise) or
(ii) all or substantially all of the Company's assets determined on a
consolidated basis.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"START DATE" shall have the meaning set forth in Section 7.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated Stockholders
Agreement by and among the Company, the Investor, Timothy L. Burfield,
Michael B. Freedman, Charles R. Wallace, J. Jeffrey Gephart, Thomas C. Loftus,
George E. Pepe, James H.S. Cooper, Charles C. Halberg, Mark A. Jerstad,
William J. Gatti, Mary Jane Gatti, Sterling Acquisition Partners, Pharmed, Inc.,
Nelson C. Showalter, Bruce Gerlick, Mitch Overstreet, Lee R. Youngberg, Frank R.
Gelafio, Ronald E. Keith, James Pietryga, Pharmed of Baton Rouge, Joseph F.
Dellantonio, Thomas C. Loftus and George E. Pepe.
"SUBSIDIARY" means any corporation of which the Company owns securities
having a majority of the ordinary voting power in electing the board of
directors directly or through one or more subsidiaries.
16. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
IF TO THE COMPANY:
American Medserve Corporation
Park Lake Center
184 Shuman Boulevard, Suite 200
Naperville, Illinois 60563
Attention: CEO
WITH A COPY TO:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bryan C. Cressey
13
<PAGE>
AND
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street, Suite 3400
Chicago, Illinois 60610-4795
IF TO THE EXECUTIVE:
J. Jeffrey Gephart
1335 Willow Tree Drive
Woodstock, Georgia 30188
IF TO THE INVESTOR:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, Illinois 60606-6402
Attention: Bryan C. Cressey
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Gary R. Silverman, Esq.
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
17. MISCELLANEOUS.
(a) TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Executive Stock as the owner of such
stock for any purpose.
(b) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
14
<PAGE>
(c) COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company, the Investor and their respective successors and assigns
(including subsequent holders of Executive Stock); provided that the rights and
obligations of Executive under this Agreement shall not be assignable except in
connection with a permitted transfer of Executive Stock hereunder.
(f) GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by and construed in accordance with the internal laws
of the State of Delaware, without giving effect to any choice of law or conflict
of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Delaware.
(g) OTHER AGREEMENTS. Provisions pertaining to Executive's co-sale
rights are set forth in that certain Amended and Restated Stockholders Agreement
dated as of August 23, 1996 and provisions pertaining to Executive's
registration rights are set forth in that certain Registration Agreement dated
as of August 23, 1996.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
AMERICAN MEDSERVE CORPORATION
By:/s/ Timothy L. Burfield
-------------------------
Its: Chief Executive Officer
-----------------------
/s/ J. Jeffrey Gephart
-------------------------
J. Jeffrey Gephart
Agreed and Accepted:
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P.
By: GTCR IV, L.P.
Its General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.
Its General Partner
By: /s/ Lee M. Mitchell
---------------------
Its:
----------------------
16
<PAGE>
SCHEDULE 14(b)
None
<PAGE>
APPENDIX 1
Projected
Year Projected EBITDA EBITDA Percentage
---- ---------------- -----------------
1996 $5,368,000 12.75%
1997 $9,337,000 16.95%
1998 $13,976,000 20.68%
1999 $19,387,000 24.43%
2000 $24,233,750 28.00%
NOTE: Projected EBITDA Percentage will be recalculated to reflect any
significant recapitalization, including a Qualified Public
Offering, of the Company.
<PAGE>
SECOND AMENDMENT TO SHAREHOLDERS AGREEMENT
THIS SECOND AMENDMENT TO SHAREHOLDERS AGREEMENT, dated as of August 4,
1997, is by and among Good Samaritan Supply Services, Inc., a South Dakota
corporation (the "Company"), The Evangelical Lutheran Good Samaritan
Foundation, a Minnesota non-profit corporation (the "Foundation"), and
American Medserve Corporation, a Delaware corporation ("AMC").
WHEREAS, the Company, the Foundation and AMC have entered into a
Shareholders Agreement, dated as of April 30, 1996, as amended by a First
Amendment to Shareholders Agreement, dated as of May 15, 1997 (as so amended,
the "Shareholders Agreement").
WHEREAS, the Company, the Foundation and AMC wish to further amend the
Shareholders Agreement as hereinafter set forth.
NOW THEREFORE, for and in consideration of the foregoing, and other good
and valuable consideration, the Company, the Foundation and AMC agree as
follows:
1. DEFINITIONS. The following terms shall have the respective
meanings hereinafter set forth:
"AMC CHANGE IN CONTROL" shall mean and include the occurrence of either
of the following events:
(i) Any Person or "group" (as such term is defined in Section 13(d)
of the Exchange Act and the rules and regulations promulgated
thereunder) shall have become the Beneficial Owner, directly or
indirectly, of securities of AMC, or of any entity resulting from a
merger or consolidation involving AMC, representing more than 50% of
the combined voting power of the then outstanding securities of AMC
or such entity;
(ii) AMC is merged, consolidated or reorganized into or with another
corporation or other entity, and, as a result of such merger,
consolidation or reorganization, less than a majority of the
combined voting power or the then outstanding securities of such
corporation or entity immediately after such transaction is
Beneficially Owned in the aggregate by the Beneficial Owners of AMC
Voting Stock immediately prior to such transaction; or
(iii) Any Person or "group" (as such term is defined in Section 13(d)
of the Exchange Act and the Rules and regulations promulgated
thereunder) shall have acquired all or substantially all of the
assets of AMC.
"AMC ACQUIRER" shall mean and include any Person or "group" (as such
term is defined in Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) (i) who shall have become the Beneficial
Owner, directly or indirectly, of securities of AMC, or of any entity
resulting from a merger or consolidation involving AMC, representing more
than 50% of the combined voting power of the then-outstanding securities of
AMC or such entity, or (ii) who shall have acquired all or substantially all
of the assets of AMC.
"AMC VOTING STOCK" shall mean capital stock of AMC of any class or
series entitled to vote generally in the election of directors.
<PAGE>
"BENEFICIAL OWNER" and "BENEFICIALLY OWNED" shall have the respective
meanings assigned to such terms in Rule 13d-3 promulgated under the Exchange
Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
All other capitalized terms not otherwise defined herein shall have the
respective meaning ascribed to such term in the Shareholders Agreement.
2. AMC ACQUIRER OPTION AND FOUNDATION PUT.
(a) At and upon the occurrence of an AMC Change in Control occurring
on or before June 30, 1998, AMC and the AMC Acquirer shall have the right
(the "AMC Acquirer Option"), exercisable for a period of 180 days following
the occurrence of such AMC Change in Control, to purchase, and the Good
Samaritan Shareholders shall have the obligation to sell, (i) all of the
Common Shares then held by the Good Samaritan Shareholders (which Common
Shares will represent approximately 49.9% of the issued and outstanding
Common Shares on the date of Closing, as such term is hereinafter defined)
and (ii) all warrants to purchase Common Shares then held by the Good
Samaritan Shareholders, for an aggregate price of $6.0 million in cash.
(b) If an AMC Change in Control has occurred and the AMC Acquirer
Option has not been exercised within 180 days following the occurrence of
such AMC Change in Control, the Good Samaritan Shareholders shall have the
right (the "Foundation Put"), exercisable upon the 181st day following the
occurrence of such AMC Change in Control and for a period of 180 days
thereafter, to sell, and AMC shall have the obligation to purchase, (i) all
of the Common Shares then held by the Good Samaritan Shareholders (which
Common Shares will represent approximately 49.9% of the issued and
outstanding Common Shares on the date of the Closing, as such term is
hereinafter defined) and (ii) all warrants to purchase Common Shares then
held by the Good Samaritan Shareholders, for an aggregate price of $6.0
million in cash.
(c) The AMC Acquirer Option shall be exercisable by AMC or the AMC
Acquirer, and the Foundation Put shall be exercisable by the Foundation, as
the case may be, by written notice of such exercise delivered to the other
party within the applicable exercise period. The closing of the AMC Acquirer
Option and the Foundation Put (the "Closing") shall take place within ten
(10) days following delivery of such written notice at the principal office
of the party who delivered such notice, unless the parties mutually agree on
a different place or time. At the Closing, (i), subject to AMC's compliance
with its obligations set forth in Section 2(d) below, the Foundation shall
deliver to AMC or the AMC Acquirer the certificate or certificates
representing the Common Shares and warrants purchased thereby, properly
endorsed for transfer and with documentary stamps affixed (the cost of which,
if any, shall be borne by the purchaser), free and clear of all security
interests, liens and restrictions, and (ii) AMC or the AMC Acquirer shall
deliver to the Foundation cash in the amount of $6.0 million, payable by
certified check or wire transfer to such account as is designated in writing
by the Foundation.
(d) The parties acknowledge that the Common Shares, warrants and
Class A Preferred (as such term is hereinafter defined) owned by the
Foundation have been pledged to LaSalle National Bank pursuant to a Pledge
Agreement, dated as of June 21, 1996 (the "Pledge Agreement"). On or before
the Closing upon exercise of the Foundation Put or AMC Acquirer Option, AMC
shall take action which may be necessary (i) to cause such Common Shares,
warrants and Class A Preferred to be released from
2
<PAGE>
the lien of such Pledge Agreement and (ii) to cause the Pledge Agreement to
be terminated with respect to the Foundation effective as of the Closing.
3. REDEMPTION OF CLASS A PREFERRED. At and upon the Closing, the
Company shall redeem all of the shares of the Company's Class A Preferred
Shares, par value $0.01 per share ("Class A Preferred"), then held by the
Good Samaritan Shareholders at the then-applicable redemption price of such
Class A Preferred. The Good Samaritan Shareholders hereby waive all notice
otherwise required with respect to such redemption and AMC hereby waives its
right to have its shares of Class A Preferred redeemed as part of such
redemption.
4. TERMINATION OF SECTION 5.1 OF SHAREHOLDERS AGREEMENT. The
Company, the Foundation and AMC agree and acknowledge that, at and upon the
occurrence of an AMC Change in Control occurring on or before June 30, 1998,
the provisions of Section 5.1 of the Shareholders Agreement granting each
Good Samaritan Shareholder the right to exchange its Common Shares for AMC
Shares shall terminate and be of no further force or effect.
5. TERMINATION OF SHAREHOLDERS AGREEMENT. At and upon the Closing,
the Shareholders Agreement shall terminate and be of no further force or
effect.
6. SHAREHOLDERS AGREEMENT OTHERWISE TO REMAIN IN FULL FORCE AND
EFFECT. Except and to the extent as hereinabove amended, the terms of the
Shareholders Agreement shall remain in full force and effect. Without
limiting the generality of the foregoing, the provisions of Section 9 of the
Shareholders Agreement are hereby incorporated herein by reference thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Shareholders Agreement as of the day and year first written
above.
AMERICAN MEDSERVE CORPORATION
By: /s/ Timothy L. Burfield
------------------------
Name: Timothy L. Burfield
Title: CHIEF EXECUTIVE OFFICER
THE EVANGELICAL LUTHERAN GOOD
SAMARITAN FOUNDATION
By: /s/ Charles L. Balcer
----------------------
Name: Charles L. Balcer
Title: CHAIRPERSON
GOOD SAMARITAN SUPPLY SERVICES, INC.
By: /s/ Curtis L. Hage
-------------------
Name: Curtis L. Hage
Title: CHAIRPERSON
3
<PAGE>
FIRST AMENDMENT TO NON-COMPETITION AND MARKETING ASSISTANCE AGREEMENT
THIS FIRST AMENDMENT TO NON-COMPETITION AND MARKETING ASSISTANCE AGREEMENT,
dated as of August 4, 1997, is by and among Good Samaritan Supply Services,
Inc., a South Dakota corporation (the "Company"), The Evangelical Lutheran Good
Samaritan Foundation, a Minnesota non-profit corporation (the "Foundation"), The
Evangelical Lutheran Good Samaritan Society, a North Dakota non-profit
corporation (the "Society"), and American Medserve Corporation, a Delaware
corporation ("AMC").
WHEREAS, the Company, the Foundation, the Society and AMC have entered into
a Non-Competition and Marketing Assistance Agreement, dated as of April 30, 1996
(the "Marketing Assistance Agreement").
WHEREAS, the Company, the Foundation, the Society and AMC wish to amend the
Marketing Assistance Agreement as hereinafter set forth.
NOW THEREFORE, for and in consideration of the foregoing, and other good
and valuable consideration, the Company, the Foundation and AMC agree as
follows:
1. DEFINITIONS. The following terms shall have the respective meanings
hereinafter set forth:
"AMC CHANGE IN CONTROL" shall have the meaning assigned to such term in the
Shareholders Agreement.
"AMC ACQUIRER" shall have the meaning assigned to such term in the
Shareholders Agreement.
"AMC ACQUIRER OPTION" shall have the meaning assigned to such term in the
Shareholders Agreement.
"COMMON SHARES" shall have the meaning assigned to such term in the
Shareholders Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FOUNDATION PUT" shall have the meaning assigned to such term in the
Shareholders Agreement.
"SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement, dated as of
April 30, 1996, by and among the Foundation, the Company and AMC, as amended by
First Amendment to Shareholders Agreement, dated as of May 15, 1997 and Second
Amendment to Shareholders Agreement, dated as of August 4, 1997.
"TRANSFER" shall have the meaning assigned to such term in the Shareholders
Agreement.
All other capitalized terms not otherwise defined herein shall have the
respective meaning ascribed to such term in the Marketing Assistance Agreement.
2. NON-APPLICABILITY OF SECTION 1(a) OF MARKETING ASSISTANCE AGREEMENT.
The Company, the Foundation, the Society and AMC agree and acknowledge that, at
and upon the occurrence
<PAGE>
of an AMC Change in Control, the provisions of Section 1(a) of the Marketing
Assistance Agreement shall not be applicable to the AMC Acquirer and shall
not restrict the lawful business activities of the AMC Acquirer in any
respect.
3. TERMINATION OF SECTION 1(a) OF MARKETING ASSISTANCE AGREEMENT. At and
upon the closing of the Transfer of Common Shares as contemplated by the AMC
Acquirer Option or the Foundation Put, as the case may be, Section 1(a) of the
Marketing Assistance Agreement shall terminate and be of no further force or
effect.
4. NON-APPLICABILITY OF SECTION 1(c) OF THE MARKETING ASSISTANCE
AGREEMENT TO CERTAIN ACTIVITIES OF THE SOCIETY. The parties agree that nothing
contained in the Marketing Assistance Agreement or in this First Amendment
thereto shall prohibit the Society from directly performing any Medicare Part A
or Part B consolidated billing obligations as the Society may be required by law
to perform from time to time.
5. NOTICE UNDER SECTION 3 OF MARKETING ASSISTANCE AGREEMENT. In
accordance with Section 3 of the Marketing Assistance Agreement, the Society
hereby notifies AMC, the Foundation and the Company to take the action required
by the second sentence of such Section 3 with respect to the use by the Company
of the "Good Samaritan" name.
6. MARKETING ASSISTANCE AGREEMENT OTHERWISE TO REMAIN IN FULL FORCE AND
EFFECT. Except and to the extent as hereinabove amended, the terms of the
Marketing Assistance Agreement shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Non-Competition and Marketing Assistance Agreement as of the day and year
first written above.
AMERICAN MEDSERVE CORPORATION
By: /s/ Timothy L. Burfield
------------------------------------
Name: Timothy L. Burfield
Title: CHIEF EXECUTIVE OFFICER
THE EVANGELICAL LUTHERAN GOOD
SAMARITAN FOUNDATION
By: /s/ Charles. L. Balcer
------------------------------------
Name: Charles L. Balcer
Title: CHAIRPERSON
GOOD SAMARITAN SUPPLY SERVICES, INC.
By: /s/ Curtis L. Hage
Name: Curtis L. Hage
Title: CHAIRPERSON
THE EVANGELICAL LUTHERAN GOOD
SAMARITAN SOCIETY
By: /s/ Charles. L. Balcer
------------------------------------
Name: Charles L. Balcer
Title: PRESIDENT
3
<PAGE>
EXHIBIT 11.1
AMERICAN MEDSERVE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- ------------------
1996 1997 1996 1997
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Average number of shares outstanding 4,421 12,195 4,421 12,142
Net effect of common shares and common
equivalent shares issued in an initial public
offering under SAB 83 390 -- 390 --
Net effect of common shares issued in
connection with a preferential mandatory
distribution 1,655 -- 1,655 --
Net effect of dilutive stock options based on
the treasury stock method using average stock price -- 70 -- 70
-------- -------- -------- --------
Total 6,466 12,265 6,466 12,212
-------- -------- -------- --------
Income before extraordinary item $133 $1,197 $350 $2,017
Write off of deferred financing costs, net of
income tax benefit of $404 -- -- 437 --
-------- -------- -------- --------
Net income (loss) $133 $1,197 ($87) $2,017
-------- -------- -------- --------
Income before extraordinary item per share $0.02 $0.10 $0.05 $0.17
Write off of deferred financing costs, net of
income tax benefit of $404, per share -- -- 0.06 --
-------- -------- -------- --------
Net income (loss) per share $ 0.02 $0.10 ($0.01) $0.17
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDSERVE CORPORATION AT
JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,231
<SECURITIES> 0
<RECEIVABLES> 33,176
<ALLOWANCES> 2,216
<INVENTORY> 10,572
<CURRENT-ASSETS> 49,297
<PP&E> 10,922
<DEPRECIATION> 3,323
<TOTAL-ASSETS> 133,508
<CURRENT-LIABILITIES> 19,912
<BONDS> 13,219
0
0
<COMMON> 122
<OTHER-SE> 97,181
<TOTAL-LIABILITY-AND-EQUITY> 133,508
<SALES> 75,563
<TOTAL-REVENUES> 75,563
<CGS> 54,484
<TOTAL-COSTS> 54,484
<OTHER-EXPENSES> 17,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 389
<INCOME-PRETAX> 3,516
<INCOME-TAX> 1,499
<INCOME-CONTINUING> 2,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,017
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
<PAGE>
TEXT OF PRESS RELEASE ISSUED BY OMNICARE, INC.
AND THE COMPANY DATED AUGUST 8, 1997
FOR IMMEDIATE RELEASE
AMERICAN MEDSERVE CORPORATION ANNOUNCES ACQUISITION BY OMNICARE
NAPERVILLE, ILLINOIS, AND CINCINNATI, OHIO, AUGUST 8, 1997
... American Medserve Corporation (NASDAQ: AMCI) and Omnicare, Inc.
(NYSE: OCR) today announced the execution of a definitive merger agreement
pursuant to which Omnicare will acquire for cash all of the outstanding
shares of American Medserve Corporation.
Under terms of the agreement, a wholly owned subsidiary of Omnicare will
commence a cash tender offer of $18.00 per share for all of the outstanding
shares of American Medserve Corporation, representing a purchase price of
approximately $222.6 million. Additionally, Omnicare will assume American
Medserve Corporation's liabilities, including long-term debt of approximately
$11.6 million. The acquisition will be accounted for as a purchase
transaction. Given the economies of scale and cost synergies anticipated from
the merger, the acquisition of American Medserve Corporation is expected to
be non-dilutive to Omnicare's earnings per share in 1997 and accretive in
1998.
American Medserve Corporation, based in Naperville, Illinois, provides
comprehensive pharmacy and related services to approximately 51,400 residents
in 720 long-term care facilities in 11 states. Additionally, American
Medserve Corporation is a joint venture partner with an affiliate of The
Evangelical Lutheran Good Samaritan Society, which ranks as the nation's
fifth-largest nursing home operator, serving 27,000 residents. Based on
revenues reported for the quarter ended March 31, 1997, American Medserve
Corporation's annualized revenues are approximately $144.0 million.
The transaction, which has been approved by the boards of directors of
both Omnicare and American Medserve Corporation, is
1
<PAGE>
subject to the tender of at least a majority of the outstanding shares of
American Medserve Corporation on a fully diluted basis, customary regulatory
approval and the satisfaction of certain other conditions. The tender offer
will commence within five business days and will remain open for 20 business
days, unless extended. Following the consummation of the tender offer,
Omnicare will acquire any of the remaining outstanding shares of American
Medserve Corporation in a cash merger transaction valued at $18.00 per share.
With the completion of this acquisition, Omnicare will provide pharmacy
and related consulting services to approximately 413,000 residents in over
5,100 long-term care facilities in 35 states. Based on revenues for the
quarter ended June 30, 1997, Omnicare's annualized revenues, following the
transaction, will be in excess of $950.0 million.
"We believe the combination of Omnicare and American Medserve Corporation,
two companies recognized as leading consolidators in the institutional
pharmacy industry, will create a dynamic organization with the resources,
clinical programs and pharmacy management experience necessary to capitalize
on the major growth opportunities in geriatric pharmaceutical care," said
Joel F. Gemunder, Omnicare president.
"The addition of American Medserve Corporation will significantly expand
Omnicare's core business of providing high-quality pharmaceutical care to the
nation's elderly and will create economies of scale that allow both of our
organizations to operate more efficiently," he said.
The acquisition of American Medserve Corporation will mark Omnicare's
entry into six new states and will broaden Omnicare's network of existing
pharmacies in five other states, including Illinois, Pennsylvania and New
York, which rank among the nation's largest in terms of nursing home
population.
"American Medserve Corporation has built a well-managed group of
entrepreneurial pharmacy operations and has developed important strategic
alliances, including its partnership with The Evangelical Lutheran Good
Samaritan Society. We look forward to the opportunity to bring our broad
array of clinical programs, including the Omnicare GERIATRIC PHARMACEUTICAL
CARE GUIDELINES-R-.
2
<PAGE>
to American Medserve Corporation's pharmacy operations and their client
nursing facilities. Together, we can provide the basis for outstanding
geriatric pharmaceutical care in the most cost-effective manner," Mr.
Gemunder concluded.
"American Medserve Corporation and Omnicare have become strong, successful
long-term care providers by meeting the increasingly complex needs of their
client facilities with innovative services, and this transaction will provide
both organizations with the resources to expand those programs even further,"
said Timothy L. Burfield, American Medserve Corporation president and chief
executive officer.
"We also believe this agreement provides our shareholders with an
attractive value for their investment in our company," Mr. Burfield said.
Omnicare is a leading independent provider of professional pharmacy and
related consulting services for long-term care facilities such as nursing
homes, retirement centers and other institutional health care facilities.
Omnicare currently provides pharmacy and related consulting services to
approximately 361,400 residents in over 4,400 long-term care facilities.
(STATEMENTS IN THIS PRESS RELEASE CONCERNING OMNICARE'S AND AMERICAN MEDSERVE
CORPORATION'S BUSINESS OUTLOOK OR FUTURE ECONOMIC PERFORMANCES, ANTICIPATED
PROFITABILITY, REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS, ANTICIPATED COST
SYNERGIES, ECONOMIES OF SCALE AND PRODUCT OR SERVICE LINE GROWTH, TOGETHER
WITH OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS, ARE FORWARD-LOOKING
STATEMENTS THAT ARE ESTIMATES REFLECTING THE BEST JUDGMENT OF OMNICARE AND
AMERICAN MEDSERVE CORPORATION BASED ON CURRENTLY AVAILABLE INFORMATION. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND OTHER FACTORS
THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE STATED. THESE
INCLUDE TRENDS FOR THE CONTINUED GROWTH OF THE PHARMACY BUSINESSES OF
OMNICARE AND AMERICAN MEDSERVE CORPORATION, THE REALIZATION OF ANTICIPATED
REVENUES, PROFITABILITY AND COST SYNERGIES OF THE COMBINED COMPANIES, AND
OTHER RISKS AND UNCERTAINTIES DESCRIBED IN OMNICARE'S AND AMERICAN MEDSERVE
CORPORATION'S REPORTS AND FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION. THERE CAN BE NO ASSURANCE THAT SUCH FACTORS WILL NOT AFFECT THE
ACCURACY OF
3
<PAGE>
SUCH FORWARD-LOOKING STATEMENTS, AND NEITHER OMNICARE NOR AMERICAN MEDSERVE
CORPORATION ASSUMES ANY OBLIGATION TO UPDATE THE INFORMATION IN THIS RELEASE.)
# # #
AMERICAN MEDSERVE CORPORATION: OMNICARE CONTACTS:
Charles R. Wallace Cheryl D. Hodges
(630) 717-2904 (513) 762-6967
or
Gary L. Rhodes
(513) 762-6660
4
