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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. )
PHYSICIANS' SPECIALTY CORP.
(Name of the Issuer)
TA MERGERCO, INC.
TA ASSOCIATES, INC.
TA/ADVENT VIII, L.P.
TA/ATLANTIC AND PACIFIC IV, L.P.
TA EXECUTIVES FUND LLC
TA INVESTORS LLC
RICHARD D. BALLARD
GERALD R. BENJAMIN
ROBERT A. DIPROVA
LAWRENCE P. KRASKA
RAMIE A. TRITT, M.D.
PHYSICIANS' SPECIALTY CORP.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
718934102
(CUSIP Number of Class of Securities)
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Physicians' Specialty Corp. TA MergerCo, Inc. TA Associates, Inc.
1150 Lake Hearn Drive c/o TA Associates, Inc. 125 High Street, Suite 2500
Suite 640 125 High Street, Suite 2500 Boston, MA 02110
Atlanta, GA 30342 Boston, MA 02110 (617) 574-6700
(404) 256-7535 (617) 574-6700
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TA/Advent VIII, L.P. TA/Atlantic and Pacific IV, L.P. TA Executives Fund LLC
c/o TA Associates, Inc. c/o TA Associates, Inc. c/o TA Associates, Inc.
125 High Street, Suite 2500 125 High Street, Suite 2500 125 High Street, Suite 2500
Boston, MA 02110 Boston, MA 02110 Boston, MA 02110
(617) 574-6700 (617) 574-6700 (617) 574-6700
TA Investors LLC Richard D. Ballard Gerald R. Benjamin
c/o TA Associates, Inc. 1150 Lake Hearn Drive 1150 Lake Hearn Drive
125 High Street, Suite 2500 Suite 640 Suite 640
Boston, MA 02110 Atlanta, GA 30342 Atlanta, GA 30342
(617) 574-6700 (404) 256-7535 (404) 256-7535
Robert A. DiProva Lawrence P. Kraska Ramie A. Tritt, M.D.
1150 Lake Hearn Drive 1150 Lake Hearn Drive 1150 Lake Hearn Drive
Suite 640 Suite 640 Suite 640
Atlanta, GA 30342 Atlanta, GA 30342 Atlanta, GA 30342
(404) 256-7535 (404) 256-7535 (404) 256-7535
WITH COPIES TO:
John J. Kelley III Richard H. Brody Joseph L. Johnson III
King & Spalding Troutman Sanders LLP Goodwin, Procter & Hoar LLP
191 Peachtree Street 600 Peachtree Street Exchange Place
Atlanta, Georgia 30303 Atlanta, Georgia 30308 Boston, Massachusetts 02109
(404) 572-4600 (404) 885-3000 (617) 570-1000
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934. [X]
b. The filing of a registration statement under the Securities Act of
1933. [ ]
c. A tender offer. [ ]
d. None of the above. [ ]
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
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Transaction Value* Amount of Filing Fee
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$99,463,224.......................... $19,893
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* For purposes of calculating the fee only. Assumes purchase of
9,472,688 shares of Common Stock, par value $.001 per share, of
Physicians' Specialty Corp. at $10.50 per share.
Check box if any of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid. Identify
the previous filing by registration statement number, or the form or schedule
and the date of its filing. [X]
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Amount previously paid: $19,893
Form or registration no.: Preliminary Proxy Statement on Schedule 14A
Filing party: Physicians' Specialty Corp.
Date filed: July 14, 1999
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This Rule 13e-3 Transaction Statement (this "Statement") is being filed
in connection with the filing by Physicians' Specialty Corp. ("Physicians'
Specialty") with the Securities and Exchange Commission (the "Commission") on
July 14, 1999 of a Preliminary Proxy Statement on Schedule 14A (the "Proxy
Statement") in connection with a special meeting of the stockholders of
Physicians' Specialty to be held on _______, 1999. At such meeting, the
stockholders of Physicians' Specialty will vote upon, among other things, the
adoption of an Agreement and Plan of Merger dated as of June 14, 1999 (the
"Merger Agreement") by and among Physicians' Specialty and TA/Advent VIII, L.P.,
TA/Atlantic and Pacific IV, L.P., TA Investors LLC, TA Executives Fund LLC
(collectively, the "TA Investors") and TA MergerCo, Inc. (the "Acquiror")
pursuant to which the Acquiror will be merged with and into Physicians'
Specialty.
The following cross reference sheet is being supplied pursuant to
General Instruction F to Schedule 13E-3 and shows the location in the Proxy
Statement of the information required to be included in response to the items
of this Statement. The information in the Proxy Statement which is attached
hereto as Exhibit (d)(3), including all appendices thereto, is hereby expressly
incorporated herein by reference and the responses to each item are qualified
in their entirety by the provisions of the Proxy Statement.
CROSS REFERENCE SHEET
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CAPTION OR LOCATION IN THE
ITEM IN SCHEDULE 13E-3 PROXY STATEMENT
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Item 1(a) Cover Page; Summary--The Companies.
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Item 1(b) Cover Page; Summary--Record Date; Voting Power; The
Special Meeting--Record Date and Quorum Requirement.
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Item 1(c) Summary--Market Information.
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Item 1(d) Summary--Market Information.
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Item 1(e) Summary--Market Information.
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Item 1(f) Purchases of Common Stock by Certain Persons.
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Item 2(a)-(d),(g) Summary--The Companies; Certain Information Concerning
MergerCo and the Investor Group.
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Item 2(e), (f) *
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Item 3(a)(1) Special Factors--Conflicts of Interest.
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Item 3(a)(2) Special Factors--Background of the Merger;
--The Special Committee's and the Board's
Recommendation; --Conflicts of Interest;
--Conduct of Physicians' Specialty Business
after the Merger.
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Item 3(b) Special Factors--Background of the Merger;
--Conflicts of Interest; --Financing of the
Merger.
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Item 4(a) Questions and Answers about the Merger;
Summary--Terms of the Merger Agreement;
--Share Ownership of Physicians' Specialty
following the Merger; --Appraisal Rights;
Special Factors--Certain Effects of the
Merger; --Conflicts of Interest; The
Special Meeting--Effective Time of the
Merger and Payment for Shares; The Merger;
Rights of Dissenting Stockholders; Appendix
A.
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Item 4(b) Questions and Answers about the Merger;
Summary--Share Ownership of Physicians'
Specialty following the Merger; --Conflicts
of Interest; --Appraisal Rights; Special
Factors--The Special Committee's and the
Board's Recommendation; --Purpose and
Reasons of the Management Sponsors, the TA
Investors and TA Associates for the Merger;
--Conflicts of Interest; --Certain Effects
of the Merger; The Merger; Rights of
Dissenting Stockholders.
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Item 5(a)-(b) Summary--Share Ownership of Physicians'
Specialty following the Merger; Special
Factors--Purpose and Reasons of the
Management Sponsors, the TA Investors and
TA Associates for the Merger; --Conflicts
of Interest; --Certain Effects of the
Merger; --Financing of the Merger; --Conduct
of Physicians' Specialty Business After
the Merger.
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Item 5(c) Summary--Conflicts of Interest; Special
Factors--Conflicts of Interest; --Conduct
of Physicians' Specialty Business After the
Merger.
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Item 5(d) Summary--Share Ownership of Physicians'
Specialty following the Merger; --Financing
of the Merger; --Market Information;
Special Factors--Conflicts of Interest;
--Financing of the Merger; The
Merger--Terms of the Merger
Agreement--Terms of the Convertible
Participating Preferred Stock and
Redeemable Preferred Stock.
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Item 5(e) Special Factors--Certain Effects of the
Merger; --Financing of the Merger;
--Conduct of Physicians' Specialty Business
After the Merger.
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Item 5(f)-(g) Special Factors--Certain Effects of the
Merger.
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Item 6(a) Summary--Financing of the Merger; Special
Factors--Financing of the Merger.
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Item 6(b) The Merger--Estimated Fees and Expenses of
the Merger.
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Item 6(c) Summary--Financing of the Merger; Special
Factors--Financing of the Merger.
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Item 6(d) *
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Item 7(a)-(c) Questions and Answers about the Merger;
Summary; Special Factors--Background of the
Merger; --The Special Committee's and the
Board's Recommendation; --Opinion of
Financial Advisor; --Purpose and Reasons of
the Management Sponsors, the TA Investors
and TA Associates for the Merger;
--Conflicts of Interest; The Merger.
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Item 7(d) Questions and Answers about the Merger;
Summary; Special Factors--Background of the
Merger; --Purpose and Reasons of the
Management Sponsors, the TA Investors and
TA Associates for the Merger; --Conflicts of
Interest; --Certain Effects of the Merger;
--Financing of the Merger; --Conduct of
Physicians' Specialty Business After the
Merger; Rights of Dissenting Stockholders;
Federal Income Tax Consequences; Security
Ownership of Certain Beneficial Owners and
Management.
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Item 8(a)-(b) Questions and Answers about the Merger;
Summary--Recommendations; --Opinion of
Financial Advisor; --Conflicts of Interest;
Special Factors--Background of the Merger;
--The Special Committee's and the Board's
Recommendation; --Opinion of Financial
Advisor; --Position of the Management
Sponsors, the TA Investors and TA Associates
as to Fairness of the Merger; --Conflicts of
Interest.
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Item 8(c) Questions and Answers about the Merger;
Summary--Vote Required; The Special
Meeting--Voting Procedures; The Merger
--Terms of the Merger Agreement.
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Item 8(d) Summary--Opinion of Financial Advisor;
Special Factors--Background of the Merger;
--The Special Committee's and the Board's
Recommendation; --Opinion of Financial
Advisor.
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Item 8(e) Questions and Answers about the Merger;
Summary--Recommendations; Special
Factors--Background of the Merger; --The
Special Committee's and the Board's
Recommendation.
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Item 8(f) *
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Item 9(a)-(c) Summary--Opinion of Financial Advisor;
Special Factors--Background of the Merger;
--The Special Committee's and the Board's
Recommendation; --Opinion of Financial
Advisor; --Conflicts of Interest; Appendix
B.
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Item 10(a) Security Ownership of Certain Beneficial
Owners and Management.
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Item 10(b) Purchases of Common Stock by Certain
Persons.
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Item 11 Questions and Answers about the Merger;
Summary--Terms of the Merger Agreement;
Special Factors--Background of the Merger;
--Conflicts of Interest; --Financing of the
Merger; The Merger; Appendix A.
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Item 12(a)-(b) Summary--Recommendations; --Share Ownership
of Physicians' Specialty following the
Merger; --Conflicts of Interest; Special
Factors--The Special Committee's and the
Board's Recommendation; --Purpose and
Reasons of the Management Sponsors, the TA
Investors and TA Associates for the
Merger; --Financing of the Merger.
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Item 13(a) Summary--Appraisal Rights; Rights of
Dissenting Stockholders; Appendix C.
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Item 13(b) *
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Item 13(c) *
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Item 14(a) Summary--Selected Consolidated Financial
Data;--Consolidated Ratios of Earnings to
Fixed Charges and Book Value per Share;
Incorporation of Certain Documents by
Reference; Index to Financial Statements.
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Item 14(b) Summary--Unaudited Pro Forma Consolidated
Financial Statements; --Consolidated Ratios
of Earnings to Fixed Charges and Book Value
per Share.
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Item 15(a)-(b) The Special Meeting--Proxy Solicitation.
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Item 16 The entirety of the Proxy Statement and its
appendices are incorporated herein by
reference.
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Item 17(a)-(f) *
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*Not applicable or answer is negative.
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE
TRANSACTION.
(a) The information set forth on the cover page to the Proxy
Statement and in the section entitled "Summary--The Companies" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth on the cover page to the Proxy
Statement and in the sections entitled "Summary--Record Date; Voting Power" and
"The Special Meeting--Record Date and Quorum Requirement" of the Proxy
Statement is incorporated herein by reference.
(c) The information set forth in the section entitled "Summary--
Market Information" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth in the section entitled "Summary--
Market Information" of the Proxy Statement is incorporated herein by reference.
(e) The information set forth in the section entitled "Summary--
Market Information" of the Proxy Statement is incorporated herein by reference.
(f) The information set forth in the section entitled "Purchases
of Common Stock by Certain Persons" of the Proxy Statement is incorporated
herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed by Physicians' Specialty,
the Acquiror, the TA Investors, TA Associates, Inc., Richard D. Ballard, Gerald
R. Benjamin, Robert A. DiProva, Lawrence P. Kraska and Ramie A. Tritt, M.D. The
information set forth in the sections entitled "Summary--The Companies" and
"Certain Information Concerning MergerCo and the Investor Group" of the Proxy
Statement is incorporated herein by reference.
(e), (f) None of the TA Investors, TA Associates, Inc., the Acquiror
or any executive officer, director or person controlling the Acquiror, the TA
Investors, TA Associates or, Richard D. Ballard, Gerald R. Benjamin, Robert A.
DiProva, Lawrence P. Kraska or Ramie A. Tritt, M.D. has during the last five
years (i) been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or (ii) been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
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future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the section entitled "Special
Factors--Conflicts of Interest" is incorporated herein by reference.
(a)(2) The information set forth in the sections entitled "Special
Factors--Background of the Merger," "--The Special Committee's and the Board's
Recommendation," "--Conflicts of Interest" and "--Conduct of Physicians'
Specialty Business after the Merger" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in the sections entitled "Special
Factors--Background of the Merger," "--Conflicts of Interest" and "--Financing
of the Merger" of the Proxy Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the sections entitled "Questions
and Answers about the Merger," "Summary--Terms of the Merger Agreement,"
"--Share Ownership of Physicians' Specialty following the Merger," "--Appraisal
Rights," "Special Factors--Certain Effects of the Merger," "--Conflicts of
Interest," "The Special Meeting--Effective Time of the Merger and Payment for
Shares," "The Merger" and "Rights of Dissenting Stockholders" of the Proxy
Statement and Appendix A to the Proxy Statement is incorporated herein by
reference.
(b) The information set forth in the sections entitled "Questions
and Answers about the Merger," "Summary--Share Ownership of Physicians'
Specialty following the Merger," "--Conflicts of Interest," "--Appraisal
Rights," "Special Factors--The Special Committee's and the Board's
Recommendation," "--Purpose and Reasons of the Management Sponsors, the TA
Investors and TA Associates for the Merger," "--Conflicts of Interest,"
"--Certain Effects of the Merger," "The Merger" and "Rights of Dissenting
Stockholders" of the Proxy Statement is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) The information set forth in the sections entitled
"Summary--Share Ownership of Physicians' Specialty following the Merger,"
"Special Factors--Purpose and Reasons of the Management Sponsors, the TA
Investors and TA Associates for the Merger," "--Conflicts of Interest,"
"--Certain Effects of the Merger," "--Financing of the Merger" and "--Conduct of
Physicians' Specialty Business After the Merger" of the Proxy Statement is
incorporated herein by reference.
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(c) The information set forth in the sections entitled
"Summary--Conflicts of Interest," "Special Factors--Conflicts of Interest" and
"--Conduct of Physicians' Specialty Business After the Merger" of the Proxy
Statement is incorporated herein by reference.
(d) The information set forth in the sections entitled "Summary--
Share Ownership of Physicians' Specialty following the Merger," "--Financing of
the Merger", "--Market Information," "Special Factors--Conflicts of Interest,"
"--Financing of the Merger" and "The Merger--Terms of the Merger
Agreement--Terms of the Convertible Participating Preferred Stock and
Redeemable Preferred Stock" of the Proxy Statement is incorporated herein by
reference.
(e) The information set forth in the sections entitled "Special
Factors--Certain Effects of the Merger," "--Financing of the Merger" and
"--Conduct of Physicians' Specialty Business After the Merger" of the Proxy
Statement is incorporated herein by reference.
(f)-(g) The information set forth in the section entitled "Special
Factors--Certain Effects of the Merger" of the Proxy Statement is incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the sections entitled
"Summary--Financing of the Merger" and "Special Factors--Financing of the
Merger" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in the section entitled "The
Merger--Estimated Fees and Expenses of the Merger" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth in the sections entitled
"Summary--Financing of the Merger" and "Special Factors--Financing of the
Merger" of the Proxy Statement is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the sections entitled "Questions
and Answers about the Merger," "Summary," "Special Factors--Background of the
Merger," "--The Special Committee's and the Board's Recommendation," "--Opinion
of Financial Advisor," "--Purpose and Reasons of the Management Sponsors, the TA
Investors and TA Associates for the Merger" "--Conflicts of Interest" and "The
Merger" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth in the sections entitled "Questions
and Answers about the Merger," "Summary," "Special Factors--Background of the
Merger," "--Purpose and Reasons
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of the Management Sponsors, the TA Investors and TA Associates for the Merger,"
"--Conflicts of Interest," "--Certain Effects of the Merger," "--Financing of
the Merger," "--Conduct of Physicians' Specialty Business After the Merger,"
"Rights of Dissenting Stockholders," "Federal Income Tax Consequences" and
"Security Ownership of Certain Beneficial Owners and Management" of the Proxy
Statement is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The information set forth in the sections entitled "Questions
and Answers about the Merger," "Summary--Recommendations," "--Opinion of
Financial Advisor," "--Conflicts of Interest," "Special Factors--Background of
the Merger," "--The Special Committee's and the Board's Recommendation,"
"--Opinion of Financial Advisor," "--Position of the Management Sponsors, the TA
Investors and TA Associates as to Fairness of the Merger," and "--Conflicts of
Interest" of the Proxy Statement are incorporated herein by reference.
(c) The information set forth in the sections entitled "Questions
and Answers about the Merger," "Summary--Vote Required," "The Special
Meeting--Voting Procedures" and "The Merger--Terms of the Merger
Agreement."
(d) The information set forth in the sections entitled
"Summary--Opinion of Financial Advisor," "Special Factors--Background of the
Merger," "--The Special Committee's and the Board's Recommendation" and
"--Opinion of Financial Advisor" of the Proxy Statement is incorporated herein
by reference.
(e) The information set forth in the sections entitled "Questions
and Answers about the Merger," "Summary--Recommendations," "Special
Factors--Background of the Merger," "-- The Special Committee's and the Board's
Recommendation" of the Proxy Statement is incorporated herein by reference.
(f) not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the sections entitled
"Summary--Opinion of Financial Advisor," "Special Factors--Background of the
Merger," "--The Special Committee's and the Board's Recommendation," "--Opinion
of Financial Advisor" and "--Conflicts of Interest" of the Proxy Statement and
in Appendix B to the Proxy Statement is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in the section entitled "Security
Ownership of Certain Beneficial Owners and Management" of the Proxy Statement
is incorporated herein by reference.
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(b) The information set forth in the section entitled "Purchase of
Common Stock by Certain Persons" of the Proxy Statement is incorporated herein
by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH
RESPECT TO THE ISSUER'S SECURITIES.
The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary--Terms of the Merger Agreement," "Special
Factors--Background of the Merger," "--Conflicts of Interest," "--Financing of
the Merger" and "The Merger" of the Proxy Statement and in Appendix A to the
Proxy Statement is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE TRANSACTION.
(a)-(b) The information set forth in the sections entitled
"Summary--Recommendations," "-- Share Ownership of Physicians' Specialty
following the Merger," "--Conflicts of Interest," "Special Factors--The Special
Committee's and the Board's Recommendation," "--Purpose and Reasons of the
Management Sponsors, the TA Investors and TA Associates for the Merger" and
"--Financing of the Merger" of the Proxy Statement is incorporated herein by
reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the sections entitled
"Summary--Appraisal Rights" and "Rights of Dissenting Stockholders" of the
Proxy Statement and in Appendix C to the Proxy Statement is incorporated herein
by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The relevant financial information set forth under the
sections entitled "Summary- -Selected Consolidated Financial Data,"
"--Consolidated Ratios of Earnings to Fixed Charges and Book Value per Share,"
"Incorporation of Certain Documents by Reference," and "Index to Financial
Statements" of the Proxy Statement is incorporated herein by reference.
(b) The relevant financial information set forth under the section
entitled "Summary-- Unaudited Pro Forma Consolidated Financial Statements"
and "--Consolidated Ratios of Earnings to Fixed Charges and Book Value per
Share" of the Proxy Statement is incorporated herein by reference.
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ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)-(b) The information set forth in the section entitled "The Special
Meeting--Proxy Solicitation" of the Proxy Statement is incorporated herein by
reference.
ITEM 16. ADDITIONAL INFORMATION.
The entirety of the Proxy Statement and its appendices are
incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
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(a)(1) Commitment Letter dated June 10, 1999 by and among
Physicians' Specialty Corp., TA Associates, Inc., First Union
National Bank and First Union Markets Corp.
(a)(2) Commitment Letter dated June 9, 1999 by and among Physicians'
Specialty Corp., TA Associates, Inc., and Allied Capital
Corporation.
(b)(1) Opinion of The Robinson-Humphrey Company, LLC dated June 12,
1999 (included as Appendix B to the Preliminary Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(b)(2) Financial Analysis Presentation materials prepared by The
Robinson-Humphrey Company, LLC in connection with providing
its opinion to the Special Committee on June 12, 1999.
(c)(1) Agreement and Plan of Merger dated as of June 14, 1999 by and
among Physicians' Specialty Corp., TA MergerCo, Inc.,
TA/Advent VIII, L.P., TA/ Atlantic and Pacific IV, L.P., TA
Investors LLC and TA Executives Fund LLC (included as Appendix
A to the Preliminary Proxy Statement, which is filed herewith
as Exhibit (d)(3)).
(c)(2) Stock Option Exercise and Termination Agreement dated as of
June 14, 1999 by and among Physicians' Specialty Corp and
each of the individuals listed on Exhibit A thereto.
(c)(3) Voting Agreement dated as of June 14, 1999 among TA MergerCo,
Inc., the persons listed on Exhibit A thereto, and
Physicians' Specialty Corp.
(c)(4) Rollover Agreement dated as of June 14, 1999 by and among TA
MergerCo, Inc. and each of the entities listed on the
signature pages attached thereto.
(c)(5) Stock Purchase Agreement dated as of June 14, 1999 by and
among TA/Advent VIII, L.P., TA/Atlantic and Pacific IV, L.P.,
TA Executives Fund LLC , TA
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Investors LLC and the holders of the capital stock of
Physicians' Specialty Corp. listed on Exhibit A thereto.
(c)(6) Registration Rights Agreement dated as of June 14, 1999 by and
among TA MergerCo, Inc. and each of the persons listed on the
signature pages attached thereto.
(c)(7) Stockholders Agreement dated as of June 14, 1999 by and among
TA MergerCo, Inc. and each of the persons listed on the
signature pages attached thereto.
(c)(8) Amendment to Executive Employment Agreement dated as of June
14, 1999 between Physicians' Specialty Corp. and Richard D.
Ballard.
(c)(9) Amendment to Executive Employment Agreement dated as of June
14, 1999 between Physicians' Specialty Corp. and Gerald R.
Benjamin.
(c)(10) Amendment to Executive Employment Agreement dated as of June
14, 1999 between Physicians' Specialty Corp. and Lawrence P.
Kraska.
(c)(11) Amendment to Executive Employment Agreement dated as of June
14, 1999 between Physicians' Specialty Corp. and Ramie A.
Tritt, M.D.
(c)(12) Right of First Offer Agreement dated as of June 14, 1999 by
and among Ramie A. Tritt, M.D. and TA/Advent VIII, L.P.,
TA/Atlantic and Pacific IV, L.P., TA Investors LLC, and TA
Executives Fund LLC.
(d)(1) Letter to Stockholders (included in the Preliminary Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(d)(2) Notice of Special Meeting of Stockholders (included in the
Preliminary Proxy Statement, which is filed herewith as
Exhibit (d)(3)).
(d)(3) Preliminary Proxy Statement, dated July 14, 1999.
(d)(4) Form of Proxy (included in the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(d)(5) Press Release issued by Physicians' Specialty Corp. dated as
of June 14, 1999 (incorporated by reference to the Current
Report on Form 8-K filed by Physicians' Specialty on
June 18, 1999).
</TABLE>
-15-
<PAGE> 16
<TABLE>
<S> <C>
(e) Text of Section 262 of the Delaware General Corporation Law
(included as Appendix C to the Preliminary Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(f) Not applicable
99.1 Powers of Attorney
</TABLE>
-16-
<PAGE> 17
SIGNATURES
After due inquiry and to the best of our knowledge and belief, each of
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.
PHYSICIANS' SPECIALTY CORP.
By:/s/ RAMIE A. TRITT
--------------------------------------------
Name: Ramie A. Tritt, M.D.
Dated: July 13, 1999 Title: Chairman and President
TA MERGERCO, INC.
By:/s/ RICHARD TADLER
--------------------------------------------
Name: Richard Tadler
Dated: July 13, 1999 Title: President and Chief Executive Officer
TA ASSOCIATES, INC.
Dated: July 13, 1999 By:/s/ RICHARD TADLER
--------------------------------------------
Name: Richard Tadler
Title: Managing Director
TA/ADVENT VIII, L.P.
By: TA ASSOCIATES VIII LLC
Sole General Partner
By: TA ASSOCIATES, INC.
Manager
Dated: July 13, 1999 By: /s/ RICHARD TADLER
----------------------------------
Name: Richard Tadler
Title: Managing Director
<PAGE> 18
TA/ATLANTIC AND PACIFIC IV, L.P.
By: TA ASSOCIATES AP IV, L.P.
Sole General Partner
By: TA ASSOCIATES, INC.
Sole General Partner
Dated: July 13, 1999 By: /s/ Richard Tadler
----------------------------------
Name: Richard Tadler
Title: Managing Director
TA EXECUTIVES FUND LLC
By: TA ASSOCIATES, INC.
Manager
Dated: July 13, 1999 By: /s/ Richard Tadler
--------------------------------------
Name: Richard Tadler
Title: Managing Director
TA INVESTORS LLC
By: TA ASSOCIATES, INC.
Manager
Dated: July 13, 1999 By: /s/ Richard Tadler
--------------------------------------
Name: Richard Tadler
Title: Managing Director
<PAGE> 19
RAMIE A. TRITT
Dated: July 13, 1999 /s/ RAMIE A. TRITT
------------- -----------------------------------
RICHARD D. BALLARD
Dated: July 13, 1999 /s/ RICHARD D. BALLARD
------------- -----------------------------------
GERALD R. BENJAMIN
Dated: July 13, 1999 /s/ GERALD R. BENJAMIN
------------- -----------------------------------
LAWRENCE P. KRASKA
Dated: July 13, 1999 /s/ LAWRENCE P. KRASKA
------------- -----------------------------------
ROBERT A. DIPROVA
Dated: July 13, 1999 /s/ ROBERT A. DIPROVA
------------- -----------------------------------
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C> <C>
(a)(1) Commitment Letter dated June 10, 1999 by and
among Physicians' Specialty Corp., TA Associates,
Inc., First Union National Bank and First Union
Markets Corp.
(a)(2) Commitment Letter dated June 9, 1999 by and among
Physicians' Specialty Corp., TA Associates, Inc., and
Allied Capital Corporation.
(b)(1) Opinion of The Robinson-Humphrey Company, LLC dated June
12, 1999 (included as Appendix B to the Preliminary Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(b)(2) Financial Analysis Presentation materials prepared by The
Robinson-Humphrey Company, LLC in connection with providing
its opinion to the Special Committee on June 14, 1999
(c)(1) Agreement and Plan of Merger dated as of June 14, 1999 by
and among Physicians' Specialty Corp., TA MergerCo, Inc.,
TA/Advent VIII, L.P., TA/Atlantic and Pacific IV, L.P., TA
Investors LLC and TA Executives Fund LLC (included as
Appendix A to the Preliminary Proxy Statement, which is
filed herewith as Exhibit (d)(3)).
(c)(2) Stock Option Exercise and Termination Agreement dated as of
June 14, 1999 by and among Physicians' Specialty Corp and
each of the individuals listed on Exhibit A thereto.
(c)(3) Voting Agreement dated as of June 14, 1999 among TA
MergerCo, Inc., the persons listed on Exhibit A thereto,
and Physicians' Specialty Corp.
(c)(4) Rollover Agreement dated as of June 14, 1999 by and
among TA MergerCo, Inc. and each of the entities listed
on the signature pages attached thereto.
(c)(5) Stock Purchase Agreement dates as of June 14, 1999 by and
among TA/Advent VIII, L.P., TA/Atlantic and Pacific IV,
L.P., TA Executives Fund LLC , TA Investors
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
LLC and the holders of the capital stock of Physicians'
Specialty Corp. listed on Exhibit A thereto.
(c)(6) Registration Rights Agreement dated as of June 14, 1999
by and among TA MergerCo, Inc. and each of the persons
listed on the signature pages attached thereto.
(c)(7) Stockholders Agreement dated as of June 14, 1999 by
and among TA MergerCo, Inc. and each of the persons
listed on the signature pages attached thereto.
(c)(8) Amendment to Executive Employment Agreement dated as of
June 14, 1999 between Physicians' Specialty Corp.
and Richard D. Ballard.
(c)(9) Amendment to Executive Employment Agreement dated as of
June 14, 1999 between Physicians' Specialty Corp.
and Gerald R. Benjamin.
.
(c)(10) Amendment to Executive Employment Agreement dated as of
June 14, 1999 between Physicians' Specialty Corp.
and Lawrence P. Kraska.
(c)(11) Amendment to Executive Employment Agreement dated as of
June 14, 1999 between Physicians' Specialty Corp.
and Ramie A. Tritt, M.D.
(c)(12) Right of First Offer Agreement dated as of June 14, 1999 by
and among Ramie A. Tritt, M.D. and TA/Advent VIII, L.P.,
TA/Atlantic and Pacific IV, L.P., TA Investors LLC, and TA
Executives Fund LLC.
(d)(1) Letter to Stockholders (included in the Preliminary Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(d)(2) Notice of Special Meeting of Stockholders (included in the
Preliminary Proxy Statement, which is filed herewith as
Exhibit (d)(3)).
(d)(3) Preliminary Proxy Statement, dated July 14, 1999.
(d)(4) Form of Proxy (included in the Preliminary Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
</TABLE>
-21-
<PAGE> 22
<TABLE>
<S> <C>
(d)(5) Press Release issued by Physicians' Specialty Corp.
dated as of June 14, 1999 (incorporated by reference
to the Current Report on Form 8-K filed by Physicians'
Specialty on June 18, 1999).
(e) Text of Section 262 of the Delaware General Corporation Law
(included as Appendix C to the Preliminary Proxy Statement,
which is filed herewith
as Exhibit (d)(3)).
99.1 Powers of Attorney
</TABLE>
-22-
<PAGE> 1
EXHIBIT (a)(1)
[FIRST UNION LOGO]
June 10, 1999
TA Associates
High Street Tower
Suite 2500
125 High Street
Boston, Massachusetts 02110
Attention: David S.B. Lang
Physicians' Specialty Corp.
1150 Lake Hearn Drive, Suite 640
Atlanta, Georgia 30342
Attention: Ramie A. Tritt, M.D.
Ladies and Gentlemen:
Physicians' Specialty Corp. (the "Company") and TA Associates ("TA
Associates") have informed First Union National Bank ("First Union") and First
Union Capital Markets Corp. (the "Arranger") that they intend to finance a
portion of the purchase price of the leveraged buyout of existing shareholders
of the Company by certain executive officers affiliated with the Company and
TA Associates (the "Acquisition"). The Company and TA Associates have further
informed First Union and the Arranger that, in order to refinance certain of
its existing debt and effect the Acquisition, to pay fees and expenses in
connection therewith and to provide for the working capital and general
corporate requirements of the Company and its subsidiaries, the Company desires
to enter into a revolving credit facility in the principal amount of
$60,000,000 (the "Facility"). The Company and TA Associates have requested that
First Union commit to provide the entire principal amount of the Facility and
that the Arranger agree to structure, arrange and syndicate the Facility.
First Union is pleased to confirm its commitment to provide the Facility
to the Company, based upon and subject to the foregoing and subject to the
terms and conditions set forth below and in the summary of terms and conditions
(the "Term Sheet") attached hereto. The definitive credit documents will
contain any additional relevant provisions contained in the documentation
<PAGE> 2
Physician's Specialty Corp.
June 10, 1999
Page 2
- ----------------------------
for the subordinated debt incurred by the Company at the closing to the extent
not included in the Term Sheet, including any fixed charge coverage ratio
requirements. First Union's commitment hereunder and the Arranger's agreement to
provide the services described herein are subject to (i) the Company's written
acceptance of a letter from First Union and the Arranger to the Company of even
date herewith (the "Fee Letter") pursuant to which the Company agrees to pay to
First Union and the Arranger certain fees in connection with the Facility as
more particularly set forth therein, (ii) First Union's satisfaction that, prior
to and during the syndication of the Facility, there shall be no competing
issues of debt securities or commercial bank or other credit facilities of the
Company or any of its subsidiaries being offered, placed or arranged, and (iii)
the satisfaction of all conditions described herein, in the Term Sheet and in
the definitive credit documentation for the Facility, which documentation shall
be the Agent's customary documentation for transactions such as the Acquisition.
The terms and conditions of First Union's commitment hereunder and of the
Facility are not limited to those set forth herein and in the Term Sheet, and
any matters that are not covered by the provisions hereof and thereof shall be
subject to the mutual agreement of First Union, the Company and TA Associates.
It is understood and agreed that First Union shall be entitled, pre-closing
or post-closing (if post-closing for a period to be determined as set forth
below), after consultation with the Company and TA Associates, to change the
applicable margin that applies to interest rates by no more than 75 basis
points, and/or the structure of the facility (with the ability to convert a
portion of the Revolver to a term loan; provided that any such changed structure
would contemplate an amortization schedule to be agreed upon between First
Union, TA Associates and the Company, with such amortization schedule to address
the business issues of TA Associates and the Company, including de minimis
amortization in the first two years, and the marketability/syndication issues of
First Union), if the Agent determines that such changes are advisable to ensure
a successful syndication of the facility, provided that the total principal
amount of the facility remains unchanged; and provided further that the terms of
this paragraph will remain in full force and effect through a period ending 90
days after the initial funding of the facility. The commitment of First Union
hereunder is subject to the agreements of the Company and TA Associates set
forth in this paragraph.
It is agreed that (a) First Union will act as the administrative agent and
as the syndication agent for the Facility, and (b) the Arranger will act as the
arranger for the Facility, and that each will perform the duties and exercise
the authority customarily associated with such roles. It is further agreed that
no additional agents, co-agents or arrangers will be appointed and no lender
will receive compensation outside the terms contained herein (including the Term
Sheet) and in the Fee Letter in order to obtain its commitment to participate in
the Facility, in each case unless the Company, TA Associates and First Union so
agree. Notwithstanding the foregoing, First Union and the Arranger each reserves
the right to allocate (in whole or in part) to any of its affiliates any fees
payable to it in such manner as it and its affiliates may agree in their sole
discretion.
<PAGE> 3
Physician's Specialty Corp.
June 10, 1999
Page 3
- ---------------------------
First Union reserves the right, prior to or after the execution of
definitive documentation with respect to the Facility, and as part of any
syndication thereof or otherwise, to assign part of its commitment hereunder,
in accordance with the Term Sheet, to one or more financial institutions
(together with First Union, the "Lenders") acceptable to the Agent, the
Arranger, the Company and TA Associates that will become lenders under the
Facility and be party to such definitive documentation. The approval of the
Company and TA Associates will not be unreasonably withheld or delayed. Upon
the acceptance of the commitment of any such new Lender to provide a portion of
the Facility, First Union shall be released from a corresponding portion of its
commitment hereunder. The Company and TA Associates understand that the
Arranger intends to commence its syndication efforts promptly and agree
actively to assist First Union and the Arranger in achieving a timely
syndication that is mutually satisfactory to First Union, the Arranger and the
Company and TA Associates. The syndication will be accomplished by a variety of
means, including direct contact during the syndication between senior
management of the Company, TA Associates, First Union, the Arranger and their
respective affiliates and advisors. The Company and TA Associates agree that
First Union and the Arranger may share with any of their respective affiliates
and advisors any information related to the Company and TA Associates and the
Acquisition, Facility or any other matter contemplated hereby, on a
confidential basis.
It is understood and agreed that the Arranger will manage, in consultation
with the Company and TA Associates, all aspects of the syndication, including
but not limited to decisions as to the selection of institutions to be
approached, when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. To assist the Arranger in its syndication efforts, the Company and TA
Associates agree (i) promptly to prepare and provide to the Arranger and First
Union all information reasonably requested by them with respect to the Company
and the Acquisition and the Facility, including all financial information and
projections (the "Projections"), as the Arranger and First Union may reasonably
request in connection with the arrangement and syndication of the Facility,
(ii) to assist, and to cause its affiliates and advisors to assist, the
Arranger in the preparation of a Confidential Information Memorandum and other
marketing materials to be used in connection with the syndication, and (iii) to
make appropriate officers and representatives of TA Associates and the Company
and its subsidiaries available to participate in information meetings for the
potential Lenders at such times and places as the Arranger may reasonably
request on reasonable notice. First Union's commitment as set forth herein and
the Arranger's agreement to provide the services described herein are subject
to the condition that (a) all information (other than the Projections)
concerning TA Associates and the Company and its subsidiaries and the
Acquisition and the Facility (the "Information") that has been or will be made
available to the Arranger or First Union by the Company or TA Associates or any
of their respective representatives is, or will be when furnished, complete and
correct in all material respects and does not, or will not when furnished,
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements are made,
and (b) the Projections that have been
<PAGE> 4
Physician's Specialty Corp.
June 10, 1999
Page 4
___________________________
or will be made available to the Arranger or First Union by the Company and/or
TA Associates or any of their respective authorized representatives have been or
will be prepared in good faith based upon reasonable assumptions.
The Company and TA Associates also agree that First Union and it affiliates
will be afforded an opportunity to offer proposals to provide (a) any interest
rate caps, currency swaps and other hedging transactions to be entered into by
the Company or its affiliates and (b) cash management, funds transfer, trade,
corporate trust and securities services to be obtained by the Company or its
affiliates. In addition, the Company and TA Associates agree that First Union
and its affiliates will be afforded the opportunity to compete to act as
placement agent or underwriter for any subordinated financing pursuant to a
registered offering to be undertaken by the Company of its affiliates.
TA Associates agrees to reimburse First Union and the Arranger on demand
for all of their reasonable fees and expenses (including reasonable attorneys'
fees and expenses) incurred in connection with the preparation, execution and
delivery of this Commitment Letter, the Term Sheet and the Fee Letter, the
definitive credit documentation for the Facility, the syndication of the
Facility, and all of the other transactions described herein, if the Facility is
not closed and the Company agrees to be responsible for such fees and expenses,
in accordance with the terms and conditions of the definitive credit agreement,
if the Facility is closed. The Company also agrees to indemnify and hold
harmless First union, the Arranger and each other Lender and their respective
affiliates, directors, officers, employees and agents (collectively, the
"Indemnified Parties") from and against any and all actions, suits, losses,
claims, damages and liabilities of any kind of nature, joint or several, to
which such Indemnified Parties may become subject, related to or arising out of
any of the transactions contemplated herein, including without limitation the
execution and delivery of this Commitment Letter, the execution and delivery of
definitive credit documentation for the Facility, the syndication and closing of
the Facility and the use of proceeds thereunder, and the closing of the
Acquisition, and to reimburse the Indemnified Parties for all out-of-pocket
expenses (including reasonable attorneys' fees and expenses) on demand as they
are incurred in connection with the investigation of, preparation for, or
defense of any pending or threatened claim or any action or proceeding arising
therefrom; provided, however that no Indemnified Party shall have any right to
indemnification for any of the foregoing to the extent determined to have
resulted primarily from its own gross negligence or willful misconduct. This
Commitment Letter is address solely to the Company and TA Associates, and
neither First Union or the Arranger, on the one hand, nor the Company, on the
other hand, shall be liable to the other or any other person for any indirect or
consequential damages that may be alleged as a result of this Commitment Letter
or any of the transactions referred to herein. In the event that the closing of
the Facility fails to occur for any reason, the provisions of this paragraph
shall survive any termination of this Commitment Letter or the commitment of
First union set forth herein.
Until such time as they have accepted this Commitment Letter in writing as
provided below, neither the Company nor TA Associates is authorized to show or
circulate this
<PAGE> 5
Physician's Specialty Corp.
June 10, 1999
Page 5
___________________________
Commitment Letter or the Term Sheet to any other person or entity (other than
its directors, officers, financial advisors and legal counsel in connection
with its evaluation hereof, provided that each of such persons shall also be
bound by the confidentiality provisions hereof), except as may be required by
law, NASDAQ requirements or applicable judicial process.
First Union shall have the right to review and approve any public
announcement or public filing made after the date hereof relating to the
Facility or to First Union before any such announcement or filing is made (such
approval not to be unreasonably withheld or delayed). The Company and TA
Associates agree and consent to First Union's disclosure of information
relating to this transaction to Gold Sheets and other similar bank trade
publications. Such information will consist of deal terms and other information
customarily found in such publications.
This Commitment Letter, the commitment of First Union set forth herein and
the agreement of the Arranger to provide the services set forth herein shall, in
the event this Commitment Letter is accepted by the Company and TA Associates as
provided in the last paragraph hereof, automatically expire at the earliest to
occur of the following: (i) First Union discovering or becoming aware of any
information not previously disclosed to it that it believes to be materially
inconsistent with the information provided to it by or on behalf of TA
Associates or the Company prior to the date hereof, of the business, properties,
operations, condition (financial or otherwise) of the Company and its
subsidiaries, (ii) the occurrence of a material adverse change in the business,
properties, operations, condition (financial or otherwise) of the Company and
its subsidiaries or the occurrence of a material adverse effect with respect to
the consummation of the Acquisition, (iii) consummation of the Acquisition, (iv)
termination of the definitive merger agreement with regard to the Acquisition,
and (v) 5:00 p.m. on November 30, 1999, if the initial borrowing under the
Facility shall not have occurred by such time.
This Commitment Letter and the Fee Letter shall be governed by and
construed in accordance with the internal laws of the State of North Carolina,
and together constitute the entire agreement between the parties relating to the
subject matter hereof and thereof and supersede any previous agreement, written
or oral, between the parties with respect to the subject matter hereof and
thereof. This Commitment Letter shall be binding upon and shall inure to the
benefit of the respective successors and assigns of the parties hereto, but
shall not be assigned in whole or in part by TA Associates or the Company
without the prior written consent of First Union and the Arranger. This
Commitment Letter may not be amended or any provision hereof waived or modified
except by an instrument in writing signed by each of the parties hereto. This
Commitment Letter is intended to be solely for the benefit of the parties hereto
and is not intended to confer any benefits on, or create any rights in favor of,
any other person or entity. This Commitment Letter may be executed in any number
of counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement.
<PAGE> 6
Physician's Specialty Corp.
June 10, 1999
Page 6
- ------------------------------
If the Company and TA Associates are in agreement with the foregoing,
please indicate acceptance of the terms hereof by signing the enclosed
counterpart of this Commitment Letter and returning it to First Union, together
with an executed counterpart of the Fee Letter and any payment of fees required
under the Fee Letter to be delivered concurrently therewith, by no later than
5:00 p.m. on June 14, 1999. This Commitment Letter, the commitment of First
Union set forth herein and the agreement of the Arranger to provide the
services set forth herein shall automatically terminate at such time unless
signed counterparts of this letter and the Fee Letter together with any such
payment shall have been delivered to First Union in accordance with the terms
of the immediately preceding sentence.
Sincerely,
FIRST UNION NATIONAL BANK
By: /s/
---------------------------------
Title: Senior Vice President
---------------------------------
FIRST UNION CAPITAL MARKETS CORP.
By: /s/
---------------------------------
Title: Managing Director
---------------------------------
Agreed to and accepted as of
the date first above written:
PHYSICIANS' SPECIALTY CORP.
By: /s/ Gerald R. Benjamin
---------------------------------
Title: Vice Chairman & Secretary
---------------------------------
TA ASSOCIATES
By: /s/ David Lang
---------------------------------
Title: Vice President
---------------------------------
<PAGE> 7
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF TERMS AND CONDITIONS
$60,000,000 SENIOR SECURED REVOLVING CREDIT FACILITY
PROJECT SOUNDER
JUNE 10, 1999
BORROWER: Physicians' Specialty Corp., a corporation organized under
the laws of the state of Delaware (the "Borrower").
FACILITY: $60,000,000 5-year Senior Secured Revolving Credit Facility
(the "Revolver").
A portion of the Revolver, in an amount to be determined,
will be available for use by the Borrower for the issuance
of letters of credit. Letters of credit may be issued with
maturities of up to one year, renewable annually thereafter,
and in any event shall not extend beyond the maturity date.
AGENT: First Union National Bank ("First Union" or the "Agent").
First Union will be the issuing bank for all letters of
credit.
ARRANGER: First Union Capital Markets Corp.
LENDERS: First Union and a syndicate of financial institutions (the
"Lenders") acceptable to the Agent, the Arranger, the
Borrower and TA Associates ("TA Associates"); provided that
the approval of the Borrower and TA Associates shall be in
good faith and not unreasonably withheld or delayed.
AVAILABILITY: Loans under the Revolver will be available at any time prior
to maturity, subject to reduction by the aggregate amount of
outstanding or unreimbursed letters of credit.
MATURITY DATE: 5th anniversary of the closing date.
USE OF PROCEEDS: The proceeds of the Revolver shall be used solely (i) to
finance a portion of the purchase price of the leveraged
buyout by certain executive officers of the Borrower and
TA Associates from the existing shareholders (the
"Acquisition"), (ii) to refinance certain existing debt,
(iii) to pay certain transaction fees and expenses in
connection with the Revolver and the Acquisition, and other
fees related to the Acquisition (as contemplated by the
sources and uses (agreed upon by the Borrower, TA Associates
and the Agent) previously received by the Agent), each in
amounts reasonably acceptable to the Agent, (iv) to provide
for the working capital and general corporate requirements
of the Borrower and its subsidiaries; and (v) to provide for
Permitted Acquisitions (as hereafter defined).
AMORTIZATION: None. All outstanding principal of the Revolver will be due
and payable on the maturity date.
GUARANTIES: The Revolver will be unconditionally guaranteed by all
direct and indirect subsidiaries of the Borrower, whether
existing at closing or thereafter organized or acquired.
COLLATERAL: The Revolver will be secured by a first priority perfected
lien (subject to certain permitted liens to be agreed upon
by the Agent and the Borrower) on and security interest in
(a) 100% of the capital stock of each direct and indirect
subsidiary of the Borrower, whether existing at closing or
thereafter organized or acquired, and (b) all of the assets
(including, without limitation, accounts receivable,
management service
- --------------------------------------------------------------------------------
FIRST UNION CAPITAL MARKETS CORP. PAGE 1
<PAGE> 8
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
- --------------------------------------------------------------------------------
agreements, inventory, equipment, intellectual
property and other general intangibles, and real
property) of the Borrower and its direct and
indirect subsidiaries, whether existing at
closing or thereafter organized or acquired.
BORROWING OPTIONS: At the Borrower's option, loans under the
Revolver shall bear interest at (i) the Agent's
Base Rate ("Base Rate") from time to time in
effect plus the Base Rate Margin in effect at
such time or (ii) the applicable LIBOR plus the
LIBOR Margin in effect at such time, each such
Margin to be determined from time to time in
accordance with the pricing grid set forth in
EXHIBIT A.
The Base Rate is the higher of (i) the Agent's
prime commercial lending rate as announced from
time to time or (ii) the federal funds rate plus
0.5% per annum. LIBOR is the London Interbank
Offered Rate for corresponding deposits of U.S.
Dollars for interest periods of one, two or three
months, subject to availability, as selected by
the Borrower and as quoted to the Agent.
Interest on Base Rate loans shall be payable
quarterly in arrears. Interest on LIBOR loans
shall be payable at the end of each applicable
interest period or at three-month intervals, if
earlier. Interest shall be calculated on an
actual/360-day basis for LIBOR loans and an
actual/365/366-day basis for Base Rate loans.
During an event of default (taking into account
any applicable grace or cure periods) under the
Revolver, all outstanding principal, accrued
interest and other amounts shall accrue interest
at a rate per annum of 2% in excess of the
highest Applicable Margin, and such interest
shall be payable on demand. The definitive credit
documents shall include the Agent's standard
protective provisions for such matters as
increased costs, funding losses, illegality and
withholding taxes.
COMMITMENT FEE: A per annum rate, as determined in accordance
with the pricing grid set forth in EXHIBIT A, on
the aggregate unutilized portion of the Revolver,
payable quarterly in arrears to the Agent for the
ratable benefit of the Lenders, calculated on an
actual/360-day basis and commencing on the
execution date of the definitive credit agreement
for the Revolver.
LETTER OF CREDIT FEE: A per annum rate equal to the applicable LIBOR
Margin in effect from time to time (as determined
in accordance with the pricing grid set forth in
EXHIBIT A) on the average daily stated amount of
all letters of credit, payable quarterly in
arrears to the Agent for the ratable benefit of
the Lenders and calculated on an actual/360-day
basis. In addition, the Borrower will pay a
facing fee with respect to each letter of credit
in an amount equal to 0.125% of the average daily
stated amount thereof, payable quarterly in
arrears to First Union for its own account as
issuer of letters of credit and calculated on an
actual/360-day basis.
MANDATORY PREPAYMENTS/
COMMITMENT REDUCTIONS: The Borrower will be required to prepay amounts
outstanding under the Revolver, without premium
or penalty (subject to payment of any funding
losses resulting from prepayment of LIBOR loans
other than on the last day of the applicable
interest period) as follows: (i) 100% of the net
cash proceeds from the sale or disposition of
assets outside the ordinary course of business
(to the extent permitted pursuant to the
definitive credit agreement), including insurance
proceeds, to the extent such proceeds are not
applied within 180 days, after receipt thereof,
toward the repair of damaged equipment or the
replacement of the assets disposed of with
similar assets (ii) 100% of the net cash proceeds
of any issuance or sale of debt securities
(excluding debt issued in connection with the
Acquisition, approved seller debt in
- --------------------------------------------------------------------------------
FIRST UNION CAPITAL MARKETS CORP. PAGE 2
<PAGE> 9
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
________________________________________________________________________________
connection with Permitted Acquisitions and certain
other exceptions to be agreed upon), and (iii) 100% of
the net cash proceeds of any issuance or sale of equity
securities (excluding equity issued in connection with
the Acquisition, ordinary course stock options, equity
invested for the purpose of consummating an acquisition
or issued in connection with an acquisition and
additional equity investments in the Borrower by TA
Associates), subject to limited exceptions to be agreed
upon. Such proceeds shall be applied to outstanding
amounts under the Revolver, with a corresponding
permanent pro rata reduction of the Revolver
commitments.
VOLUNTARY PREPAYMENTS/
COMMITMENT REDUCTIONS: The Borrower may prepay amounts outstanding under the
Revolver at any time, without premium or penalty
(subject to advance notice provisions and minimum
repayment amounts to be agreed upon, and subject to
payment of any funding losses resulting from prepayment
of LIBOR loans other than on the last day of the
applicable interest period). Additionally, the Borrower
may, at its option upon five business days' notice to
the Agent, reduce the aggregate unutilized commitments
under the Revolver in part (in principal amounts of at
least $2,000,000 or an integral multiple thereof) or in
whole. Any such reductions shall be applied to the
Revolver commitments pro rata.
CONDITIONS PRECEDENT
TO BORROWING: The initial funding of the Revolver will be subject to
the satisfaction of conditions precedent consistent
with those customarily found in similar financings and
such additional conditions reasonably deemed
appropriate by the Agent in the context of the
Revolver, including without limitation the following:
(1) The definitive credit agreement and all other
documentation for the Revolver and the
Acquisition, including all collateral
documentation, shall be in a form consistent with
those customarily found in similar financing by
the Agent and reasonably satisfactory in form and
substance to the Agent and the Lenders;
(2) All legal, tax and accounting relating to the
Acquisition or to the Borrower and its
subsidiaries after giving effect thereto shall be
reasonably satisfactory in all respects to the
Agent;
(3) All governmental and third party consents and
approvals necessary in connection with the
consummation of the Revolver, the Acquisition and
the other transactions contemplated thereby shall
have been obtained and remain in effect and shall
be satisfactory in all respects to the Agent;
(4) All filings, recordations and other actions
necessary or in the Agent's opinion desirable to
perfect the Agent's liens and security interests
in the collateral securing the Revolver shall have
been made or taken, or arrangements satisfactory
to the Agent for the completion thereof shall have
been made; and the Agent shall have received the
results of lien searches with respect to the
Borrower and its subsidiaries in jurisdictions
selected by it and shall be satisfied with the
results thereof;
(5) Prior to or substantially concurrently with the
initial funding of the Revolver, (i) the
Acquisition shall have been consummated in
accordance with applicable laws, and the terms of
the definitive documentation therefor, without any
material amendment or waiver thereof except as
approved by the Agent, and (ii) any existing
indebtedness of the Borrower or any of its
subsidiaries shall have been satisfied in full and
all liens and guarantees in
________________________________________________________________________________
FIRST UNION CAPITAL MARKETS CORP. PAGE 3
<PAGE> 10
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
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connection therewith shall have been released
(subject to certain agreed upon exceptions
including approved existing seller debt) and the
Agent shall have received satisfactory evidence
thereof;
(6) The Agent shall have received an opening pro forma
balance sheet of the Borrower and its subsidiaries
as of a recent date giving effect to the
consummation of the Acquisition, the Revolver and
the other transactions contemplated thereby,
together with projected financial statements of
the Borrower and its subsidiaries (consisting of
balance sheets and statements of income and cash
flows) prepared on an annual basis through
December 31, 2003, all of which shall be in form
and substance satisfactory to the Agent;
(7) The Agent shall have received evidence
satisfactory to it that the Borrower is in
compliance with all financial covenants on a pro
forma basis as of a recent date after giving
effect to the Acquisition and the initial
borrowing under the Revolver;
(8) There shall not have occurred (i) any material
adverse change in the condition (financial or
otherwise), operations, properties or business of
the Borrower or its subsidiaries, or (ii) any
event, condition or state of facts that could
reasonably be expected to have such a material
adverse change;
(9) Prior to or substantially concurrently with the
initial funding of the Facility, the Borrower
shall have received (a) cash proceeds of
approximately $32,000,000 from the issuance of
equity securities to TA Associates, on terms and
conditions satisfactory to the Agent and (b) cash
proceeds of not less than $15,000,000 from the
issuance of subordinated debt (the "Subordinated
Debt") in favor of Allied Capital on terms and
conditions satisfactory to the Agent, including,
without limitation, subordination terms and
representations, warranties, covenants and
defaults, conforming to and less restrictive than
the Credit Agreement;
(10) There shall not be any material pending or
threatened litigation, proceeding, bankruptcy or
insolvency, injunction, order or claim with
respect to the Borrower or its subsidiaries or the
transactions contemplated by the Revolver or the
Acquisition;
(11) There shall not have occurred any material
disruption or material adverse change in, or other
condition with respect to, the United States
financial and capital markets that could
reasonably be expected to have a material adverse
effect on the syndication of the Revolver;
(12) The representations and warranties of the Borrower
contained in the definitive credit documentation
shall be true and correct as of the date of
initial funding as if made on such date, and no
default or event of default thereunder shall have
occurred and be continuing;
(13) The Borrower shall have paid all fees and expenses
of the Agent and the Lenders required to have been
paid as a condition to the initial funding of the
Revolver; and
(14) The Agent and the Lenders shall have received such
other documents, agreements and opinions
(including but not limited to legal opinions of
counsel to the Borrower and reliance letters with
respect to the legal opinions
- --------------------------------------------------------------------------------
FIRST UNION CAPITAL MARKETS CORP. PAGE 4
<PAGE> 11
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
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of counsel to the Seller delivered pursuant to
the Acquisition) in connection with the
Revolver, all satisfactory in form and
substance, as the Agent or any Lender may
reasonably request.
REPRESENTATIONS AND
WARRANTIES: The definitive credit documentation will contain
representations and warranties consistent with those
customarily found in similar financings and such
additional representations and warranties that the
Agent believes in good faith are appropriate and
consistent with prudent banking practices in the
context of the Revolver (in each case to be
negotiated by the Agent, the Lenders and the
Borrower), including without limitation
representations and warranties regarding corporate
organization and power, absence of violation of
organizational documents, other agreements and
applicable laws, absence of material litigation,
obtaining of government approvals, subsidiaries,
payment of taxes, authorization and enforceability
of the credit document, full disclosure, margin
regulations, ERISA matters, solvency (based on
bankruptcy tests -- this in not a requirement for a
third-party solvency opinion), accuracy of financial
statements, absence of material adverse change,
title to and sufficiency of assets, real estate,
governmental permits and licenses, insurance,
compliance with laws, environmental matters,
validity and perfection of security interests, year
2000 compliance, third-party reimbursement, fraud
and abuse and other healthcare related matters
(including matters such as the management service
agreements, corporate practice of medicine and
Medicare and Medicaid matters) and material
contracts.
COVENANTS: The definitive credit documentation will contain
affirmative, negative and financial covenants
consistent with those customarily found in similar
financings and such additional covenants that the
Agent and the Lenders believe in good faith are
appropriate and consistent with prudent banking
practices in the context of the Revolver, including
without limitation, delivery of quarterly unaudited
consolidated and consolidating financial statements
within 45 days following each quarter-end and annual
audited consolidated and unaudited consolidating
financial statements within 90 days following each
year-end, together with financial covenant
compliance certificates; annual delivery of
operating budget and cash flow projections for the
next fiscal year, prepared on a quarterly basis;
delivery of regulatory reports, management letters,
public filings, reports to stockholders and other
specified business; maintenance of corporate
existence, franchises and properties; compliance
with laws; payment of taxes and other obligations;
maintenance of insurance, books and records; year
2000 compliance; restrictions on consolidation,
merger, sale or disposition of assets (other than
permitted dispositions to the extent reinvested in
replacement assets) and sale-leaseback transactions;
restrictions on liens (subject to agreed upon
permitted liens); restrictions on Indebtedness,
including guarantees (subject to certain customary
exceptions and for incremental debt in amounts to be
determined, including up to $15,000,000 of
subordinated debt due to Allied Capital as
contemplated by the sources and uses delivered by
the Borrower to the Agent, subordinated on terms and
conditions agreed upon by the Agent, the Borrower
and Allied Capital, permitted subordinated seller
notes in connection with Permitted Acquisitions, and
including up to $1,000,000 of other unsecured debt);
restrictions on joint ventures (with a basket for
exceptions to be determined); restrictions on new
subsidiaries; restrictions on investments;
restrictions on dividends, redemptions,
distributions and other restricted payments;
restrictions on transactions with affiliates;
restrictions on changes in lines of business; and
restrictions on amendments to certain agreements,
other negative pledges, burdensome covenants in
other contracts, changes in accounting policies and
changes in fiscal year.
- ------------------------------------------------------------------------------
FIRST UNION CAPITAL MARKETS CORP. PAGE 5
<PAGE> 12
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
- --------------------------------------------------------------------------------
PERMITTED
ACQUISITIONS: (A) Acquisitions will be limited to similar lines of
business.
(B) All acquisitions (whether or not financed under the
Revolver) will require the prior written consent of the
Required Lenders, which consent shall not be
unreasonably withheld; provided, that (i) such prior
consent of the Required Lenders will not be required in
the case of individual acquisitions which involve an
aggregate amount of Consideration (defined to include
cash, indebtedness assumed or incurred, seller notes,
earnout amounts and equity paid during the life of the
Revolver) of $3,000,000 or less; and further provided,
that (ii) clause (i) above is subject to the
requirement that all acquisitions during any fiscal
year of the Borrower will require the Required Lenders'
prior written consent when the aggregate Consideration
paid by Borrower for acquisitions during that fiscal
year, after giving effect to the acquisition at hand,
exceeds $20,000,000.
(C) No acquisition shall be consummated if any Event of
Default exists before or after giving effect thereto.
(D) The Agent reserves the right to conduct an on-site
visit of each acquisition, before or after such
acquisition is consummated.
(E) In the case of acquisitions for which the Required
Lenders' prior consent is required, Borrower shall
deliver to Agent and each Lender satisfactory
information on each acquisition, which shall include
(i) a description of the terms of the acquisition
(including purchase price and method and structure of
payment), (ii) a description of the entity or entities
to be acquired, (iii) tax returns and/or historical
financial statements of the entity or entities to be
acquired for the most recent two fiscal years, to the
extent available, and for any interim period since the
most recent fiscal year-end, (iv) projected statements
of income for the acquired entity or entities for a
two-year period (including a summary of assumptions or
pro forma adjustments) and (v) a certificate of
confirmation (a) of Borrower's compliance with the
financial covenants at the most recent calculation
period and demonstrating pro forma covenant
compliance, in each case after giving effect to the
pro forma consolidation of such acquisition with the
Borrower and its Subsidiaries, supported by detailed
calculations, and (b) that no Event of Default exists
before or after giving effect to such acquisition and
giving effect to the annual delivery of operating
budgeted cash flow projections prepared on a quarterly
basis for the next fiscal year.
(F) In the case of acquisitions for which Required
Lenders' prior consent is not required, Borrower shall
deliver to Agent, prior to the closing of any such
acquisition, the items of information listed above
under clause E(i), E(ii), and E(v).
(G) At or prior to the closing of any acquisition, the
Borrower shall deliver such guarantees, certificates,
opinions and collateral documentation as may be
requested by the Agent to perfect security interests
in all assets acquired, subject to Permitted Liens.
FINANCIAL
COVENANTS: Financial covenants, with definitions of financial terms,
levels and other terms to be agreed upon by the Borrower
and the Agent, determined on a consolidated basis for the
Borrower and its subsidiaries, and to include, at a minimum,
the following:
- --------------------------------------------------------------------------------
FIRST UNION CAPITAL MARKETS CORP. PAGE 6
<PAGE> 13
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
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(a) Maximum Senior Leverage Ratio (Senior Debt to Adjusted
EBITDA): 3.0 to 1.0 from closing through 9/30/00; and
2.75 to 1.0 thereafter.
(b) Maximum Total Leverage Ratio (Total Debt to Adjusted
EBITDA): 4.25 to 1.0 from the closing through 9/30/00;
and 4.00 to 1.0 thereafter through 12/31/01; and 3.75
to 1.0 thereafter.
(c) Minimum Interest Coverage Ratio: 2.5 to 1.0.
"Adjusted EBITDA" shall mean consolidated EBITDA for
the borrower and its Subsidiaries for the preceding
fiscal quarter, multiplied by four (4), plus
predetermined EBITDA in connection with acquisitions
occurring in such quarter in amounts to be determined.
EVENTS OF DEFAULT: The definitive credit documentation will contain events of
default consistent with those customarily found in similar
financings and such additional events of default that the
agent believes in good faith are appropriate and consistent
with prudent banking practices in the context of the
Revolver (in each case to be negotiated by the Agent, the
Lenders and the Borrower), including without limitation,
failure to pay any principal, interest or fees when due;
breach of covenants (with customary grace periods for
certain affirmative covenants); material incorrectness when
made of any representation or warranty; payment or other
default under other material indebtedness; bankruptcy or
insolvency; judgment or ERISA liens; actual or asserted
invalidity of guaranty or security documents; and change of
control (subject to margin regulations) of the Borrower (TA
Associates or Ramie A. Tritt, M.D. shall cease to own at
least 50% of their equity interest in the Borrower as of
the closing date, or any person or group of persons acting
in concert (other than the existing shareholders at
closing) obtains 25% or more of the voting equity of the
Borrower).
ASSIGNMENTS AND
PARTICIPATIONS: Customary participation rights will be provided, subject to
voting restrictions on significant matters. Assignments by
Lenders to banks and other financial institutions meeting
certain size thresholds will be permitted with the approval
(not to be unreasonably withheld) of the Agent and the
Borrower, subject to minimum amounts to be agreed upon and
payment of a $3,000 assignment fee to the Agent.
REQUIRED LENDERS: 66-2/3%.
EXPENSES AND
INDEMNIFICATION: As set forth in the Commitment Letter, TA Associates or the
Borrower, as appropriate, will pay (a) all reasonable
out-of-pocket costs and expenses of the Agent and the
Arranger (including the reasonable fees and disbursements
of counsel) in connection with the preparation, execution,
delivery and administration of the definitive documentation
for the Revolver and any amendment or waiver with respect
thereto and the syndication of the Revolver, and (b) all
reasonable out-of-pocket costs and expenses of the Agent
and the Lenders (including the reasonable fees and
disbursements of counsel) in connection with the
enforcement of the Revolver.
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FIRST UNION CAPITAL MARKETS CORP. PAGE 7
<PAGE> 14
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
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The Borrower will indemnify the Arranger, the Agent and
the Lenders and hold them harmless against all claims,
losses, liabilities and expenses (including reasonable
fees and disbursements of counsel) arising from or
relating to the proposed financing contemplated hereby and
the other transactions connected therewith, except to the
extent of such indemnified party's gross negligence or
willful misconduct.
GOVERNING LAW: North Carolina.
AGENT'S COUNSEL: Robinson, Bradshaw & Hinson, P.A.
MISCELLANEOUS: Customary provisions regarding amendments and waivers,
consent to forum and service of process and other
miscellaneous matters. All parties will agree to mandatory
arbitration of disputes.
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FIRST UNION CAPITAL MARKETS CORP. PAGE 8
<PAGE> 15
PHYSICIANS' SPECIALTY CORP. CONFIDENTIAL
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EXHIBIT A
PRICING GRID
The applicable LIBOR Margin, Base Rate Margin and commitment fee
percentage will be determined according to the following grid by reference to
the Leverage Ratio, with each change in the applicable LIBOR Margin, Base Rate
Margin and commitment fee percentage to be effective 10 days after delivery to
the Agent of quarterly or annual financial statements and a compliance
certificate showing the Leverage Ratio as of the last day of the fiscal quarter
most recently ended.
<TABLE>
<CAPTION>
Applicable Applicable Base Applicable
Tier Leverage Ratio LIBOR Margin Rate Margin Commitment Fee
- ---- -------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
I Greater than or equal to 4.00 to 1.0 3.500% 2.250% 0.500%
II Less than 4.00 to 1.0 but greater 3.250% 2.000% 0.500%
than or equal to 3.50 to 1.0
III Less than 3.50 to 1.0 but greater 3.000% 1.750% 0.500%
than or equal to 3.00 to 1.0
IV Less than 3.00 to 1.0 but greater 2.750% 1.500% 0.500%
than or equal to 2.50 to 1.0
V Less than 2.50 to 1.0 but greater 2.500% 1.250% 0.500%
than or equal to 2.00 to 1.0
VI Less than 2.00 to 1.0 2.250% 1.000% 0.500%
</TABLE>
Notwithstanding the foregoing, the initial applicable LIBOR Margin, Base
Rate Margin and commitment fee percentage (from the date of closing until 10
days after the first delivery of financial statements and a compliance
certificate) will be set at a Tier to be determined.
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FIRST UNION CAPITAL MARKETS CORP. PAGE 9
<PAGE> 1
EXHIBIT (a)(2)
June 9, 1999
David Lang
T.A. Associates
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Dr. Ramie Tritt, Chairman
Gerald Benjamin, Vice Chairman
Richard Ballard, CEO
Physician Specialty Corp.
1150 Lake Hearn Drive
Atlanta, GA 30342
Attn: Special Committee
Dear Gentlemen:
Allied Capital Corporation ("Allied") agrees to invest $16,000,000 in
exchange for $15,000,000 of subordinated debentures (the "Debentures") and
warrants to purchase common stock (the "Warrants") of Physician Specialty Corp.
(the "Company"), approximately $850,000 in redeemable preferred stock and
$150,000 in convertible preferred stock of the Company. Allied's redeemable and
preferred stock investment will be on the same terms as TA Associates
investment. The Company agrees to issue the Debentures and Warrants to Allied,
on the terms and subject to the conditions set forth below.
THE DEBENTURES
Securities: Subordinated Debentures in the aggregate
principal amount of $15,000,000.
Use of Proceeds: The proceeds of the Debentures will be used
to purchase the Company's outstanding shares
of common stock pursuant to a merger between
the Company and an affiliate of TA
Associates ("TA") to be made in compliance
with all applicable legal requirements. It
is Allied's understanding that the merger
will be financed by additional senior bank
debt of at least $35,000,000 of a
$60,000,000 facility and that funds managed
by TA Associates will contribute at least
$26,950,000 in redeemable preferred stock
and $4,850,000 in convertible preferred
stock with all shares of common stock owned
by Management to be excluded from the merger
offer. It is also Allied's understanding
that approximately 80% of the physicians
<PAGE> 2
shares will be purchased for cash with the
remainder to be rolled into shares of common
stock of the Company at the merger price.
Note: wherever amounts listed above may
change, the principle is that the credit
parameters will remain unchanged or improve.
Maturity: Seven years from closing (the "Maturity
Date") or up to 6 months more depending upon
the maturity of the senior bank facility.
The Debentures are not assumable and may be
called upon a change of control as described
below.
Issuers: The Company and all of its subsidiaries, as
co-borrowers.
Guarantors: None.
Interest Rate: Interest will accrue at the rate of 15.5%
per annum until the Maturity Date, 12% of
which will be paid in cash (the "Current Pay
Rate") and 3.5% in additional principal
amount of Debentures (the "PIK Amount").
Repayment: Quarterly payments of interest only for 7
years with a balloon payment at the Maturity
Date. Interest shall be paid currently on a
quarterly basis at the Current Pay Rate. At
the beginning of each quarter, the then
outstanding principal balance of the
Debentures shall be increased by the PIK
Amount defined as the difference between:
(i) interest accruing on the principal
balance; and (ii) interest payable at the
Pay Rate on the principal balance. At the
end of each quarter, interest accrued and
interest payable shall be calculated on the
then outstanding principal balance of the
Debenture, as increased by all PIK Amounts
and decreased by all principal repayments
and prepayments, with the end result that
interest shall be compounded quarterly.
Penalty Interest. If an event of default occurs, in addition
to any other legal remedy, the interest rate
on the Debentures will increase to 17% per
annum so long as the event of default
continues, and this additional interest will
be payable currently, in cash.
Senior Debt: The Debentures shall be subordinate to a
senior bank facility and any senior debt
refinancing thereof, in an outstanding
principal amount not to exceed the maximum
senior indebtedness of the Company that does
not result in a violation of the financial
covenants described below. If the senior
debt amortization materially changes, Allied
will receive a fixed charge coverage
covenant to maintain the credit and be
mutually agreeable between Allied and TA
<PAGE> 3
Associates.
Subordinated Seller Notes: All existing and future seller notes issued
in an acquisition will be fully subordinated
to Allied's senior secured subordinated
debt.
Prepayments If the Company prepays the Debentures during
the first two years, the Company shall pay a
repayment charge equal to 4% of the
principal amount prepaid if the prepayment
occurs in year 1, and 2% in year 2. Upon
completion of an initial public offering,
the relevant prepayment penalty will be
reduced by half.
Call Provision: In the event of (i) a change of control
affecting 50% of the outstanding stock, (ii)
transfer of the stock by either T.A.
Associates and/or Ramie Tritt of 33% of
its/his equity holdings at closing (iii)
TA's loss of control of the board in the
event of default, (iv) transfer of the
Company's business, or (v) upon the
completion of the Company's initial public
offering, Allied may, by written demand,
require the Company to prepay the
outstanding principal amount together with
any accrued interest and prepayment penalty
under the Debentures. However, in the event
of an initial public offering, the Company
may prepay the outstanding principal amount
together with any accrued interest and
prepayment penalty under the Debentures pro
rata with the pay-down of the senior debt
provided the company overall is materially
de-levered as a result of the IPO.
Confidentiality: In the event Allied participates its
investment, potential investors will be
subject to a confidentiality agreement.
THE WARRANTS
Securities: Allied shall receive, at closing, separate
and detachable warrants to purchase the
Company's common stock. The cost and
exercise price of these warrants will be
$100. The warrants, when exercised, will
provide stock ownership in the Company of
1.88% as of the date of Closing, on a fully
diluted basis (with the exception of a 5%
management incentive plan), subject to
anti-dilution adjustments as set forth
below.
Exercise Period: Commencing as of the date of closing and
expiring on the greater of 10 years or 3
years from the date of final payment on the
Debentures.
Warrant Purchase Price: $___per share, or $100 in the aggregate.
Economic Anti-Dilution: The number of shares issuable under the
Warrants shall be adjusted
<PAGE> 4
using a standard weighted average
anti-dilution formula for issuance of Common
Stock or securities convertible into or
exercisable for Common Stock that are issued
at a purchase price below the equity value
of the transaction ($10.50 a share) for the
Warrant shares at the merger offer.
Excluded from the anti-dilution provisions
are (i.) __ shares of Common stock to be
reserved as of Closing by the Board of
Directors for issuance to executive
employees at a price not less than fair
market value under a stock option plan
approved by the stockholders, and (ii.)
shares of common stock issuable under the
warrants, options, or convertible securities
of the Company outstanding on the Closing
Date.
Participation in
Dividends, etc.: If the Company declares any dividend or
makes any distribution (other than in shares
of Common Stock or its equivalent), or
repurchases or redeems any of its
securities, the Company will pay Allied the
declared dividend, or offer to include
Allied in such distribution, repurchase or
redemption, if Allied exercises its Warrants
immediately prior to the event. The Company
will provide Allied with at least 15
business days notification of its intent to
make such dividend or distribution.
Registration Rights:
(1) Allied shall be entitled to unlimited "piggy
back" registration rights on registrations
of the Company (together with other holders
of such rights), subject to the rights of
underwriters to cut back, pro rata with
others exercising piggy back rights, the
number of shares proposed to be registered
by the holders in view of market conditions.
(2) The registration expenses (other than
underwriting discounts and commissions) and
reasonable separate counsel fees for one
counsel in connection with each registration
shall be paid by the Company.
(3) The registration rights shall terminate on
the earlier of five years following the
closing of the Company's initial public
offering or as soon as all Registrable
Securities may be sold without any volume or
other restrictions under Rule 144.
Put Rights: On the seventh anniversary of the closing,
Allied may require the Company to
<PAGE> 5
purchase its warrants or the resulting stock
at a valuation equal to fair market value
determined by a mutually acceptable 3rd
party independent appraisal process. Put
rights terminate on IPO.
Mandatory Exercise: Allied must exercise its warrant option upon
completion of an initial public offering by
the Company.
Personal Gain on Sale: Should the business be sold for any reason,
any personal gain to the principal owners
such as employment or consulting contracts
significantly in excess of fair market
compensation at the time of such sale shall
be used in calculating the total
consideration being paid for the business,
and Allied shall share in the total
calculation based on its percentage
ownership.
Right of Co-Sale: Each of the principal shareholders (e.g., TA
Associates, Ramie Tritt) of the Company will
give 30 days notice to Allied in the event
that he or she proposes to sell shares of
the Company's Common Stock in other than a
registered offering. Allied warrant shares
will have the right to participate on a pro
rata basis at the same prices and terms of
any such sale. This right will not apply to
the sale by T.A. Associates or Ramie Tritt
of up to 20% of its/his initial holdings.
Transfer Rights: The Warrants and related rights are freely
transferable subject to applicable
securities laws.
TA Associates as Agent: The preferred and convertible stock
purchased by Allied will participate pro
rata in all transactions affecting that
class of stock.
AFFIRMATIVE COVENANTS
Substantially the same as those affirmative
covenants covered in the senior loan terms
sheet subject to additional covenants to
which Allied and the Company agree.
Information Rights: Allied shall be entitled to receive from the
Company (i) audited fiscal year end
financial statements, prepared by a national
accounting firm, (ii) quarterly financial
statements (including year-to-date results,
comparisons to the previous year's results
for such period and comparisons to budget),
together with a brief management executive
summary report and covenant calculations,
and (iii) before each fiscal year end, a
copy of the Company's quarterly budget and
cash flow projections for the next fiscal
year.
<PAGE> 6
Material Filings/
Regulatory Reports: Within 30 days after filing, the Company
will provide Allied with a copy of all
material documents filed with government
agencies such as the IRS, EPA, OSHA and SEC.
Material Litigation: Within 30 days after filing, the Company
will provide Allied with pleadings of any
material lawsuits filed by or against the
Company.
Default Notice: Within 10 days of receipt, the Company will
provide Allied with a copy of any
notification received of any defaults on any
material loans or leases to which the
Company is a party.
Financial Covenants: The Company shall maintain the following
financial covenants (this section may be
updated pending review of actual senior
covenants):
Financial covenants, with definitions of
financial terms, levels and other terms to
be agreed upon by the Company and Allied,
determined on a consolidated basis for the
Company and its subsidiaries, and to
include, at a minimum, the following:
(a) Maximum Senior Leverage Ratio
(Senior Debt to Adjusted EBITDA):
3.5 to 1.0 with step downs to be
determined;
(b) Maximum Total Leverage Ratio (Total
Debt to Adjusted EBITDA): 4.80 to
1.0 with step downs to be
determined; and
(c) Minimum Interest Coverage Ratio:
2.10 to 1.0.
"Adjusted EBITDA" shall mean
consolidated EBITDA for the Company
and its subsidiaries for the preceding
fiscal quarter, multiplied by four (4),
plus predetermined EBITDA in
connection with acquisitions occurring
in such quarter in amounts to be
determined.
Insurance: The Company will maintain adequate hazard
and business interruption insurance listing
Allied as the lienholder/mortgagee to the
extent of its interest.
Use of Proceeds: The Company shall authorize Allied to
conduct a review, and shall certify in
writing to Allied, that proceeds of the
Debentures were used for permitted purposes.
<PAGE> 7
Information Requests: The Company shall furnish all information
Allied may reasonably request to enable
Allied to file any form required by any
governmental authority.
Access to Information: The Company shall permit Allied or its
representatives to obtain background
information on the Company and its
management, and to inspect and copy the
Company's records during business hours. The
Company shall permit Allied to interview the
Company's accountants.
Maintain Existence: The Company shall take all appropriate
actions to preserve and keep in full force
and effect the existence of the Company as a
corporation, and the right of the Company to
conduct its business in all jurisdictions in
which it currently conducts business.
Stock Reserves: The Company shall maintain shares of Common
Stock as authorized but unissued, as may be
necessary to permit Allied to acquire all of
the warrant shares at any time during the
exercise period.
Replacement of Warrants: The Company shall perform all acts required
under the Warrants, including the
re-issuance or replacement of Warrants to
Allied upon transfer, exchange, loss or
destruction thereof.
Board of Directors: The Company shall have board of director
meetings at least quarterly. Allied shall
have the right to designate one non-voting
observer to attend each meeting at Company
expense. Allied shall be notified along with
other Directors.
Life Insurance: The Company shall maintain life insurance in
the amount of $2,000,000 on the lives of
Ramie Tritt and Gerald Benjamin. The policy
shall be collaterally assigned to Allied and
the senior lender shall have no interest
therein.
Duration of Affirmative
Covenants: As long as Allied is owed any money or holds
an equity interest in the Company, except
that (i) when Allied has been fully repaid,
all of the affirmative covenants will
terminate with the exception of; information
requests, maintain existence, stock
reserves, and replacement of warrants and
(ii) when Allied has been repaid and the
Company's Common Stock is listed for trading
on a national securities exchange, all of
the affirmative covenants will terminate.
Future Financing: If the Company intends to issue any
subordinated debt or issue any equity
interest or any options, warrants or other
rights to acquire any equity interest,
(other than (a) shares of Common Stock
reserved
<PAGE> 8
for issuance under the Company's stock
option plans approved by shareholders, (b)
the shares of Common Stock issuable upon
conversion of the Warrants, (c) securities
offered pursuant to a registration statement
under the Securities Act of 1933, and (d)
securities issued in connection with
strategic acquisitions), Allied shall have
(i.) absent an IPO a pro rata preemptive
right to purchase its share of any equity
issuance, and (ii.) a 14 days right of first
negotiation with respect to subordinated
debt financing. The Company will not close
subordinated debt financing with terms more
restrictive and/or higher price than that
offered by Allied. This right will terminate
upon payment in full of the Debentures.
NEGATIVE COVENANTS
Substantially the same as the negative
covenants covered in the senior loan term
sheet subject to additional covenants as
agreed upon by Allied and the Company.
Inside Transactions: Other than agreements entered into on or
prior to the date hereof and specifically
reviewed and approved by Allied and listed
in an appendix to the legal documents, the
Company shall not enter into any transaction
with any officer, director, management
employee or affiliate of the Company, except
for arrangements similar to those that would
be negotiated with an unaffiliated third
party. The Company's existing investment
banking fee agreement with Premier
Healthcare will be the sole exception.
Mergers; Consolidations: The Company shall not merge, consolidate or
combine with one or more other persons,
except in connection with a combination
where the Company is the surviving or
successor entity.
Dissipation of Assets: The Company shall not transfer an equitable,
beneficial or legal interest in assets
having a value in excess of 20% of the value
of its total assets (other than the sale of
inventory and replacement of equipment in
the ordinary course of business).
Change of Business or Entity: The Company shall not change (i) the
location of its headquarters in which they
are presently located, (ii) the nature of
its business operations, or (iii) its form
of entity.
No Encumbrances: The Company shall not permit to exist
against any of its material assets any
encumbrances, except for encumbrances in
favor of the senior lender and standard
permitted encumbrances.
<PAGE> 9
Distributions: The Company will not pay dividends or other
distributions and will not repurchase or
redeem any equity interest in the Company.
Repurchase of stock from employees of the
Company not to exceed $1 million annually
will be allowed provided no default and
payment wouldn't render a default.
Subsidiaries; Investments: The Company will not establish any
subsidiaries or invest in any affiliates
unless the subsidiary or affiliate becomes a
co-borrower. The Company may only invest
excess funds in standard permitted
investments and acquisitions meeting the
criteria described below.
Additional Indebtedness: The Company will not incur any indebtedness
other than (i.) permitted senior debt, (ii.)
the Debentures, (iii.) additional debt that
is expressly subordinated to the Debentures
and does not violate the financial covenants
(iv.) and for other specific indebtedness
relating to capitalized leases, purchase
money obligations, and the like, consistent
with senior bank documents.
Acquisitions: The Company may not consummate any
acquisition unless (i) it provides pro forma
financial statements demonstrating that,
giving effect to the proposed acquisition
and the incurrence of all indebtedness
related thereto, the Borrower would have
been in compliance with its financial
covenants, (ii) the consummation of the
acquisition would not cause the Company to
otherwise be in default hereunder, (iii) on
a cumulative basis no more than 75% of the
aggregate purchase price for all
acquisitions completed during any 12 month
period can be made in cash.
Duration of Negative
Covenants: As long as Allied is owed any money in the
Company, except that when the Debentures
have been repaid in full, all of the
covenants will terminate.
EVENTS OF DEFAULT
Monetary Defaults: Any installment payment of principal,
interest or other charge under the
Debentures is not received within 10
business days of the due date.
Covenant Defaults: The Company fails to comply with the
financial covenants. The Company fails to
comply with any other covenants or
agreements, and such failure continues for a
period of 30 calendar days from the date of
delivery of written notice.
Misrepresentation: Any representation or warranty is materially
untrue when made.
<PAGE> 10
Act of Bankruptcy or
Dissolution: The bankruptcy, insolvency, receivership or
dissolution of the Company or any of its
material subsidiaries.
Allied Cross-Defaults: The Company is in default under any of the
other documents relating to the Allied
investment.
Other Cross-Defaults: A default is declared or otherwise occurs
(after giving effect to grace and cure
periods) under the documents relating to the
senior debt or any other indebtedness of the
Company in excess of $1,000,000. A default
is declared (after giving effect to grace
and cure periods) under any other material
agreement of the Company and the failure to
cure such default could reasonably be
expected to have a material adverse effect
on the Company. (Note: to be defined with TA
but not to include prospective).
Judgments: Any judgment obtained against the Company
remains unpaid for over 30 days without a
stay of execution or surety bond.
Change of Ownership: The sale by Dr. Ramie Tritt or Gerald
Benjamin of more than 33% of the Common
Stock that he controls in the Company.
Full Time and Attention: Dr. Ramie Tritt, ceases to devote full time
and attention to the management of the
Company and/or the affiliated practice,
Atlanta Ear Nose & Throat Associates (AENT)
or a suitable replacement, reasonably
satisfactory to Allied, is not found within
180 days.
REPRESENTATIONS AND WARRANTIES
At closing the Company will make customary
representations and warranties as are
typical for this type of transaction
(including but not limited to the senior
loan documents), including the following:
(1) All financial statements provided to Allied
were prepared in accordance with GAAP, are
true and correct in all material respects,
and fairly present the Company's operating
income and financial condition at the dates
presented and for the periods then ended.
(2) All projections provided to Allied are based
upon assumptions, which the Company believes
to be reasonable under the circumstances.
(3) No statement or writing furnished to Allied
(including the Company's Business Plan/PPM)
contains any untrue statement of material
fact or omits
<PAGE> 11
to state a material fact necessary to make
the statement not misleading excluding
projections.
CONDITIONS TO CLOSING
Senior Lender Conditions
to Closing: Company will have satisfied the Senior
Lender's conditions precedent to borrowing
outlined in the Senior Lender's term sheet
dated June 7, 1999.
Legal Documentation: The terms of this letter and the summary of
subordination terms will be set forth in
customary legal documents acceptable to
Allied and the Company. Counsel to the
Company will supply a legal opinion typical
for transactions of this type. Both parties
agree to negotiate in good faith.
Material Adverse Change: There shall occur no material adverse change
prior to closing in the business,
operations, or condition, financial or
otherwise, of the Company and/or its
subsidiaries taken as a whole.
Merger: The completion of the merger offer for the
Company's shares on the terms described
above under "Use of Proceeds" and compliance
with all material legal requirements to
Allied's satisfaction.
Closing Date: It is expected that the Closing will occur
by September 30, 1999. This commitment
letter and all obligations hereunder will
terminate if the transaction has not closed
by November 30, 1999
FEES AND EXPENSES
Closing Fee: Allied will receive an earned and payable
closing fee of 1% or $150,000 at the
Closing.
Due Diligence/Legal Fee: Upon closing the Company will pay the fees
and expenses for all work done documenting
this transaction for Allied by Allied's
attorneys. The Company will also reimburse
Allied for any out-of-pocket expenses and
fees to perform due diligence on the
transaction. The Company will retain
separate legal counsel. TA will be obligated
to pay the forgoing costs and expenses in
the event the transaction does not close for
any reason other than a breach by Allied of
this commitment.
<PAGE> 12
Closing Costs: The Company will pay all closing costs
relating to this transaction, including
out-of-pocket conveyance and recordation
fees.
Displacement fee: In the event that Allied was prepared to
provide subordinated debt financing in
accordance with the terms of this commitment
letter, and the Company or any of its
affiliates (collectively the "related
parties") consummates the merger or any
substantially similar transaction (any such
transaction an "alternate transaction")
without Allied acting as subordinated debt
lender or without Allied providing any
substantially similar subordinated debt
notes or facilities utilized to complete the
merger or any such alternate transaction, TA
Associates will pay Allied $150,000.
Topping Fee: In the event the merger is not consummated,
and TA receives a "break-up" fee, "topping"
fee, or similar termination fee, TA will pay
an amount equal to 10% of TA Associates
topping fee net of First Union's and
Allied's expenses.
ALLIED CAPITAL CORPORATION
By: /s/ Benjamin Nye
----------------------------------
J. Benjamin Nye, Principal
Physician Specialty Corp.
By: /s/ Gerald R. Benjamin
------------------------------------
<PAGE> 13
T.A. Associates
By: /s/ David Lang
-------------------------------------
<PAGE> 1
EXHIBIT (b)(2)
_______________________________________________________________________________
PROJECT SOUNDER
Presentation to the Special Committee of the Board of Directors
June 12, 1999
THE ROBINSON-HUMPHREY COMPANY, LLC
Atlanta Financial Center
3333 Peachtree Road, NE, 10th Floor
Atlanta, Georgia 30326
(404) 266-6000
_______________________________________________________________________________
<PAGE> 2
_______________________________________________________________________________
TABLE OF CONTENTS
_______________________________________________________________________________
I. OVERVIEW OF CURRENT SITUATION
A. Overview of PPM Industry
B. Overview of Sounder
C. Transaction Process and Chronology
II. SUMMARY OF PROPOSED TRANSACTION
III. VALUATION ANALYSIS FOR SOUNDER
A. Historical and Projected Financial Statements
B. Summary Valuation Criteria
C. Trading Multiples for Publicly Traded PPM's
D. Precedent Purchase Multiples for PPM's
E. Premiums Paid in M&A Transactions Involving Public Targets
(1997-1999)
F. Premiums Paid in Healthcare M&A Transactions Involving
Public Targets (1997-1999)
G. Premiums Paid in Leverage Buyouts of Public Companies
(1996-1999)
APPENDIX
A. Opinion Letter
B. Management's Summary Financial Projections for 1999
C. ENTS LBO Model
________________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 3
_______________________________________________________________________________
OVERVIEW OF CURRENT SITUATION
_______________________________________________________________________________
The Physician Practice Management Industry
__________________________________________
* Physician Practice Management Companies have faced a number of
difficulties over the past eighteen months:
- Lack of successful integration by many PPMs has resulted in
disappointing financial results
- Physicians have become frustrated with PPM structure and its
operational performance
- Physicians are disappointed with equity received in sale of practices
- Unaffiliated physicians have become educated as to PPM model and are
less eager to affiliate
- Negative Wall Street sentiment toward PPMs
* Consequently, Physician Practice Management Companies today are analyzing a
multitude of operating and strategic issues:
- Revenue Model Structure: legal and financial
- Multi-Specialty versus Single Specialty Model versus hybrid or other
- Growth Mix: acquisitions, de novo, same store
- Disposition of certain assets / practices
- "To Be" or "Not To Be"
________________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 4
Project Sounder
Indexed Price Comparison
Weekly from June 13, 1997 - June 4, 1999
CURRENCY: LOCAL
<TABLE>
<CAPTION>
NASDAQ RUSSELL PPM
DATE ENTS COMP 2000 COMP
---- ---- ------ ------- ------
<S> <C> <C> <C> <C>
06/13/97 100.00 100.00 100.00 100.00
06/20/97 93.64 101.69 100.39 99.69
06/27/97 85.45 101.06 100.11 97.14
07/03/97 88.18 103.13 101.05 102.89
07/11/97 87.27 105.59 102.60 98.45
07/18/97 100.00 108.78 103.52 101.50
07/25/97 110.91 110.30 104.20 101.39
08/01/97 117.27 112.04 105.65 101.71
08/08/97 120.00 112.33 105.64 98.00
08/15/97 126.36 109.77 104.21 93.57
08/22/97 120.00 112.34 106.03 90.49
08/29/97 121.82 111.55 108.00 93.54
09/05/97 124.55 114.95 110.45 97.70
09/12/97 141.82 115.90 112.25 101.24
09/19/97 140.00 118.08 114.05 100.19
09/26/97 150.91 118.22 114.49 99.75
10/03/97 147.27 120.58 117.20 101.06
10/10/97 180.00 122.21 118.61 102.23
10/17/97 178.18 117.13 114.59 106.13
10/24/97 185.45 116.01 114.15 107.92
10/31/97 181.82 111.99 110.51 96.68
11/07/97 165.45 112.60 111.01 98.96
11/14/97 138.18 111.28 109.27 97.63
11/21/97 161.82 113.89 110.96 98.22
11/28/97 150.91 112.47 109.65 95.98
12/05/97 150.91 114.82 111.73 96.53
12/12/97 138.18 107.98 107.79 92.28
12/19/97 130.91 107.15 107.13 96.36
12/26/97 145.45 106.21 107.50 89.89
01/02/98 141.82 111.14 111.34 92.56
01/09/98 132.73 105.64 105.33 61.13
01/16/98 125.45 109.83 108.72 60.59
01/23/98 138.18 110.74 108.35 63.19
01/30/98 138.18 113.80 109.69 62.53
02/06/98 123.64 119.07 113.63 65.88
02/13/98 138.18 120.20 115.87 70.33
02/20/98 130.91 121.44 115.79 71.33
02/27/98 149.09 124.42 117.79 73.76
03/06/98 163.64 123.22 118.27 71.49
03/13/98 167.27 124.50 119.56 72.33
03/20/98 156.36 125.73 120.96 71.67
03/27/98 150.91 128.15 121.70 73.43
04/03/98 161.82 130.38 123.90 71.51
04/09/98 152.73 127.91 122.44 70.38
04/17/98 149.09 131.17 124.22 70.11
04/24/98 145.45 131.34 122.51 69.64
05/01/98 163.64 131.65 123.69 67.41
05/08/98 147.27 131.01 122.30 66.20
05/15/98 147.27 129.78 120.50 62.92
05/22/98 125.45 126.84 118.09 57.91
05/29/98 134.55 125.01 116.46 56.75
06/05/98 132.73 125.29 115.86 55.86
06/12/98 138.18 122.63 112.63 52.55
06/19/98 123.64 125.18 111.83 50.55
06/26/98 123.64 131.38 114.84 54.03
07/02/98 118.18 133.10 116.89 52.42
07/10/98 123.64 136.54 116.93 53.41
07/17/98 110.91 141.16 117.93 50.62
07/24/98 101.82 135.70 111.86 37.99
07/31/98 88.18 131.58 107.06 39.19
08/07/98 90.91 129.78 106.05 35.69
08/14/98 83.64 125.80 102.73 37.53
08/21/98 85.45 126.32 100.91 35.82
08/28/98 81.82 115.22 91.45 31.18
09/04/98 81.82 110.08 88.52 29.55
09/11/98 87.27 115.36 90.19 27.89
09/18/98 103.64 116.92 92.65 33.49
09/25/98 105.45 122.53 94.12 33.66
10/02/98 102.73 113.49 89.20 31.92
10/09/98 89.09 104.88 81.21 27.44
10/16/98 85.45 113.91 87.45 30.38
10/23/98 109.09 119.03 93.62 33.42
10/30/98 103.64 124.48 96.45 37.05
11/06/98 118.18 130.47 102.10 38.13
11/13/98 116.36 129.86 99.31 36.40
11/20/98 112.73 135.50 100.57 36.37
11/27/98 107.27 141.70 102.56 34.90
12/04/98 94.55 140.77 101.61 34.51
12/11/98 107.27 142.60 100.84 37.77
12/18/98 110.91 146.60 101.36 39.21
12/24/98 112.73 152.00 103.44 40.31
12/31/98 121.82 154.09 107.62 42.38
01/08/99 110.91 164.75 109.99 44.42
01/15/99 120.91 165.01 108.92 44.16
01/22/99 116.36 164.36 107.75 43.31
01/29/99 120.00 176.10 108.97 42.34
02/05/99 117.27 166.80 105.27 43.82
02/12/99 112.73 163.17 101.62 38.32
02/19/99 100.00 160.47 100.06 34.70
02/26/99 98.18 160.79 100.05 34.01
03/05/99 100.00 164.23 101.52 30.04
03/12/99 107.27 167.36 101.61 29.19
03/19/99 103.64 170.15 101.15 25.22
03/26/99 92.73 170.00 100.47 29.00
04/01/99 96.36 175.22 101.70 29.26
04/09/99 90.91 182.22 103.52 25.41
04/16/99 90.91 174.56 107.53 27.63
04/23/99 107.27 182.05 110.12 28.49
04/30/99 109.09 178.69 110.39 29.66
05/07/99 116.36 175.94 111.23 30.88
05/14/99 125.45 177.64 113.02 31.91
05/21/99 127.27 177.10 114.56 32.40
05/28/99 122.73 173.61 111.89 33.79
06/04/99 129.09 174.16 112.82 35.38
</TABLE>
<PAGE> 5
_______________________________________________________________________________
OVERVIEW OF CURRENT SITUATION
_______________________________________________________________________________
OVERVIEW OF SOUNDER
___________________
- - Physicians' Specialty Corp. (The "Company") is a physician practice
management company dedicated to consolidating and managing the practices
of ear, nose and throat (ENT) physicians.
- - The Company is currently the nations leading provider of ENT physician
management and risk contracting with over 92 physicians in 67 clinics in
GA, AL, FL, NY, NJ and OH.
- - The Company completed its initial public offering in March 1997 and
completed a follow-on offering in May 1998.
- - Since becoming a public company, the Company has
- Averaged compound revenue growth in excess of 18% per quarter.
- Met or beat consensus analyst estimates in each quarter.
- Completed 11 acquisitions.
- - In February 1999, the Company received full accreditation by the American
Accreditation Healthcare/URAC.
- - Despite exceeding analyst expectations, the Company's stock price has
declined from a price of $12.00 in March 1998 to a low of $5.375 in late
July 1998. The stock has recently been trading in the $8.50 range.
- - The decline in the Company's stock price can be attributed to several
factors:
- Overall negative investor sentiment toward physician practice
management companies; and
- A very difficult market for small cap stocks.
________________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 6
Project Sounder
Price and Volume
Weekly from March 20, 1998 - June 4, 1999
COMPANY TICKER: ENTS
CURRENCY: LOCAL
<TABLE>
<CAPTION>
Date Volume Price Close
---- ------ -----------
<S> <C> <C>
03/20/98 92.50 10.75
03/27/98 103.40 10.38
04/03/98 209.30 11.13
04/09/98 58.20 10.50
04/17/98 30.70 10.25
04/24/98 223.10 10.00
05/01/98 47.00 11.25
05/08/98 75.80 10.13
05/15/98 1,803.80 10.13
05/22/98 507.70 8.63
05/29/98 142.30 9.25
06/05/98 91.80 9.13
06/12/98 180.00 9.50
06/19/98 116.70 8.50
06/26/98 125.10 8.50
07/02/98 33.70 8.13
07/10/98 418.80 8.50
07/17/98 133.80 7.63
07/24/98 108.60 7.00
07/31/98 367.00 6.06
08/07/98 220.80 6.25
08/14/98 174.10 5.75
08/21/98 74.10 5.88
08/28/98 110.30 5.63
09/04/98 89.30 5.63
09/11/98 36.10 6.00
09/18/98 147.00 7.13
09/25/98 96.70 7.25
10/02/98 120.50 7.06
10/09/98 87.20 6.13
10/16/98 37.00 5.88
10/23/98 94.00 7.50
10/30/98 102.90 7.13
11/06/98 202.10 8.13
11/13/98 324.00 8.00
11/20/98 290.40 7.75
11/27/98 164.90 7.38
12/04/98 103.00 6.50
12/11/98 149.60 7.38
12/18/98 61.90 7.63
12/24/98 48.70 7.75
12/31/98 135.40 8.38
01/08/99 58.70 7.63
01/15/99 327.40 8.31
01/22/99 252.20 8.00
01/29/99 441.50 8.25
02/05/99 237.50 8.06
02/12/99 493.60 7.75
02/19/99 244.60 6.88
02/26/99 120.60 6.75
03/05/99 34.20 6.88
03/12/99 45.70 7.38
03/19/99 123.10 7.13
03/26/99 309.20 6.38
04/01/99 221.80 6.63
04/09/99 111.10 6.25
04/16/99 1,545.10 6.25
04/23/99 86.60 7.38
04/30/99 185.90 7.50
05/07/99 554.30 8.00
05/14/99 235.60 8.63
05/21/99 190.80 8.75
05/28/99 258.80 8.44
06/04/99 509.20 8.88
</TABLE>
<PAGE> 7
Project Sounder
Price and Volume
Daily from June 11, 1998 - June 11, 1999
ENTS PRICE VOLUME DAILY
COMPANY TICKER: ENTS
CURRENCY: LOCAL
Daily from June 16, 1998 - June 16, 1999
<TABLE>
<CAPTION>
Date Volume Price Close
---- ------ -----------
<S> <C> <C>
06/16/98 3.60 8.88
06/17/98 37.30 8.88
06/18/98 12.30 8.88
06/19/98 36.30 8.50
06/22/98 8.40 8.88
06/23/98 28.00 8.94
06/24/98 10.40 8.94
06/25/98 50.90 8.75
06/26/98 27.40 8.50
06/29/98 2.40 8.50
06/30/98 1.90 8.63
07/01/98 13.80 8.50
07/02/98 15.60 8.13
07/06/98 97.50 7.25
07/07/98 204.30 7.44
07/08/98 56.40 8.56
07/09/98 28.40 8.50
07/10/98 32.20 8.50
07/13/98 21.90 7.94
07/14/98 46.20 7.94
07/15/98 28.70 8.00
07/16/98 21.80 7.81
07/17/98 15.20 7.63
07/20/98 36.70 7.50
07/21/98 14.20 8.00
07/22/98 6.40 7.69
07/23/98 32.60 7.19
07/24/98 18.70 7.00
07/27/98 81.20 6.00
07/28/98 30.90 5.88
07/29/98 19.80 5.94
07/30/98 175.50 6.00
07/31/98 59.60 6.06
08/03/98 4.20 6.38
08/04/98 40.70 5.75
08/05/98 20.80 5.81
08/06/98 57.70 6.13
08/07/98 97.40 6.25
08/10/98 32.40 6.13
08/11/98 40.00 5.75
08/12/98 38.80 5.81
08/13/98 18.10 5.94
08/14/98 44.80 5.75
08/17/98 9.90 5.75
08/18/98 18.00 5.81
08/19/98 12.60 6.13
08/20/98 4.70 6.13
08/21/98 28.90 5.88
08/24/98 6.10 6.19
08/25/98 40.10 7.13
08/26/98 9.30 6.88
08/27/98 37.30 5.88
08/28/98 17.50 5.63
08/31/98 20.60 5.69
09/01/98 45.00 5.50
09/02/98 2.80 5.50
09/03/98 19.30 5.50
09/04/98 1.60 5.63
09/08/98 3.60 6.00
09/09/98 3.00 5.88
09/10/98 14.20 5.50
09/11/98 15.30 6.00
09/14/98 68.40 6.50
09/15/98 13.20 6.50
09/16/98 50.40 7.50
09/17/98 5.60 7.00
09/18/98 9.40 7.13
09/21/98 5.50 7.25
09/22/98 23.40 7.38
09/23/98 18.70 7.50
09/24/98 15.90 7.25
09/25/98 33.20 7.25
09/28/98 35.00 7.19
09/29/98 21.30 7.13
09/30/98 7.00 7.13
10/01/98 23.70 7.00
10/02/98 33.50 7.06
10/05/98 36.90 6.75
10/06/98 0.00 6.94
10/07/98 3.70 6.63
10/08/98 10.10 6.13
10/09/98 3.00 6.13
10/12/98 13.60 6.38
10/13/98 10.30 5.88
10/14/98 0.00 6.28
10/15/98 5.00 6.00
10/16/98 5.10 5.88
10/19/98 19.50 5.75
10/20/98 26.00 6.75
10/21/98 13.70 6.88
10/22/98 5.30 6.88
10/23/98 29.50 7.50
10/26/98 44.00 8.00
10/27/98 15.00 8.06
10/28/98 17.50 7.75
10/29/98 12.90 7.25
10/30/98 13.50 7.13
11/02/98 17.00 7.25
11/03/98 48.90 8.00
11/04/98 60.80 7.63
11/05/98 6.00 7.81
11/06/98 69.40 8.13
11/09/98 17.70 8.00
11/10/98 5.50 7.81
11/11/98 121.40 7.94
11/12/98 14.20 7.88
11/13/98 165.20 8.00
11/16/98 79.40 7.75
11/17/98 55.30 7.75
11/18/98 31.40 7.75
11/19/98 68.00 7.75
11/20/98 56.30 7.75
11/23/98 2.30 7.63
11/24/98 29.00 7.69
11/25/98 132.00 7.50
11/27/98 1.60 7.38
11/30/98 21.10 7.00
12/01/98 17.10 6.88
12/02/98 25.30 6.13
12/03/98 25.70 6.25
12/04/98 13.80 6.50
12/07/98 41.40 6.75
12/08/98 46.50 7.63
12/09/98 16.20 7.50
12/10/98 11.60 7.38
12/11/98 33.90 7.38
12/14/98 19.20 7.38
12/15/98 17.20 7.44
12/16/98 1.90 7.50
12/17/98 20.20 7.75
12/18/98 3.40 7.63
12/21/98 14.20 8.00
12/22/98 10.40 7.63
12/23/98 16.80 7.75
12/24/98 7.30 7.75
12/28/98 26.10 7.75
12/29/98 32.90 8.00
12/30/98 4.70 7.88
12/31/98 71.70 8.38
01/04/99 17.00 7.88
01/05/99 27.60 7.75
01/06/99 4.30 7.88
01/07/99 1.60 7.75
01/08/99 8.20 7.63
01/11/99 13.40 7.75
01/12/99 23.60 7.88
01/13/99 140.20 8.13
01/14/99 77.60 8.31
01/15/99 72.60 8.31
01/19/99 107.80 8.19
01/20/99 48.70 8.00
01/21/99 90.20 8.06
01/22/99 5.50 8.00
01/25/99 117.00 8.13
01/26/99 158.60 8.13
01/27/99 43.50 8.31
01/28/99 32.20 8.25
01/29/99 90.20 8.25
02/01/99 127.40 8.06
02/02/99 41.30 8.13
02/03/99 36.00 7.75
02/04/99 13.60 8.00
02/05/99 19.20 8.06
02/08/99 125.80 8.13
02/09/99 54.90 8.16
02/10/99 66.30 8.00
02/11/99 231.90 7.81
02/12/99 14.70 7.75
02/16/99 180.10 7.75
02/17/99 23.20 7.38
02/18/99 15.30 7.38
02/19/99 26.00 6.88
02/22/99 53.00 6.75
02/23/99 6.40 6.25
02/24/99 17.70 6.38
02/25/99 39.00 6.50
02/26/99 4.50 6.75
03/01/99 7.60 6.50
03/02/99 4.20 6.88
03/03/99 9.30 7.00
03/04/99 9.20 6.88
03/05/99 3.90 6.88
03/08/99 12.60 6.63
03/09/99 4.80 6.50
03/10/99 19.80 6.94
03/11/99 4.20 7.25
03/12/99 4.30 7.38
03/15/99 18.70 7.25
03/16/99 37.90 7.44
03/17/99 7.60 7.13
03/18/99 52.60 7.13
03/19/99 6.30 7.13
03/22/99 231.50 6.38
03/23/99 3.80 6.50
03/24/99 24.30 6.50
03/25/99 37.90 6.88
03/26/99 11.70 6.38
03/29/99 42.60 6.63
03/30/99 41.10 6.63
03/31/99 52.30 6.75
04/01/99 85.80 6.63
04/05/99 19.70 6.88
04/06/99 37.00 6.19
04/07/99 23.10 6.25
04/08/99 4.70 6.25
04/09/99 26.60 6.25
04/12/99 1,035.30 6.00
04/13/99 33.10 6.25
04/14/99 10.10 6.13
04/15/99 423.70 6.56
04/16/99 42.90 6.25
04/19/99 30.20 7.00
04/20/99 27.40 7.25
04/21/99 14.50 7.38
04/22/99 10.80 7.50
04/23/99 3.70 7.38
04/26/99 6.50 7.38
04/27/99 12.70 7.25
04/28/99 7.20 7.00
04/29/99 50.30 7.50
04/30/99 109.20 7.50
05/03/99 68.70 7.63
05/04/99 117.60 7.88
05/05/99 10.60 8.00
05/06/99 183.90 7.97
05/07/99 173.50 8.00
05/10/99 65.10 8.88
05/11/99 65.70 8.94
05/12/99 63.30 8.94
05/13/99 23.00 8.88
05/14/99 18.50 8.63
05/17/99 9.60 8.38
05/18/99 35.00 8.38
05/19/99 21.20 8.38
05/20/99 97.70 8.63
05/21/99 27.30 8.75
05/24/99 154.50 8.50
05/25/99 22.70 8.63
05/26/99 11.00 8.81
05/27/99 45.80 8.63
05/28/99 24.80 8.44
06/01/99 181.10 8.88
06/02/99 76.50 8.75
06/03/99 145.50 8.81
06/04/99 106.10 8.88
06/07/99 66.00 8.50
06/08/99 44.10 8.50
06/09/99 19.60 8.69
06/10/99 28.50 8.75
06/11/99 63.10 8.75
06/14/99 209.90 9.19
06/15/99 187.70 9.25
06/16/99 257.00 9.25
</TABLE>
<PAGE> 8
_______________________________________________________________________________
OVERVIEW OF CURRENT SITUATION
_______________________________________________________________________________
Transactions Process and Chronology
___________________________________
Q3 1998 The Board of Directors and management became concerned about
overall deterioration of valuations in PPM sector.
October 1998 The Company asked Robinson-Humphrey to approach a selected PPM
about a potential merger with ENTS. After an introductory
meeting, the selected PPM approached by Robinson-Humphrey
subsequently decided to pursue another strategic alternative.
Q4 1998 The Company began to receive unsolicited inquiries from leverage
buyout firms regarding its interest in doing a leveraged
recapitalization.
January 1999 The Company approached another healthcare company through that
company's investment bankers about its interest in merging with
ENTS. The company indicated that it was not interested in an ENTS
merger.
________________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 9
_______________________________________________________________________________
OVERVIEW OF CURRENT SITUATION
_______________________________________________________________________________
Transaction Process and Chronology (Continued)
_____________________________________________
January 1999 Physicians' Specialty Corp. engaged Premier HealthCare to
review strategic alternatives. In connection with this
engagement, Premier HealthCare conducted the following
activities:
- Market & Sector Observation
- Management Interviews
- Analysis of Company Business Plan
- Review of Available Alternatives
- Analysis of Leverage Recapitalization / Senior Debt
Market
- Conducted discussions with eleven private equity groups
regarding their interest in sponsoring a management led
recapitalization of ENTS
- Negotiated proposal from TA Associates for a management
led recapitalization of ENTS
March 1999 The Board of Directors appointed a special independent
committee to review the proposal from TA Associates to sponsor
a leveraged recapitalization of the Company.
The Special Committee engaged Robinson-Humphrey and King and
Spalding to serve as financial advisor and legal counsel,
respectively, to the Special Committee.
_______________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 10
_______________________________________________________________________________
OVERVIEW OF CURRENT SITUATION
_______________________________________________________________________________
Transaction Process and Chronology (Continued)
______________________________________________
April - May 1999 TA Associates performed due diligence, arranged financing
and finalized transaction structure.
May 24, 1999 Management met with physician shareholders to describe
proposed transaction and solicit physician participation in
transaction. Voting agreements and stock purchase and
rollover agreements were distributed.
June 12, 1999 The Company received signed Voting Agreements and Stock
Purchase and Roll-Over Agreements from affiliated
physicians. The Company also received and commitment letters
from First Union and Allied Capital.
_______________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 11
________________________________________________________________________________
SUMMARY OF PROPOSED TRANSACTION
________________________________________________________________________________
SUMMARY OF PROPOSED TERMS
TRANSACTION: Leveraged recapitalization of ENTS. Repurchase 100% of
5.4 million shares held by public, 72.3% of 1.7 million
shares owned by affiliated physicians, 21.6% of 1.8
million shares owned by Dr. Tritt (Chairman), 40% of 0.3
million option shares owned by management and 90.6% of
0.3 million shares owned by Bock, Benjamin & Co.
Partners, LP.
SPONSOR: TA Associates
EQUITY PURCHASE PRICE: $10.50 per share (20.0% premium to 6/11/99 closing
price of $8.75)
<TABLE>
<CAPTION>
FINANCING: TYPE SOURCE AMOUNT TERMS
--------------------- -------------- ------------- -----------------------------------
<S> <C> <C> <C>
Senior Revolver First Union $60.0 million Libor + 225 bp to 350 bp
Subordinated Debt Allied Capital $15.0 million 12% interest, 3.5% PIK, 2% warrants
Redeemable Preferred TA Associates $27.8 million 6% PIK
Convertible Preferred TA Associates $ 5.0 million Convertible into 56% of Company
</TABLE>
TIMING: Closing no later than November 30, 1999.
BREAK-UP FEE: $3.5 million plus reimbursement of expenses to be capped
at $750,000
OTHER CONDITIONS: - Shareholder and Regulatory approval
- Stock Purchase and Rollover Agreement from
substantial majority of Physicians (signed
agreements have been received from all participating
physicians).
________________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 12
________________________________________________________________________________
SUMMARY OF PROPOSED TRANSACTION
________________________________________________________________________________
SOURCES AND USES
<TABLE>
<CAPTION>
SOURCES USES
------------------------------------------------- ------------------------------------------------
<S> <C> <C> <C>
New Revolving Facility $ 42.3 Purchase Common Stock $ 78.8
New Subordinated Debt 15.0 Paydown of Existing Debt 7.3
TA Redeemable Preferred 27.8 Increase Available Cash 0.0
TA Convertible Preferred 5.0 Equity Rolled 21.4
Equity Rolled 21.4 Transaction Fees 4.0
------ ------
TOTAL SOURCES $111.5 TOTAL USES $111.5
====== ======
</TABLE>
PRO FORMA OWNERSHIP
<TABLE>
<CAPTION>
SHARES SHARES TO BE
CURRENTLY ACQUIRED@ PURCHASE SHARES % SHARES
SHAREHOLDER OWNED $10.50/SHARE PRICE RETAINED ACQUIRED
- ------------------------ --------- ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Outside Directors 12,732 12,732 $ 133,686 -- 100.0%
Healthcare Prof. Options 29,256 29,256 307,188 -- 100.0%
PSC Management 315,610 126,244 1,325,562 189,366 40.0%
Ramie A. Tritt, MD 1,761,257 380,953 4,000,007 1,380,304 21.6%
Affiliated Physicians 1,709,449 1,236,395 12,982,148 473,054 72.3%
BB & Co. Partners, LP 293,948 266,448 2,797,704 27,500 90.6%
Public Shareholders 5,421,543 5,421,543 56,926,202 -- 100.0%
--------- --------- ----------- --------- -----
TOTAL 9,543,795 7,473,571 $78,472,496 2,070,224 78.3%
========= ========= =========== ========= =====
</TABLE>
________________________________________________________________________________
ROBINSON-HUMPHREY
<PAGE> 13
PROJECT SOUNDER
PRO FORMA CAPITALIZATION
<TABLE>
<CAPTION>
PROJECTED ADJUSTMENTS FOR OTHER PRO FORMA
SEPT. 30, 1999 TA TRANSACTION ADJUSTMENTS SEPT. 30, 1999
-------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & Cash Equivalents $ 1,000.0 $ -- $ 1,000.0
Accounts Receivable 20,362.0 20,362.0
Notes Receivable 1,554.0 1,554.0
Prepayments & Other 1,960.0 1,960.0
---------- ----------
Total Current Assets 24,876.0 24,876.0
Property and equipment, Net 11,249.7 11,249.7
Transaction Costs -- 4,000.0 4,000.0
Intangible Assets, Net 38,551.5 38,551.5
Promissory Note Receivable 2,152.0 2,152.0
Investment in Unconsolidated Subsidiary 4,482.8 4,482.8
Other Assets 313.8 313.8
---------- ----------
TOTAL ASSETS $ 81,625.7 $ 85,625.7
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Notes Payable $ 272.0 $ 272.0
Due to Physicians 296.8 296.80
Accounts Payable and Accrued Expenses 6,566.0 6,566.0
Deferred Income Taxes 486.8 486.8
---------- ----------
Total Current Liabilities 7,621.6 7,621.6
Credit Revolver 7,294.0 34,672.5 41,966.5
New Subordinated Notes (7-year) -- 15,000.0 15,000.0
Subordinated Seller Notes 13,396.7 13,396.7
Shareholders Equity :
Redeemable Preferred Stock -- 27,800.0 27,800.0
Convertible Preferred -- 5,000.0 5,000.0
Common Stock 41,156.6 41,156.6
Retained Earnings 12,156.8 12,156.8
Treasury Stock -- (78,472.5) (78,472.5)
---------- ----------
Total Shareholders Equity: 53,313.4 7,640.9
TOTAL LIABILITIES & EQUITY $ 81,625.7 $ 85,625.7
========== ==========
</TABLE>
<PAGE> 14
PROJECT SOUNDER
ANALYSIS OF PURCHASE MULTIPLES
(000S)
<TABLE>
<S> <C>
TRANSACTION VALUE:
Shares Outstanding 9,544
Purchase Price per Share $ 10.50
--------
Equity Purchase Price $100,210
Plus: Debt Outstanding $ 12,402
Less: Cash and Cash Equivalents $ 1,756
--------
Total Purchase Price $110,855
========
</TABLE>
<TABLE>
<CAPTION>
PURCHASE MULTIPLES:
ENTS RESULTS MULTIPLE OF PURCHASE PRICE [1]
---------------------------------- ---------------------------------
Q1 1999 Q1 1999
LTM RUN RATE 1999E [2] LTM RUN RATE 1999E [2]
------- -------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $71,108 $86,045 $95,311 1.56 x 1.29 x 1.16 x
EBITDA 11,762 13,856 16,157 9.4 8.0 6.9
EBIT 9,509 11,110 13,061 11.7 10.0 8.5
Net Income 5,739 6,741 7,454 17.5 14.9 13.4
Shareholder Equity 49,557 49,557 55,326 2.0 2.0 1.8
</TABLE>
- ----------------------------------------
[1] Purchase multiples for revenues, EBITDA and EBIT are based on total
transaction value. Purchase multiples for net income and shareholder
equity are based on equity purchase price.
[2] Projections provided by the Company.
<PAGE> 15
PROJECT SOUNDER
HISTORICAL AND PROJECTED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------- -----------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,351,639 $ 4,925,501 $ 1,756,288
Accounts receivable, net of allowance for doubtful accounts of $261,714 and
$1,700,016 at December 31, 1997 and 1998, respectively 9,273,565 16,166,944 17,878,267
Notes receivable 81,682 80,000 1,554,000
Prepayments and other 335,650 1,730,825 1,249,042
Deferred income taxes -- 48,245 --
----------- ----------- -----------
Total current assets 15,042,536 22,951,515 22,437,597
Property and equipment, net 3,431,707 8,861,850 9,918,007
Intangible assets, net 11,793,777 26,267,950 29,118,351
Promissory note receivable -- -- 2,152,000
Investment in unconsolidated subsidiary -- 5,396,609 3,262,843
Other assets 330,338 207,231 313,760
----------- ----------- -----------
Total assets $30,598,358 $63,685,155 $67,202,558
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 397,185 $ 2,012,658 $ 4,667,887[2]
Due to physicians 1,177,009 -- 296,791
Accrued expenses 1,701,667 1,978,868 --
Accrued income taxes 321,302 -- --
Provider claims payable 637,726 572,247 272,000
Deferred income taxes 338,218 -- 6,838
----------- ----------- -----------
Total current liabilities 4,573,107 4,563,773 5,243,516
Subordinated seller notes and debenture 911,715 7,563,701 8,651,701
Borrowing under credit agreement -- 3,750,000 3,750,000
----------- ----------- -----------
Total long-term debt 911,715 11,313,701 12,401,701
----------- ----------- -----------
Total liabilities 5,484,822 15,877,474 17,645,217
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 10,000 shares authorized, no shares issued
and outstanding at December 31, 1997 and 1998, respectively -- -- --
Common stock, $0.001 par value; 50,000,000 shares authorized, 6,503,098 and
9,152,160 shares issued and outstanding at December 31, 1997 and 1998, 6,503 9,152 9,172
respectively
Additional paid-in capital 23,401,657 41,083,033 41,147,388
Retained earnings 1,705,376 6,715,496 8,400,781
----------- ----------- -----------
Total stockholders' equity 25,113,536 47,807,681 49,557,341
----------- ----------- -----------
Total liabilities and stockholders' equity $30,598,358 $63,685,155 $67,202,558
=========== =========== ===========
<CAPTION>
PROJECTED [1]
---------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ------------- ------------
1999E 1999E 1999E
----------- ------------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,000,000 $ 1,000,000 $ 1,000,000
Accounts receivable, net of allowance for doubtful accounts of $261,714 and
$1,700,016 at December 31, 1997 and 1998, respectively 18,949,080 20,361,950 22,024,150
Notes receivable 1,554,000 1,554,000 1,554,000
Prepayments and other 1,824,000 1,960,000 530,000
Deferred income taxes -- -- --
----------- ----------- -----------
Total current assets 23,327,080 24,875,950 25,108,150
Property and equipment, net 10,368,007 11,249,674 13,456,340
Intangible assets, net 34,477,751 38,551,484 49,252,818
Promissory note receivable 2,152,000 2,152,000 2,152,000
Investment in unconsolidated subsidiary 4,482,843 4,482,843 4,482,843
Other assets 313,760 313,760 313,760
----------- ----------- -----------
Total assets $75,121,441 $81,625,711 $94,765,911
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,110,400[2] $ 6,566,000[2] $ 1,775,500[2]
Due to physicians 568,791[3] 568,791[3] 662,500[3]
Accrued expenses -- -- --
Accrued income taxes -- -- --
Provider claims payable -- -- --
Deferred income taxes 246,838 486,838 1,286,838
----------- ----------- -----------
Total current liabilities 6,926,029 7,621,629 3,724,838
Subordinated seller notes and debenture 10,776,701 13,396,701 17,366,701
Borrowing under credit agreement 6,046,370 7,294,040 18,348,031
----------- ----------- -----------
Total long-term debt 16,823,071 20,690,741 35,714,732
----------- ----------- -----------
Total liabilities 23,749,100 28,312,370 39,439,570
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 10,000 shares authorized, no shares issued
and outstanding at December 31, 1997 and 1998, respectively -- -- --
Common stock, $0.001 par value; 50,000,000 shares authorized, 6,503,098 and
9,152,160 shares issued and outstanding at December 31, 1997 and 1998, 9,172 9,172 9,172
respectively
Additional paid-in capital 41,147,388 41,147,388 41,147,388
Retained earnings 10,215,781 12,156,781 14,169,781
----------- ----------- -----------
Total stockholders' equity 51,372,341 53,313,341 55,326,341
----------- ----------- -----------
Total liabilities and stockholders' equity $75,121,441 $81,625,711 $94,765,911
=========== =========== ===========
</TABLE>
- -----------------------------------------------------------------------
[1] Projections provided by the Company.
[2] Represents accounts payable and accrued expenses.
[3] Represents all other current liabilities.
<PAGE> 16
PROJECT SOUNDER
HISTORICAL AND PROJECTED INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS PROJECTED
YEAR ENDED DECEMBER 31, ENDED MARCH 31, THREE MONTHS ENDED [1]
-------------------------- -------------------------- ------------------------------
1997 1998 1998 1999 JUNE 30, 1999E SEPT. 30, 1999E
----------- ------------ ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUE 24,488,022 61,601,187 12,004,065 21,511,179 22,800,000 24,500,000
% Growth -- 151.6% -- 79.2% 6.0% 7.5%
TOTAL OPERATING EXPENSES 21,495,479 53,330,104 10,464,604 18,733,658 19,625,000 21,017,000
OPERATING INCOME (LOSS) 2,992,543 8,271,083 1,539,461 2,777,521 3,175,000 3,483,000
% Margin 12.2% 13.4% 12.8% 12.9% 13.9% 14.2%
OTHER INCOME (EXPENSE), NET 429,254 (54,169) 28,900 (14,767) (200,000) (300,000)
----------- ------------ ----------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 3,421,797 8,216,914 1,568,361 2,762,754 2,975,000 3,183,000
PROVISION FOR INCOME TAXES 1,361,820 3,206,794 611,620 1,077,477 1,160,000 1,242,000
----------- ------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS) $ 2,059,977 $ 5,010,120 $ 956,741 $ 1,685,277 $ 1,815,000 $ 1,941,000
=========== ============ =========== ============ ============ ============
% Margin 8.4% 8.1% 8.0% 7.8% 8.0% 7.9%
EBITDA $ 3,369,829 $ 10,120,947 $ 1,822,250 $ 3,463,953 $ 3,900,000 $ 4,288,000
=========== ============ =========== ============ ============ ============
% Margin 13.8% 16.4% 15.2% 16.1% 17.1% 17.5%
EARNINGS (LOSS) PER SHARE
Basic $ 0.42 $ 0.62 $ 0.15 $ 0.18 $ 0.20 $ 0.21
Diluted $ 0.41 $ 0.60 $ 0.14 $ 0.18 $ 0.19 $ 0.21
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 4,868,035 8,021,914 6,511,466 9,164,710 9,164,710 9,164,710
Diluted 4,966,778 8,434,583 7,033,766 9,405,764 9,405,764 9,405,764
<CAPTION>
PROJECTED
THREE MONTHS PROJECTED YEAR
ENDED [1] ENDED [1]
-------------- ---------------
DEC. 31, 1999E DEC. 31, 1999E
<S> <C> <C>
NET REVENUE 26,500,000 95,311,179
% Growth 8.2% 54.7%
TOTAL OPERATING EXPENSES 22,875,000 82,250,658
OPERATING INCOME (LOSS) 3,625,000 13,060,521
% Margin 13.7% 13.7%
OTHER INCOME (EXPENSE), NET (325,000) (839,767)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 3,300,000 12,220,754
PROVISION FOR INCOME TAXES 1,287,000 4,766,477
------------ ------------
NET INCOME (LOSS) $ 2,013,000 7,454,277
============ ============
% Margin 7.6% 7.8%
EBITDA $ 4,505,000 $ 16,156,953
============ ============
% Margin 17.0% 17.0%
EARNINGS (LOSS) PER SHARE
Basic $ 0.22 $ 0.81
Diluted $ 0.21 $ 0.79
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 9,164,710 9,164,710
Diluted 9,405,764 9,405,764
</TABLE>
- ----------------------------------
[1] Projections provided by the Company.
<PAGE> 17
PROJECT SOUNDER
SUMMARY VALUATION CRITERIA
<TABLE>
<CAPTION>
TRADING MULTIPLES BASED ON LTM VALUES: PRICE/EARNINGS RATIO
- -------------------------------------- ----------------------
CAL. FIRM VALUE AS A MULTIPLE OF:
------------------------------
LTM 1999E REVENUES EBITDA EBIT
--- ----- -------- ------ ----
<S> <C> <C> <C> <C> <C>
MULTI SPECIALTY AVERAGE 8.0 x 13.7 x 0.8 x 6.9 x 11.8 x
SINGLE SPECIALTY AVERAGE 14.5 11.1 1.2 7.2 11.0
- -----------------------------------------------------------------------------------------------------------
IMPLIED TA TRANSACTION VALUE 16.4 [1] 13.3 [2] 1.6 [1] 9.4 [1] 11.7 [1]
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
TRADING MULTIPLES BASED ON Q1 RUN RATE: PRICE/EARNINGS RATIO
- --------------------------------------- --------------------
1999 Q1 FIRM VALUE AS A MULTIPLE OF:
------------------------------
RUN RATE REVENUES EBITDA EBIT
-------- -------- ------ ----
<S> <C> <C> <C> <C>
MULTI SPECIALTY AVERAGE 10.3 x 0.7 x 8.6 x 11.2 x
SINGLE SPECIALTY AVERAGE 15.4 1.2 6.0 9.1
- -----------------------------------------------------------------------------------------------------------
IMPLIED TA TRANSACTION VALUE 14.6 [3] 1.3 [3] 8.0 [3] 10.0 [3]
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
[1] Represents LTM results as of March 31, 1999.
[2] Projections provided by the Company.
[3] Represents 1999 Q1 Run Rate.
<PAGE> 18
PROJECT SOUNDER
SUMMARY VALUATION CRITERIA
<TABLE>
<CAPTION>
Precedent Purchase Multiples: Equity Value as a Multiple of:
- ----------------------------- --------------------------------
Book LTM
Value Net Income
----- ----------
<S> <C> <C>
Physician Practice Management Industry 2.6 x 22.5 x
(January 1, 1997 - June 9, 1999)
- --------------------------------------------------------------------------------
Implied TA Transaction Value 2.0 17.5[1]
- --------------------------------------------------------------------------------
<CAPTION>
Firm Value as a Multiple of:
----------------------------------------
LTM Revenues LTM EBITDA LTM EBIT
------------- ---------- --------
<S> <C> <C> <C>
Physician Practice Management Industry 1.4 x 9.4 x 13.5 x
(January 1, 1997 - June 9, 1999)
- --------------------------------------------------------------------------------
Implied TA Transaction Value 1.6[1] 9.4[1] 11.7[1]
- --------------------------------------------------------------------------------
</TABLE>
- ----------------------
[1] Represents LTM results as of March 31, 1999.
<PAGE> 19
PROJECT SOUNDER
SUMMARY VALUATION CRITERIA
<TABLE>
<CAPTION>
PREMIUMS PAID ANALYSIS: AVERAGE PREMIUM AVERAGE PREMIUM AVERAGE PREMIUM
1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO
ANNOUNCEMENT DATE ANNOUNCEMENT DATE ANNOUNCEMENT DATE
----------------- ----------------- -----------------
<S> <C> <C> <C>
ALL MERGER AND ACQUISITION TRANSACTIONS [1,2] 23.2 % 29.1 % 34.4 %
(JANUARY 1, 1997 - JUNE 9, 1999)
HEALTHCARE SERVICES MERGER AND ACQUISITION TRANSACTIONS [1,2] 8.9 11.8 22.3
(JANUARY 1, 1997 - JUNE 9, 1999)
ALL LBO AND PRIVATIZATION TRANSACTIONS [1] 20.5 24.6 30.1
(JANUARY 1, 1996 - JUNE 9, 1999)
- --------------------------------------------------------------------------------------------------------------------------------
IMPLIED TA TRANSACTION VALUE [3] 20.0 % 18.3 % 21.7 %
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------
[1] Source: Securities Data Corporation, 6/10/99.
[2] Includes all transactions with transaction value between $25 and $300
million.
[3] Based on closing price 6/11/99 of $8.75, closing price 6/4/99 of $8.875,
and closing price 5/14/99 of $8.625.
<PAGE> 20
PHYSICIAN PRACTICE MANAGEMENT INDUSTRY
Market Comparison of Selected Public Companies Based on LTM Values
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Earnings Per Share[1]
52 Week Market Price ----------------------- EPS
Latest ------------- Price as % Cal. Cal. CAGR
Company Ticker FYE Quarter High Low 06/11/99 of High LTM 1999E 2000E '00/'98
- ------- ------ --- ------- ------ ----- -------- ------- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi Specialty Physician Practice Management Companies
MedPartners, Inc. MDM DC 3/99 $ 9.25 $ 1.31 $ 7.00 75.7% $.022[2] $0.29 $0.49 49.2%
Promedco Management Co. PMCO DC 3/99 11.43 3.68 4.03 35.3% 0.62 0.70 0.82 15.0%
PhyCor, Inc. PHYC DC 3/99 19.12 3.87 6.31 33.0% 0.66[3] 0.57 0.64 (1.5)%*
-----------------------------------------------------------------------------------------------
AVERAGE 48.0% 32.1%
MEDIAN 35.3% 15.0%
-----------------------------------------------------------------------------------------------
Single Specialty Physician Practice Management Companies
American Oncology Resources AORI DC 3/99 $15.56 $ 6.43 $10.91 70.1% $0.64 $0.76 $0.97 23.1%
American Physician Partners APPM DC 3/99 9.50 4.00 6.25 65.8% 0.74 0.88 1.07 20.2%
Ameripath, Inc. PATH DC 3/99 15.00 3.87 7.81 52.1% 0.70 1.04 1.23 32.6%
Omega Health Systems, Inc. OHSI DC 3/99 8.37 3.00 7.25 86.6% 0.27 0.37 0.53 40.1%
Pediatrix Medical Group, Inc. PDX DC 3/99 65.50 13.12 20.69 31.6% 1.88 2.09 2.55 16.5%
Physician Reliance Network PHYN DC 3/99 13.62 6.00 10.00 73.4% 0.58 0.67 0.83 19.6%
Physicians' Specialty Corp. ENTS DC 3/99 10.00 5.37 8.75 87.5% 0.64 0.79[4] 1.08 29.9%
Response Oncology Inc. ROIX DC 3/99 7.62 2.00 2.94 38.5% 0.38 0.43 0.50 14.7%
Specialty Care Network, Inc. SCNI DC 3/99 8.00 0.37 2.38 29.7% 0.14 0.30 NA NM
Vision Twenty One, Inc. EYESE DC 9/98[5] 8.06 3.37 6.69 83.0% 0.36 0.55 NA NM
-----------------------------------------------------------------------------------------------
AVERAGE 61.8% 24.6%
MEDIAN 67.9% 21.7%
-----------------------------------------------------------------------------------------------
<CAPTION>
Price/Earnings Ratio
CY99 -----------------------
P/E to Cal. Cal. Market Market/
Company EPS Growth LTM 1999E 2000E Cap'n Book
- ------- ---------- ---- ----- ----- -------- -------
($MM)
<S> <C> <C> <C> <C> <C> <C>
Multi Specialty Physician Practice Management Companies
MedPartners, Inc. 49.0% 31.8* 24.1 14.3 1,394.9 (1.2)*
Promedco Management Co. 38.4% 6.5 5.8 4.9 84.9 0.5
PhyCor, Inc. (725.3%) 9.6 11.1 9.9 481.5 0.6
---------------------------------------------------------
AVERAGE 43.7% 8.0x 13.7x 9.7x 0.5x
MEDIAN 38.4% 9.6x 11.1x 9.9x 0.5x
---------------------------------------------------------
Single Specialty Physician Practice Management Companies
American Oncology Resources 62.1% 17.0x 14.4x 11.2x $ 388.6 1.2x
American Physician Partners 35.1% 8.4 7.1 5.8 108.1 9.6*
Ameripath, Inc. 23.1% 11.2 7.5 6.4 164.8 0.9
Omega Health Systems, Inc. 48.9% 26.9 19.6 13.7 65.5 2.1
Pediatrix Medical Group, Inc. 60.1% 11.0 9.9 8.1 320.7 1.5
Physician Reliance Network 76.0% 17.2 14.9 12.0 519.0 1.5
Physicians' Specialty Corp. 37.0% 13.7 11.1 8.1 80.3 1.6
Response Oncology Inc. 46.4%* 7.7 6.8 5.9 35.0 0.7
Specialty Care Network, Inc. NM 17.0 7.9 NA 44.2 8.7
Vision Twenty One, Inc. NM 18.6* 12.2 NA 100.5 1.2
--------------------------------------------------------------------------
AVERAGE 48.9% 14.5x 11.1x 8.9x 2.2x
MEDIAN 47.7% 15.3x 10.5x 8.1x 1.5x
--------------------------------------------------------------------------
</TABLE>
* Excluded from average
- ------------------------------------
NA - Not Available
NM - Not Meaningful
F - Fiscal Year Estimate
[1] Earnings Estimates are consensus estimates from the First Call Research
Network as of June 8, 1999, and exclude all extraordinary charges and
discontinued operations.
[2] Excludes $.05 per share net loss from restructuring and asset sale.
[3] Excludes $1.9 per share in extraordinary charges.
[4] Projection provided by the Company.
[5] Annual report was delayed in filing due to unreconciled items relating to
acquisitions.
<PAGE> 21
PHYSICIAN PRACTICE MANAGEMENT INDUSTRY
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES BASED ON LTM VALUES
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
DEBT/ LTM
SHARES TOTAL TOTAL TOTAL FIRM -------------------------------- EBIT EBITDA
COMPANY OUTSTANDING DEBT CAP. CASH VALUE [1] REVENUES EBIT EBITDA MARGIN MARGIN
- ------- ----------- ---- ---- ---- --------- -------- ---- ------ ------ ------
(MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi Specialty Physician Practice Management Companies
MedPartners, Inc. 199.267 $1,483.6 51.5% $ 9.8 $2,868.6 $2,798.8 $147.1 [2] E $273.0 [2] 5.3% 9.8%
Promedco Management Co. 21.061 119.0 58.4% 15.4 188.6 255.0 24.4 33.1 9.6% 13.0%
PhyCor, Inc. 76.282 650.0 57.4% 73.6 1,058.0 1,606.3 130.7 [3] E 227.5 [3] 8.1% 14.2%
-----------------------------------------------------------------------------------------------------------------------------
AVERAGE 7.7% 12.3%
MEDIAN 8.1% 13.0%
-----------------------------------------------------------------------------------------------------------------------------
Single Specialty Physician Practice Management Companies
American Oncology Resources 35.628 $ 228.3 37.0% $ 4.1 $ 612.8 $ 494.8 $ 63.9 $ 90.5 12.9% 18.3%
American Physician Partners 17.297 125.8 53.8% 4.4 229.5 145.1 28.1 41.4 19.3% 28.5%
Ameripath, Inc. 21.089 121.6 42.5% 1.6 284.8 191.6 43.5 56.4 22.7% 29.4%
Omega Health Systems Inc. 9.033 34.9 34.7% 3.3 97.0 100.0 6.9 10.1 6.9% 10.1%
Pediatrix Medical Group, Inc. 15.502 11.3 3.4% 0.6 331.4 201.4 51.3 61.0 25.5% 30.3%
Physician Reliance Network 51.896 98.7 16.0% 9.2 608.5 421.8 53.2 79.8 12.6% 18.9%
Physicians' Specialty Corp. 9.172 13.0 13.9% 1.8 91.5 71.1 [4] 9.5 [4] 11.8 [4] 13.4% 16.5%
Response Oncology Inc. 11.932 44.5 55.9% 3.0 76.5 135.0 5.9 [5] 11.5 [5] 4.3% 8.5%
Specialty Care Network, Inc. 18.619 45.8 50.9% 3.8 86.3 76.4 6.5 [6] 13.5 [6] 8.5% 17.7%
Vision Twenty One, Inc. 15.032 82.3 45.0% 10.7 172.2 178.4 9.8 [7] 15.5 [7] 5.5% 8.7%
-----------------------------------------------------------------------------------------------------------------------------
AVERAGE 13.2% 18.7%
MEDIAN 12.8% 18.0%
-----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
3 YEAR CAGR
FIRM VALUE TO: --------------------
------------------------------ NET
COMPANY REVENUES EBIT EBITDA REVENUE INCOME
- ------- -------- ---- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Multi Specialty Physician Practice Management Companies
MedPartners, Inc. 1.0 19.5 10.5 10.4% (26.5)%
Promedco Management Co. 0.7 7.7 5.7 191.2% NM
PhyCor, Inc. 0.7 8.1 4.6 40.5% (12.5)%
------------------------------------------------------------------------------------------------------------
AVERAGE 0.8 x 11.8 x 6.9 x 80.7% (19.5)%
MEDIAN 0.7 x 8.1 x 5.7 x 40.5% (19.5)%
------------------------------------------------------------------------------------------------------------
Single Specialty Physician Practice Management Companies
American Oncology Resources 1.2 x 9.6 x 6.8 x 49.0% 30.9%
American Physician Partners 1.6 8.2 5.5 NA NA
Ameripath, Inc. 1.5 6.5 5.0 104.1% 168.3%
Omega Health Systems Inc. 1.0 14.1 9.6 86.2% 21.3%
Pediatrix Medical Group, Inc. 1.6 6.5 5.4 51.5% 48.9%
Physician Reliance Network 1.4 11.4 7.6 29.2% 20.5%
Physicians' Specialty Corp. 1.3 9.6 7.8 NA NA
Response Oncology Inc. 0.6 13.1 6.7 38.0% NM
Specialty Care Network, Inc. 1.1 13.3 6.4 324.6% NM
Vision Twenty One, Inc. 1.0 17.5 11.1 327.3% NM
------------------------------------------------------------------------------------------------------------
AVERAGE 1.2 x 11.0 x 7.2 x 59.7% 30.4%
MEDIAN 1.3 x 10.5 x 6.7 x 68.8% 30.9%
------------------------------------------------------------------------------------------------------------
</TABLE>
* Excluded from average.
- -------------------------------
NA - Not Available
NM - Not Meaningful
[1] Firm value equals market capitalization plus total debt and preferred stock
minus cash and short term investments.
[2] Excludes a net $9.5 million in restructuring charges.
[3] Excludes $212.4 million in revaluation and clinic restructuring.
[4] Pro forma for all completed acquisitions.
[5] Excludes $24.9 million in impairment of management service agreements.
[6] Excludes $3.3 million in impairment loss on intangible assets, $4.7 million
in litigation and other charges, and $94.6 million in impairment loss on
service agreements.
[7] Excludes $.5 million in merger related costs.
<PAGE> 22
PHYSICIAN PRACTICE MANAGEMENT INDUSTRY
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES BASED ON Q1 RUN RATE
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEK MARKET PRICE
LATEST ---------------------- PRICE AS %
COMPANY TICKER FYE QUARTER HIGH LOW 06/11/99 OF HIGH
- ------- ------ --- ------- ------ ----- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Multi Specialty Physician Practice Management Companies
MedPartners, Inc. MDM DC 3/99 $ 9.25 $1.31 $7.00 75.7%
Promedco Management Co. PMCO DC 3/99 11.43 3.68 4.03 35.3%
PhyCor, Inc. PHYC DC 3/99 19.12 3.87 6.31 33.0%
------------------------------------------------------------------------------------------------------------
AVERAGE 48.0%
MEDIAN 35.3%
------------------------------------------------------------------------------------------------------------
Single Specialty Physician Practice Management Companies
American Oncology Resources AORI DC 3/99 $15.56 $ 6.43 $10.91 70.1%
American Physician Partners APPM DC 3/99 9.50 4.00 6.25 65.8%
Ameripath, Inc. PATH DC 3/99 15.00 3.87 7.81 52.1%
Omega Heath Systems Inc. OHSI DC 3/99 8.37 3.00 7.25 86.6%
Pediatrix Medical Group, Inc. PDX DC 3/99 65.50 13.12 20.69 31.6%
Physician Reliance Network PHYN DC 3/99 13.62 6.00 10.00 73.4%
Physicians' Specialty Corp. ENTS DC 3/99 10.00 5.37 8.75 87.5%
Response Oncology Inc. ROIX DC 3/99 7.62 2.00 2.94 38.5%
Specialty Care Network, Inc. SCNI DC 3/99 8.00 0.37 2.38 29.7%
Vision Twenty One, Inc. EYESE DC 9/98 [5] 8.06 3.37 6.69 83.0%
------------------------------------------------------------------------------------------------------------
AVERAGE 61.8%
MEDIAN 67.9%
------------------------------------------------------------------------------------------------------------
<CAPTION>
EARNINGS PER SHARE [1] PRICE / EARNINGS RATIO
------------------------------ --------------------------------
1999 Q1 CAL. CAL. 1999 Q1 CAL. CAL. MARKET
COMPANY RUN RATE 1999E 2000E RUN RATE 1999E 2000E CAP'N
- ------- -------- ----- ----- -------- ----- ----- ------
($MM)
<S> <C> <C> <C> <C> <C> <C> <C>
Multi Specialty Physician Practice Management Companies
MedPartners, Inc. $0.24 $0.29 $0.49 $29.2 * 24.1 14.3 1,394.9
Promedco Management Co. 0.64 0.70 0.82 6.3 5.8 4.9 84.9
PhyCor, Inc. 0.44 [2] 0.57 0.64 14.3 11.1 9.9 481.5
----------------------------------------------------------------------------------------------
AVERAGE 10.3 x 13.7 x 9.7 x
MEDIAN 14.3 x 11.1 x 9.9 x
----------------------------------------------------------------------------------------------
Single Specialty Physician Practice Management Companies
American Oncology Resources $0.68 $0.76 $0.97 16.0 x 14.4 x 11.2 x $ 388.6
American Physician Partners 0.80 0.88 1.07 7.8 7.1 5.8 108.1
Ameripath, Inc. 0.70 1.04 1.23 11.2 7.5 6.4 164.8
Omega Heath Systems Inc. 0.28 0.37 0.53 25.9 19.6 13.7 65.5
Pediatrix Medical Group, Inc. 1.80 2.09 2.55 11.5 9.9 8.1 320.7
Physician Reliance Network 0.60 0.67 0.83 16.7 14.9 12.0 519.0
Physicians' Specialty Corp. 0.72 0.79 [3] 1.08 12.2 11.1 8.1 80.3
Response Oncology Inc. 0.40 0.43 0.50 7.3 6.8 5.9 35.0
Specialty Care Network, Inc. 0.08 [4] 0.30 NA 29.7 7.9 NA 38.9
Vision Twenty One, Inc. 0.20 0.55 NA 33.4 * 12.2 NA 100.5
----------------------------------------------------------------------------------------------
AVERAGE 15.4 x 11.1 x 8.9 x
MEDIAN 14.1 x 10.5 x 8.1 x
----------------------------------------------------------------------------------------------
</TABLE>
* Excluded from average
- --------------------------------
NA-Not Available
NM-Not Meaningful
F-Fiscal Year Estimate
[1] Earnings Estimates are consensus estimates from the First Call Research
Network as of June 8, 1999, and exclude all extraordinary charges and
discontinued operations.
[2] Excludes $.07 per share in extraordinary charges.
[3] Projection provided by the Company.
[4] Excludes $1.1 million in litigation and other costs.
[5] Annual report was delayed in filing due to unreconciled items relating to
acquisitions.
<PAGE> 23
PHYSICIAN PRACTICE MANAGEMENT INDUSTRY
Market Comparison of Selected Public Companies Based on Q1 Run Rate
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
First Quarter Ended March 30, 1999
Debt/ Run Rate
Shares Total Total Total Firm -------------------------------------------
Company Outstanding Debt Cap. Cash Value[1] Revenues EBIT EBITDA Net Income
- ------- ----------- ----- ----- ----- -------- -------- ---- ------ ----------
(MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi Specialty Physician
Practice Management
Companies
MedPartners, Inc. 199.267 $1,483.6 51.5% $ 9.8 $2,868.6 $3,140.2 $155.4 $177.7 $43.3
Promedco Management Co. 21.061 119.0 58.4% 15.4 188.6 292.4 28.1 39.2 14.9
PhyCor, Inc. 76.282 650.0 57.4% 73.6 1,058.0 1,666.2 124.7[2]E 223.7[2] 8.4[2]
--------------------------------------------------------------------------------------------
AVERAGE
MEDIAN
============================================================================================
Single Specialty Physician
Practice Management
Companies
American Oncology Resources 35.628 $ 228.3 37.0% $ 4.1 $ 612.8 $ 559.4 $ 69.1 $100.5 $34.1
American Physician Partners 17.297 125.8 53.8% 4.4 229.5 156.8 32.5 47.0 15.5
Ameripath, Inc. 21.089 121.6 42.5% 1.6 284.8 209.3 44.6 58.5 21.1
Omega Health Systems Inc. 9.033 34.9 34.7% 3.3 97.0 100.0 6.9 10.2 2.4
Pediatrix Medical Group, Inc. 15.502 11.3 3.4% 0.6 331.4 215.3 49.0 59.6 29.0
Physician Reliance Network 51.896 98.7 16.0% 9.2 608.5 457.1 55.2 84.0 32.0
Physicians' Specialty Corp. 9.172 13.0 13.9% 1.8 91.5 86.0 11.1 13.9 6.7
Response Oncology Inc. 11.932 44.5 55.9% 3.0 76.5 145.2 12.1 16.6 4.6
Specialty Care Network, Inc. 16.381 54.4 58.3% 1.4 91.9 57.9 4.7[3] 11.1[3] 0.5[3]
Vision Twenty One, Inc. 15.032 82.3 45.0% 10.7 172.2 248.2 72.1[4] 80.0[4] 40.4[4]
--------------------------------------------------------------------------------------------
AVERAGE
MEDIAN
============================================================================================
<CAPTION>
Firm Value to:
EBIT EBITDA ---------------------------- Market Cap/
Margin Margin Revenues EBIT EBITDA Net Income
------ ------ -------- ---- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Multi Specialty Physician
Practice Management
Companies
MedPartners, Inc. 5.0% 5.7% 0.9 18.5 16.1 32.2
Promedco Management Co. 9.6% 13.4% 0.6 6.7 4.8 5.7
PhyCor, Inc. 7.5% 13.4% 0.6 8.5 4.7 57.4*
----------------------------------------------------------------
AVERAGE 7.4% 10.8% 0.7x 11.2x 8.6x 18.9
MEDIAN 7.5% 13.4% 0.6x 8.5x 4.8x 32.2
================================================================
Single Specialty Physician
Practice Management
Companies
American Oncology Resources 12.4% 18.0% 1.1x 8.9x 6.1x 11.4
American Physician Partners 20.8% 30.0% 1.5 7.1 4.9 7.0
Ameripath, Inc. 21.3% 28.0% 1.4 6.4 4.9 7.8
Omega Health Systems Inc. 6.9% 10.2% 1.0 14.1 9.5 27.6
Pediatrix Medical Group, Inc. 22.7% 27.7% 1.5 6.8 5.6 11.1
Physician Reliance Network 12.1% 18.4% 1.3 11.0 7.2 16.2
Physicians' Specialty Corp. 12.9% 16.1% 1.1 8.2 6.6 11.9
Response Oncology Inc. 8.3% 11.4% 0.5 6.3 4.6 7.6
Specialty Care Network, Inc. 8.1% 19.2% 1.6 19.7 8.3 73.3*
Vision Twenty One, Inc. 29.1% 32.2% 0.7 2.4 2.2 2.5
----------------------------------------------------------------
AVERAGE 15.4% 21.1% 1.2x 9.1x 6.0x 11.4
MEDIAN 12.6% 18.8% 1.2x 7.6x 5.8x 11.2
================================================================
</TABLE>
* Excluded from average
- ------------------------
NA - Not Available
NM - Not Meaningful
F - Fiscal Year Estimate
[1] Firm value is equal to market capitalization plus total debt minus total
cash.
[2] Excludes $9.5 million in revaluation and clinic restructuring.
[3] Excludes $1.1 million in litigation and other costs.
[4] Excludes $24.9 million in impairment of management service agreements.
<PAGE> 24
PROJECT SOUNDER
SELECTED MERGERS AND ACQUISITIONS IN THE PHYSICIAN PRACTICE MANAGEMENT INDUSTRY
(JANUARY 1, 1997 - JUNE 9, 1999)
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET TARGET BUSINESS DESCRIPTION
- --------- --------- ------ ---------------------------
<S> <C> <C> <C>
03/17/97 11/11/96 AHI Healthcare System Inc Pvd physician contracting svcs
06/26/97 01/21/97 InPhyNet Medical Management Pvd physician management svcs
07/31/98 03/19/98 MedCath Inc. Pvd cardio services
-- 12/14/98 Physician Reliance Network Inc Pvd physician mgmt bus svcs
03/12/99 01/27/99 Team Health (MedPartners) Physician staffing, ER
-- 03/25/99 Sheridan Healthcare, Inc. Pvd anesthesia and women's health services
-- 03/25/99 Concentra Managed Care Healthcare management and cost containment services
<CAPTION>
EQUITY VALUE AS A MULTIPLE OF:
------------------------------
FAIR VALUE AS A MULTIPLE OF:
TRANSACTION BOOK NET TRANSACTION -----------------------------
ACQUIROR EQUITY VALUE VALUE INCOME FIRM VALUE [1] REVENUES EBITDA EBIT
- -------- ------------ ----- ------ -------------- -------- ------ ----
($MM) ($MM)
<S> <C> <C> <C> <C> <C> <C> <C>
FPA Medical Management Inc 116.8 NM NM 97.4 .82 NM NM
MedPartners Inc 412.5 3.9 24.6 364.3 .82 11.1 13.0
Investor Group 224.0 1.6 36.9 374.5 2.47 9.9 19.6
American Oncology Resources 489.6[2] 1.5 16.9 546.4 1.37 7.1 10.6
Investor Group 335.0 NA NA NA NA NA NA
Investor Group 76.0 NA 11.9 155.0 1.37 8.5 10.5
Welsh, Carson, Anderson & Stowe 790.1 3.2 22.1 1,118.0 1.80 10.2 13.6
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE 2.6x 22.5x 1.44x 9.4x 13.5x
=================================================================================================================================
</TABLE>
- -------------------
* Excluded from the average
NM - Not Meaningful
NA - Not Available
[1] Firm value equals equity value plus debt assumed minus cash and marketable
securities
[2] Based on PHYN's 6/9/99 stock price of $9.75.
<PAGE> 25
PROJECT SOUNDER
PREMIUMS ANALYSIS: MERGERS AND ACQUISITIONS BETWEEN $25 AND $300 MILLION
EFFECTIVE JANUARY 1, 1997 THROUGH JUNE 9, 1999
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/02/97 09/24/96 Datalogix International Develop business software Oracle Corp
01/02/97 07/15/96 North Side Savings Bank,NY Commercial bank North Fork Bancorporation,NY
01/02/97 09/17/96 Rhodes Inc Home furnishing stores Heilig-Meyers Co
01/02/97 11/18/96 Sudbury Inc Mnfr automotive parts Intermet Corp
01/03/97 09/10/96 GreenStone Industries Inc Manufacture stationery Louisiana-Pacific Corp
01/03/97 09/12/96 Jefferson Bancorp,Florida Bank holding company Colonial BancGroup Inc,AL
01/03/97 08/30/96 Walden Bancorp Inc,Acton,MA Savings bank;holding co UST Corp,Boston,MA
01/06/97 11/29/96 ElectroStar Inc Mnfr printed circuit boards Tyco International Ltd
01/07/97 01/10/97 Applied Magnetics Corp Mnfr magnetic recording heads Investor Group
01/08/97 11/04/97 D&E Communications Inc Pvd telecommunication svcs Citizens Utilities Co
01/08/97 01/09/97 Hutchinson Technology Inc Mnfr peripheral components Investor Group
01/08/97 01/09/97 USFreightways Corp Provide trucking services Investor Group
01/09/97 06/03/96 Bio-Dental Technologies Corp Provide dental research svcs Zila Inc
01/09/97 11/25/96 Opal Inc Mnfr special industry equip Applied Materials Inc
01/09/97 08/26/96 Spreckels Industries Inc Produce sugar;mnfr indust prod Columbus McKinnon Corp
01/10/97 12/05/96 Zycon Corp Mnfr printed circuit boards Hadco Corp
01/15/97 11/15/96 Mountasia Entertainment Pvd entertainment services Mountasia Entertainment
01/16/97 01/20/97 Dress Barn Own,op women's apparel store Investor Group
01/16/97 11/27/96 Milgray Electronics Inc Whl electronic equip Bell Industries Inc
01/20/97 11/13/96 Medex Inc Mnfr drug infusion products FCY Inc
01/21/97 10/14/96 Independence Bancorp Inc,NJ Commercial bank;holding co Commerce Bancorp,New Jersey
01/24/97 01/27/97 Converse Inc Manufacture athletic footwear Investor
01/24/97 09/26/96 General Physics Corp Provide training services National Patent Development
01/27/97 12/16/96 Eljer Industries Inc Manufacture plumbing fixtures Zurn Industries Inc
01/27/97 10/16/96 Riverside Natl Bk,Riverside,CA Commercial bank City National Bk,Beverly Hills
01/27/97 12/16/96 Tylan General Inc Mnfr gas measure equipment Millipore Corp
01/27/97 09/16/96 Ventura County Natl Bancorp,CA Commercial bank City National Bk,Beverly Hills
01/28/97 05/29/96 Florida First Bancorp Inc,FL Savings and loan;holding co Regions Financial Corp
01/30/97 01/30/97 Dow Jones & Co Inc Publish newspapers,books Investor Group
01/30/97 12/02/96 Eastbay Inc Own,operate mail order bus Venator Group Inc
01/31/97 10/08/96 DS Bancor,Derby,Connecticut Bank holding company Webster Finl Corp,Waterbury,CT
01/31/97 10/10/96 Gelman Sciences Inc Mnfr medical filter devices Pall Corp
02/07/97 12/19/96 HealthPlan Services Corp Own and operate HMO Automatic Data Processing, Inc
02/07/97 10/02/96 TSX Corporation Mnfr communications equipment ANTEC Corp(Itel Corp)
02/10/97 08/05/96 Liberty Bancorp Inc,Chicago,IL Commercial bank;holding co Hinsdale Finl Corp,Hinsdale,IL
02/11/97 02/12/97 Extended Stay America Inc Own,op hotels Investor Group
02/12/97 10/10/96 Knogo North America Inc Mnfr search,navigation equip Video Sentry Corp
02/12/97 07/18/96 ROC Communities Inc Real estate investment trust Chateau Properties Inc
02/16/97 05/27/96 SyStemix Inc(Novartis AG) Mnfr,dvlp cellular processes Novartis AG
02/18/97 06/25/96 First State Financial Svcs Inc Savings & loan holding co Sovereign Bancorp,PA
02/19/97 07/23/96 Osborn Communications Corp Own, op radio and TV stations Capstar Broadcasting Partners
02/21/97 02/10/97 Aurum Software Inc Dvlp sales, mktg info software Investor Group
02/26/97 12/05/96 Barefoot Inc Provide lawn care services ServiceMaster LP
02/27/97 08/13/96 LaTex Resources Inc Oil and gas expl,prodn Alliance Resources PLC
02/27/97 10/17/96 Triad Systems Corp Develop turnkey computer sys Investor Group
02/28/97 11/25/96 American Studios Inc Pvd photography services PCA International Inc
02/28/97 09/30/96 Corpus Christi Bancshares,TX Bank holding company Cullen/Frost Bankers Inc,Texas
02/28/97 02/13/97 North Star Universal Inc Mnfr air conditioners Michael Foods Inc
03/01/97 07/15/96 SDNB Finl Corp, San Diego,CA Commercial bank;Holding co FBOP Corp,Oak Park,Illinois
<CAPTION>
PREMIUM
-----------------------------------
1 Day 1 Week 4 Weeks
Prior to Prior to Prior to
Date Date Acquiror Short Equity Value Announce- Announce- Announce-
Effective Announced Target Name Business Description ($mil) memt Date ment Date ment Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/02/97 09/24/96 Datalogix International Develop database software $92.4 28.0 % 42.2 % 56.1 %
01/02/97 07/15/96 North Side Savings Bank,NY Commercial bank;holding co 212.7 21.4 21.4 18.0
01/02/97 09/17/96 Rhodes Inc Operate furn.,hshld app, floor 68.1 (24.7) (20.7) (21.7)
01/02/97 11/18/96 Sudbury Inc Ductile, gray iron castings 136.6 19.0 25.0 9.9
01/03/97 09/10/96 GreenStone Industries Inc Mnfr lumber,plywood,pulp 32.3 33.3 52.7 58.5
01/03/97 09/12/96 Jefferson Bancorp,Florida Commercial bank holding co 75.2 23.9 32.6 42.6
01/03/97 08/30/96 Walden Bancorp Inc,Acton,MA Commercial bank;holding co 172.5 50.6 54.4 65.8
01/06/97 11/29/96 ElectroStar Inc Mnfr fire protection systems 111.1 7.7 27.3 16.7
01/07/97 01/10/97 Applied Magnetics Corp Investor group 750.4 (7.5) 5.3 10.3
01/08/97 11/04/97 D&E Communications Inc Electric utility 154.1 24.5 22.2 15.5
01/08/97 01/09/97 Hutchinson Technology Inc Investor group 433.5 1.9 2.6 7.5
01/08/97 01/09/97 USFreightways Corp Investor group 618.6 2.1 0.2 6.0
01/09/97 06/03/96 Bio-Dental Technologies Corp Mnfr,whl pharmaceuticals 47.0 65.0 43.3 109.4
01/09/97 11/25/96 Opal Inc Mnfr wafer fabrication systems 161.6 52.6 64.4 105.6
01/09/97 08/26/96 Spreckels Industries Inc Mnfr industrial chains, hoists 188.6 23.9 24.7 29.7
01/10/97 12/05/96 Zycon Corp Mnfr computer circuit boards 204.7 12.5 46.9 94.6
01/15/97 11/15/96 Mountasia Entertainment Pvd entertainment services 35.3 12.0 12.0 40.0
01/16/97 01/20/97 Dress Barn Investor group 366.6 1.2 4.4 8.8
01/16/97 11/27/96 Milgray Electronics Inc Mnfr electronic,computer prods 100.0 8.4 17.0 20.6
01/20/97 11/13/96 Medex Inc Mnfr engineered polymer prods 151.5 54.1 58.0 66.7
01/21/97 10/14/96 Independence Bancorp Inc,NJ Commercial bank;holding co 91.6 57.1 93.3 124.4
01/24/97 01/27/97 Converse Inc Investor 299.8 13.5 18.2 14.4
01/24/97 09/26/96 General Physics Corp Mnfr contact lenses 53.8 16.6 31.6 36.0
01/27/97 12/16/96 Eljer Industries Inc Mnfr enviromental equipment 175.6 77.8 84.6 90.1
01/27/97 10/16/96 Riverside Natl Bk,Riverside,CA Commercial bank 42.9 1.4 2.9 29.7
01/27/97 12/16/96 Tylan General Inc Mnfr analytical products 130.7 39.1 26.7 26.7
01/27/97 09/16/96 Ventura County Natl Bancorp,CA Commercial bank 46.7 38.8 43.7 38.8
01/28/97 05/29/96 Florida First Bancorp Inc,FL Bank holding company 40.2 21.0 19.5 33.1
01/30/97 01/30/97 Dow Jones & Co Inc Investor group 3,054.2 5.2 14.8 19.0
01/30/97 12/02/96 Eastbay Inc Own,op variety stores 146.9 26.3 28.0 23.1
01/31/97 10/08/96 DS Bancor,Derby,Connecticut Bank holding co 129.9 4.9 5.9 8.0
01/31/97 10/10/96 Gelman Sciences Inc Mnfr filters,separations equip 293.9 80.5 57.9 49.4
02/07/97 12/19/96 HealthPlan Services Corp Pvd data processing services 298.2 (4.2) 3.9 3.9
02/07/97 10/02/96 TSX Corporation Mnfr commun network products 243.0 10.0 18.6 26.0
02/10/97 08/05/96 Liberty Bancorp Inc,Chicago,IL Savings and loan;holding co 65.8 (0.9) 7.1 3.2
02/11/97 02/12/97 Extended Stay America Inc Investor group 1,320.7 (0.2) 6.7 3.1
02/12/97 10/10/96 Knogo North America Inc Provide electrical services 48.7 (3.4) 13.3 7.4
02/12/97 07/18/96 ROC Communities Inc Real estate investment trust 292.2 5.4 (0.8) (1.3)
02/16/97 05/27/96 SyStemix Inc(Novartis AG) Manufacture pharmaceuticals 389.7 4.7 69.6 59.2
02/18/97 06/25/96 First State Financial Svcs Inc Bank holding company 50.5 47.5 47.5 37.2
02/19/97 07/23/96 Osborn Communications Corp Own,operate radio stations 90.0 28.1 50.0 38.2
02/21/97 02/10/97 Aurum Software Inc Investor group 103.0 25.4 13.9 21.3
02/26/97 12/05/96 Barefoot Inc Pvd mgmt svcs 239.9 25.5 28.0 42.2
02/27/97 08/13/96 LaTex Resources Inc Oilo and gas exploration,prodn 22.1 181.1 202.8 181.1
02/27/97 10/17/96 Triad Systems Corp Investor group 174.3 68.2 60.9 89.7
02/28/97 11/25/96 American Studios Inc Pvd photo processing services 53.9 90.5 110.5 166.7
02/28/97 09/30/96 Corpus Christi Bancshares,TX Bank holding company 32.4 17.8 17.8 17.8
02/28/97 02/13/97 North Star Universal Inc Produce, whl dairy foods 69.6 (19.7) (18.6) (12.2)
03/01/97 07/15/96 SDNB Finl Corp, San Diego,CA Commercial bank;holding co 25.8 16.4 16.4 18.5
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
03/03/97 12/02/96 Health Images Inc Provide magnetic imaging svcs HealthSouth Corp
03/04/97 08/29/96 BMJ Financial Corp,New Jersey Commercial bank;holding co Summit Bancorp,Princeton,NJ
03/04/97 09/11/96 Chempower Inc Insulation, asbestos abatement American Eco Corp
03/05/97 11/04/96 Grove Banks,Chesnut Hill,MA Savings bank Citizens Bank of Massachusetts
03/12/97 03/13/97 McDermott International Inc Mnfr plate work,chemicals Investor Group
03/13/97 09/19/96 Horizon Bancorp Inc,Austin,TX Savings and loan Compass Bancshares Inc,Alabama
03/14/97 11/05/96 Panatech Research&Development Manufacture semiconductors Harbour Group Ltd
03/17/97 11/11/96 AHI Healthcare Systems Inc Pvd physician contracting svcs FPA Medical Management Inc
03/18/97 12/06/96 MaxServ Inc(Sears Roebuck) Pvd technical info support svc Sears Roebuck & Co
03/24/97 02/11/97 Innotech Inc Mnfr electro-medical prods Johnson & Johnson
03/25/97 12/19/96 IWC Resources Corp Water utility holding company NIPSCO Industries Inc
03/25/97 02/24/97 Titan Wheel International Inc Manufacture steel wheels Titan Wheel International Inc
03/26/97 06/13/97 Bally's Grand Inc Own and operate casino hotels Hilton Hotels Corp
03/27/97 12/05/96 Cavco Industries Inc Mnfr mobile homes Centex Corp
03/27/97 11/27/96 Central Tractor Farm & Country Own,op tractor,hardware stores JW Childs Equity Partners LP
03/27/97 04/09/97 Production Operators Corp Provide oil an gas field svcs Investor Group
03/27/97 03/27/97 Storage USA Inc Real estate investment trust Security Capital US Realty
03/31/97 10/21/96 Detroit & Canada Tunnel Corp Pvd tunnel operation services Investor Group
03/31/97 09/16/96 First Fed Bancshares of Eau Cl Commercial bank Mutual Savings Bk,Milwaukee,WI
03/31/97 03/06/97 Westinghouse Air Brake Co Mnfr railway brake components Westinghouse Air Brake Co
04/01/97 12/10/96 Softdesk Inc Develop,wholesale CAD software Autodesk Inc
04/08/97 10/02/96 Ryder System Inc Pvd truck rental,leasing svcs Ryder System Inc
04/09/97 04/11/97 Liposome Co Inc Manufacture pharmaceuticals Investor Group
04/11/97 12/05/96 Public Storage Properties XIV Real estate investment trust Public Storage Inc
04/11/97 12/05/96 Public Storage Properties XV Real estate investment trust Public Storage Inc
04/11/97 01/17/97 Studio Plus Hotels Inc Own,operate hotels,motels Extended Stay America Inc
04/16/97 12/26/96 Royce Laboratories Inc Mnfr pharmaceuticals products Watson Pharmaceuticals Inc
04/18/97 11/15/96 West Coast Bancorp Inc,Florida Bank holding company FNB Corporation,Hermitage,PA
04/21/97 04/18/97 Vitalink Pharmacy Services Inc Pvd health and allied svcs Manor Care Inc
04/22/97 04/22/97 Enhance Financial Svcs Grp Reinsurance company Swiss Reinsurance Co
04/22/97 03/24/97 Wynn's International Inc Mnfr auto lubricants, products Wynn's International Inc
04/23/97 04/23/97 Vail Resorts Inc Own,op ski resorts,hotels Investor
04/24/97 01/17/97 American Recreation Centers Own, op bowling, rec centers AMF Bowling Centers(AMF Group)
04/25/97 10/01/96 Cosmetic Center Inc Operate cosmetic stores Prestige Fragrance & Cosmetics
04/30/97 11/29/96 Chicago Dock and Canal Trust Real estate investment trust CityFront Center LLC
05/01/97 12/03/96 BFS Bankorp Inc,New York,NY Bank holding company Dime Bancorp Inc,New York,NY
05/01/97 12/27/96 Business & Professional Bk,CA Commercial bank US Bancorp,Portland,Oregon
05/02/97 11/14/96 OSB Financial Corp,Oshkosh,WI Savings bank;holding co FCB Financial Corp,Neenah,WI
05/05/97 10/29/96 First-Knox Banc Corp Bank holding company Park National Corp,Newark,Ohio
05/08/97 04/10/97 SPX Corp Mnfr engine components,tools SPX Corp
05/09/97 12/23/96 StarSight Telecast Inc Pvd cable programming svcs Gemstar International Group
05/13/97 05/13/97 WW Grainger Inc Wholesale electric motors WW Grainger Inc
05/15/97 11/20/96 Aspen Bancshares Inc,Aspen,CO Bank holding company Zions Bancorp,Utah
05/19/97 11/04/96 TransWorld Bancorp,California Bank holding company Glendale Fed Bk,Glendale,CA
05/20/97 04/16/97 Briggs & Stratton Corp Mnfr gas engines,auto locks Briggs & Stratton Corp
05/20/97 02/13/97 Reflectone Inc Manufacture flight simulators British Aerospace Holdings
05/21/97 01/28/97 Calgene Inc(Monsanto Co) Own and operate greenhouse Monsanto Co
05/27/97 01/07/97 Compression Labs Inc Mnfr telecommunications equip VTEL Corp
05/29/97 02/11/97 Fractal Design Corp Develop graphics software MetaTools Inc
05/29/97 10/28/96 Wireless Cable of Atlanta Pvd wireless cable communs svc BellSouth Corp
05/30/97 03/03/97 BHC Financial Inc Provide data processing svcs FIserv Inc
05/30/97 11/26/96 First Finl Corp of Wstn MD Commercial bank Keystone Finl,Harrisburg,PA
05/30/97 10/28/96 Premier Bankshs,Bluefield,VA Bank holding company First Virginia Banks,VA
05/30/97 01/07/97 Thermal Industries Inc Mnfr screens and metal doors HIG Investment Group
06/01/97 06/12/96 Regency Realty Corporation Real estate investment trust Security Capital US Realty
06/02/97 01/28/97 MidConn Bank,Kensington,CT Savings and loan Eagle Finl Corp,Bristol,CT
06/02/97 02/14/97 New Iberia Bancorp,Louisiana Commercial bank;holding co Regions Financial Corp
06/02/97 01/13/97 Somatix Therapy Corp Mnfr cell biology products Cell Genesys Inc
06/03/97 03/31/97 Peak Technologies Group Inc Whl integrated systems Moore Corp Ltd
06/09/97 12/26/96 Eldorado Bancorp,Tustin,CA Bank holding company Commerce Security Bancorp,CA
06/12/97 03/21/97 CrossComm Corp Mnfr computer networking equip Olicom A/S
<CAPTION>
Premium
---------------------------------------
1 Day 1 Week 4 Weeks
Equity Prior to Prior to Prior to
Date Date Acquiror Short Value Announcement Announcement Announcement
Effective Announced Target Name Business Description ($mil) Date Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
03/03/97 12/02/96 Health Images Inc Own,op outpatient surgery ctr 200.7 7.4 27.8 34.2
03/04/97 08/29/96 BMJ Financial Corp,New Jersey Bank holding company 165.2 55.5 61.3 62.0
03/04/97 09/11/96 Chempower Inc Pvd engineering services 48.5 48.1 48.1 45.9
03/05/97 11/04/96 Grove Banks,Chesnut Hill,MA Commercial savings and loan 77.2 37.8 46.8 50.0
03/12/97 03/13/97 McDermott International Inc Investor group 1,240.1 2.8 0.5 11.0
03/13/97 09/19/96 Horizon Bancorp Inc,Austin,TX Bank holding company 32.8 43.8 36.9 43.8
03/14/97 11/05/96 Panatech Research&Development Mnfr steel cutting tools 29.2 55.6 55.6 51.4
03/17/97 11/11/96 AHI Healthcare Systems Inc Pvd health care mgmt services 116.8 10.9 34.0 23.7
03/18/97 12/06/96 MaxServ Inc(Sears Roebuck) Department stores; finl svcs 90.8 19.2 67.6 55.0
03/24/97 02/11/97 Innotech Inc Mnfr medical equip and prods 131.6 54.9 64.2 54.9
03/25/97 12/19/96 IWC Resources Corp Electric, gas utility hldg co 285.9 32.0 39.1 45.5
03/25/97 02/24/97 Titan Wheel International Inc Manufacture steel wheels 328.4 15.4 22.4 21.2
03/26/97 06/13/97 Bally's Grand Inc Own,operate hotels 468.7 27.9 29.8 31.1
03/27/97 12/05/96 Cavco Industries Inc Construct bldgs,RE dvlp firm 90.5 13.2 20.2 30.5
03/27/97 11/27/96 Central Tractor Farm & Country Investment company 154.0 17.5 17.5 18.8
03/27/97 04/09/97 Production Operators Corp Investor group 578.0 3.0 1.1 6.8
03/27/97 03/27/97 Storage USA Inc Pvd inv management services 1,023.5 (0.7) (2.3) 1.3
03/31/97 10/21/96 Detroit & Canada Tunnel Corp Investor group 36.5 64.9 74.2 54.3
03/31/97 09/16/96 First Fed Bancshares of Eau Cl Savings Bank 129.0 23.1 25.7 25.7
03/31/97 03/06/97 Westinghouse Air Brake Co Mnfr railway brake components 313.3 (12.9) (15.4) (11.1)
04/01/97 12/10/96 Softdesk Inc Design drafting software 91.7 60.0 66.8 146.7
04/08/97 10/02/96 Ryder System Inc Pvd truck rental,leasing svcs 2,366.0 (1.3) (0.8) 6.4
04/09/97 04/11/97 Liposome Co Inc Investor group 865.5 18.5 19.3 (0.5)
04/11/97 12/05/96 Public Storage Properties XIV Real estate investment trust 58.8 29.2 30.8 31.6
04/11/97 12/05/96 Public Storage Properties XV Real estate investment trust 55.6 29.2 28.4 32.5
04/11/97 01/17/97 Studio Plus Hotels Inc Own,op hotels 295.9 55.0 51.1 37.5
04/16/97 12/26/96 Royce Laboratories Inc Mnfr pharmaceutical products 84.2 0.6 22.9 18.5
04/18/97 11/15/96 West Coast Bancorp Inc,Florida Commercial bank holding co 31.3 19.1 20.1 17.3
04/21/97 04/18/97 Vitalink Pharmacy Services Inc Own,op nursing homes,hotels 279.6 14.3 8.1 (4.2)
04/22/97 04/22/97 Enhance Financial Svcs Grp Reinsurance company 704.7 2.3 2.3 1.0
04/22/97 03/24/97 Wynn's International Inc Mnfr auto lubricants, products 331.1 9.6 9.6 20.5
04/23/97 04/23/97 Vail Resorts Inc Investor 183.9 19.5 14.9 8.5
04/24/97 01/17/97 American Recreation Centers Own,op bowling centers 39.9 15.3 33.3 70.0
04/25/97 10/01/96 Cosmetic Center Inc Own and op retail stores 20.7 17.4 45.3 103.5
04/30/97 11/29/96 Chicago Dock and Canal Trust Real estate investment trust 149.4 22.3 22.7 22.7
05/01/97 12/03/96 BFS Bankorp Inc,New York,NY Savings,mortgage bank hldg co 91.5 11.8 16.9 22.4
05/01/97 12/27/96 Business & Professional Bk,CA Commercial bank;trust facility 33.5 14.3 20.0 30.9
05/02/97 11/14/96 OSB Financial Corp,Oshkosh,WI Bank holding co 32.6 12.4 12.4 15.9
05/05/97 10/29/96 First-Knox Banc Corp Bank holding co 108.3 (0.3) (1.2) 14.5
05/08/97 04/10/97 SPX Corp Mnfr engine components,tools 821.5 22.1 32.9 16.1
05/09/97 12/23/96 StarSight Telecast Inc Mnfr simplified VCR programmer 273.0 17.9 20.8 44.3
05/13/97 05/13/97 WW Grainger Inc Wholesale electric motors 4,181.3 (1.1) (0.6) 6.0
05/15/97 11/20/96 Aspen Bancshares Inc,Aspen,CO Bank holding company 89.9 27.3 27.3 24.1
05/19/97 11/04/96 TransWorld Bancorp,California Savings and loan 63.2 10.6 12.3 30.4
05/20/97 04/16/97 Briggs & Stratton Corp Mnfr gas engines,auto locks 1,475.3 19.3 14.6 11.8
05/20/97 02/13/97 Reflectone Inc Whl aircraft,aircraft equip 74.0 20.0 18.5 25.5
05/21/97 01/28/97 Calgene Inc(Monsanto Co) Mnfr agro chems,manmade fibers 485.7 62.0 60.0 60.0
05/27/97 01/07/97 Compression Labs Inc Mnfr video telecommun equip 74.3 9.6 22.2 9.2
05/29/97 02/11/97 Fractal Design Corp Develop software 140.0 45.0 40.4 1.0
05/29/97 10/28/96 Wireless Cable of Atlanta Pvd telecommunication svcs 34.3 89.9 80.8 80.8
05/30/97 03/03/97 BHC Financial Inc Pvd finl data processing svcs 220.7 67.5 60.0 82.3
05/30/97 11/26/96 First Finl Corp of Wstn MD Bank and insurance holding co 79.3 40.2 50.1 59.8
05/30/97 10/28/96 Premier Bankshs,Bluefield,VA Bank holding company 160.9 26.9 34.0 34.0
05/30/97 01/07/97 Thermal Industries Inc Investment firm 30.3 18.8 25.0 25.0
06/01/97 06/12/96 Regency Realty Corporation Pvd inv management services 118.6 (7.8) (9.0) (4.7)
06/02/97 01/28/97 MidConn Bank,Kensington,CT Savings bank;holdong co 50.6 25.8 29.0 27.4
06/02/97 02/14/97 New Iberia Bancorp,Louisiana Bank holding company 62.1 (1.4) (0.2) 4.8
06/02/97 01/13/97 Somatix Therapy Corp Pvd biological research svcs 86.0 (7.9) (3.1) 6.1
06/03/97 03/31/97 Peak Technologies Group Inc Mnfr manifold business forms 169.2 108.7 97.3 65.5
06/09/97 12/26/96 Eldorado Bancorp,Tustin,CA Commercial bank;holding co 91.7 12.9 14.3 12.9
06/12/97 03/21/97 CrossComm Corp Mnfr communications equipment 83.9 74.3 70.2 70.2
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
06/12/97 11/12/96 Leslie's Poolmart Own,op swimming pool stores Investor Group
06/12/97 04/08/97 Premiere Radio Networks Inc Own,op radio bdcstg stations Jacor Communications Inc
06/13/97 02/11/97 AMISYS Managed Care Systems Pvd intergrated systems svcs HBO & Co
06/13/97 04/10/97 ERO Inc Manufacture toys Hedstrom Corp(Hedstrom Hldgs)
06/13/97 11/07/96 SJS Bancorp Inc,St Joseph,MI Commercial bank;holding co Shoreline Financial Corp,MI
06/17/97 01/17/97 Avemco Corp Fire,marine,casualty ins co HCC Insurance Holdings Inc
06/20/97 06/20/97 Hugoton Energy Corp Oil and gas exploration,prodn Belco Oil & Gas Corp
06/23/97 01/15/97 Central & Southern Holding,GA Commercial bank;holding co Premier BancShares,Atlanta,GA
06/24/97 04/09/97 Public Storage Ppties XVIII Real estate investment trust Public Storage Inc
06/24/97 04/09/97 Public Storage Properties XIX Real estate investment trust Public Storage Inc
06/24/97 04/09/97 Public Storage Properties XVI Real estate investment trust Public Storage Inc
06/24/97 04/09/97 Public Storage Properties XVII Real estate investment trust Public Storage Inc
06/26/97 06/13/96 Bally's Grand Inc Own and operate casino hotels Bally's Grand Inc
06/26/97 03/14/97 Enterprise Systems Inc Develop hospital mgmt software HBO & Co
06/26/97 04/10/97 Microcom Inc Mnfr data comm products Compaq Computer Corp
06/27/97 03/25/97 Ascent Entertainment Group Inc Pvd entertainment services Shareholders
06/27/97 11/14/96 Eastern Bancorp,Williston,VT Bank holding company Vermont Financial Services,VT
06/30/97 09/12/96 California Financial Hldg,CA Bank holding co Temple-Inland Financial Svcs
06/30/97 06/11/97 Excite Inc Dvlp Internet search engines Intuit Inc
06/30/97 04/15/97 Kurzweil Applied Intelligence Electronic computing equip Lernout & Hauspie Speech
07/01/97 03/17/97 American Bancorp of Nevada,NV Commercial bank First Security Bk of Nevada,NV
07/01/97 10/31/96 California Jockey Club/Bay Own,op horse racing tracks Patriot American Hospitality
07/01/97 01/14/97 County Bank of Chesterfield,VA Commercial bank Community Bankshares Inc,VA
07/02/97 01/24/97 INCSTAR Corp(Sorin Biomedical) Mnfr diagnostic substances American Standard Inc
07/02/97 04/25/97 ShopKo Stores Inc Own and operate variety stores ShopKo Stores Inc
07/07/97 02/25/97 CU Bancorp,Encino,California Bank holding co Pacific Century Financial Corp
07/08/97 06/26/97 Hach Co Mnfr laboratory instruments Hach Co
07/09/97 05/30/97 Integrated Living Communities Pvd nursing,personal care svcs Whitehall Street Real Estate
07/09/97 01/21/97 Mafco Consolidated Grp(Mafco) Mnfr cosmetics,beauty products Mafco Holdings Inc
07/10/97 04/18/97 LIVE Entertainment Inc Whl,retail recorded music Investor Group
07/10/97 03/25/97 Phamis Inc Pvd integrated systems design IDX Systems Corp
07/11/97 03/19/97 American List Corp Pvd mail advertising svcs Snyder Communications Inc
07/14/97 06/05/97 DIGEX Inc Develop Internet software Intermedia Communications Inc
07/14/97 04/17/97 Drilex International Inc Pvd prod,svcs used in drilling Baker Hughes Inc
07/15/97 06/02/97 Acordia Inc(Anthem Inc) Pvd insurance brokerage svcs Anthem Inc
07/17/97 05/28/97 DAKA International Inc Own,operate restaurants Compass Group PLC
07/18/97 07/19/96 First American Corp,Tennessee Commercial bank;holding co First American Corp,Tennessee
07/24/97 01/27/97 Cardiometrics Inc Mnfr surgical,medical equip EndoSonics Corp
07/24/97 06/17/97 McFarland Energy Inc Oil and gas exploration, prodn Monterey Resources Inc
07/25/97 04/30/97 Arden Industrial Products Inc Whl fasteners Park-Ohio Industries Inc
07/25/97 06/17/97 Seda Specialty Packaging Corp Mnfr specialty packaging prods CCL Industries Inc
07/25/97 03/13/97 Suburban Bancorporation,Ohio Bank holding co Fifth Third Bancorp,OH
07/25/97 05/06/97 Varsity Spirit Pvd cheerleading training svcs Riddell Sports Inc
07/28/97 06/04/97 Maxis Inc Develop educational software Electronic Arts Inc
07/31/97 04/04/97 People's Savings Finl,CT Bank holding company Webster Finl Corp,Waterbury,CT
07/31/97 02/11/97 Serv-Tech Inc Maintenance and cleaning svcs Philip Environmental Inc
08/01/97 03/07/97 Micro Bio-Medics Inc Whl,mnfr medical equip Henry Schein Inc
08/04/97 03/03/97 CB Bancorp,Michigan City,IN Bank holding co Pinnacle Financial Svcs Inc,MI
08/04/97 11/14/96 Indiana Federal,Valparaiso,IN Commercial bank;holding co Pinnacle Financial Svcs Inc,MI
08/04/97 08/06/97 Redwood Trust Inc Real estate investment trust Zweig-DiMenna Associated LLC
08/05/97 07/12/96 Molex Inc Mnfr electronic components Molex Inc
08/05/97 03/24/97 OnTrak Systems Inc Mnfrs semiconductor cap equip Lam Research Corp
08/06/97 02/19/97 First Patriot Bankshares,VA Bank holding company United Bankshares Inc,WV
08/06/97 06/30/97 Oshkosh B'Gosh Inc Mnfr childrenswear,menswear Oshkosh B'Gosh Inc
08/07/97 08/07/97 Apple Computer Inc Mnfr computers and peripherals Grupo Carso SA de CV
08/08/97 05/27/97 Alamco Inc Oil & gas exploration, prod Columbia Natural Resources Inc
08/13/97 03/06/97 Crop Growers Corp Insurance agency Fireman's Fund Insurance Co
08/15/97 06/19/97 Advanced Logic Research Inc Mnfr microcomputer systems Gateway 2000 Inc
08/15/97 06/03/97 Alexander Haagen Properties Real estate investment trust Lazard Freres & Co
08/25/97 03/11/97 First Citizens Financial,MD Bank holding company Provident Bankshares,Maryland
08/26/97 05/13/97 Aurum Software Inc Dvlp sales, mktg info software Baan Co NV
<CAPTION>
Premium
---------------------------------------
1 Day 1 Week 4 Weeks
Equity Prior to Prior to Prior to
Date Date Acquiror Short Value Announcement Announcement Announcement
Effective Announced Target Name Business Description ($mil) Date Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
06/12/97 11/12/96 Leslie's Poolmart Investor group 98.8 26.1 31.8 31.8
06/12/97 04/08/97 Premiere Radio Networks Inc Own,op radio bdcstg stations 167.2 17.4 19.2 19.2
06/13/97 02/11/97 AMISYS Managed Care Systems Dvlp healthcare software 170.6 38.6 44.3 43.1
06/13/97 04/10/97 ERO Inc Manufacture games and toys 123.7 12.5 16.9 30.4
06/13/97 11/07/96 SJS Bancorp Inc,St Joseph,MI Commercial bank;holding co 25.7 18.7 13.7 24.1
06/17/97 01/17/97 Avemco Corp Provide insurance services 247.6 47.7 55.8 89.3
06/20/97 06/20/97 Hugoton Energy Corp Oil and gas exploration, prodn 206.9 (9.7) (2.3) (11.6)
06/23/97 01/15/97 Central & Southern Holding,GA Commercial bank; holding co 50.7 15.2 15.2 38.9
06/24/97 04/09/97 Public Storage Ppties XVIII Real estate investment trust 78.6 5.0 7.1 2.9
06/24/97 04/09/97 Public Storage Properties XIX Real estate investment trust 67.9 4.9 3.3 3.3
06/24/97 04/09/97 Public Storage Properties XVI Real estate investment trust 84.2 6.0 5.3 2.6
06/24/97 04/09/97 Public Storage Properties XVII Real estate investment trust 74.9 (0.7) (0.0) (2.6)
06/26/97 06/13/96 Bally's Grand Inc Own and operate casino hotels 697.2 45.0 50.7 93.6
06/26/97 03/14/97 Enterprise Systems Inc Dvlp healthcare software 256.1 15.3 13.8 30.0
06/26/97 04/10/97 Microcom Inc Manufacture personal computers 267.5 54.8 91.2 35.4
06/27/97 03/25/97 Ascent Entertainment Group Inc Investor group 245.5 (19.5) (20.5) (32.7)
06/27/97 11/14/96 Eastern Bancorp,Williston,VT Bank holding company 91.3 9.5 4.2 16.8
06/30/97 09/12/96 California Financial Hldg,CA Pvd financial investment svcs 145.5 26.3 31.9 31.1
06/30/97 06/11/97 Excite Inc Develop finance software 166.9 2.9 31.7 50.0
06/30/97 04/15/97 Kurzweil Applied Intelligence Mnfr speech tech products 51.3 83.8 69.7 66.5
07/01/97 03/17/97 American Bancorp of Nevada,NV Commercial bank 93.6 20.6 25.2 30.2
07/01/97 10/31/96 California Jockey Club/Bay Real estate investment trust 192.3 87.2 88.6 103.1
07/01/97 01/14/97 County Bank of Chesterfield,VA Commercial bank 41.0 250.3 265.8 282.7
07/02/97 01/24/97 INCSTAR Corp(Sorin Biomedical) Transportation, building prod 105.0 42.9 53.2 68.5
07/02/97 04/25/97 ShopKo Stores Inc Own and operate variety stores 589.9 (3.4) (0.8) 22.3
07/07/97 02/25/97 CU Bancorp,Encino,California Bank holding co 178.4 15.8 18.0 25.2
07/08/97 06/26/97 Hach Co Mnfr laboratory instruments 216.1 5.6 15.2 25.6
07/09/97 05/30/97 Integrated Living Communities Real estate development firm 79.7 26.9 21.1 50.8
07/09/97 01/21/97 Mafco Consolidated Grp(Mafco) Mnfr toilet preparations 778.5 23.5 23.5 27.6
07/10/97 04/18/97 LIVE Entertainment Inc Investor group 53.1 6.7 6.7 50.0
07/10/97 03/25/97 Phamis Inc Mnfr health care info systems 141.3 18.9 23.0 26.5
07/11/97 03/19/97 American List Corp Pvd outsources marketing svcs 118.6 17.3 28.0 8.8
07/14/97 06/05/97 DIGEX Inc Pvd telecommunications svcs 169.0 19.5 35.9 31.6
07/14/97 04/17/97 Drilex International Inc Mnfr oil,gas field machinery 121.8 31.4 37.9 59.8
07/15/97 06/02/97 Acordia Inc(Anthem Inc) Insurance company 540.0 12.7 11.5 26.0
07/17/97 05/28/97 DAKA International Inc Provide catering and building 83.8 (33.3) (35.5) (7.7)
07/18/97 07/19/96 First American Corp,Tennessee Commercial bank;holding co 1,251.0 (0.0) 2.0 (1.6)
07/24/97 01/27/97 Cardiometrics Inc Mnfr image processing equip 56.3 18.3 13.8 47.1
07/24/97 06/17/97 McFarland Energy Inc Oil and gas exploration, prodn 110.3 11.6 41.3 44.8
07/25/97 04/30/97 Arden Industrial Products Inc Mnfr forged and machined parts 42.0 41.2 50.0 37.1
07/25/97 06/17/97 Seda Specialty Packaging Corp Mnfr,pvd specialty packaging 182.6 31.8 36.5 52.6
07/25/97 03/13/97 Suburban Bancorporation,Ohio Pvd commercial banking svcs 32.9 26.0 24.2 31.8
07/25/97 05/06/97 Varsity Spirit Manufacture football equipment 91.1 30.3 28.1 23.9
07/28/97 06/04/97 Maxis Inc Develop,wholesale software 127.2 2.3 2.3 40.6
07/31/97 04/04/97 People's Savings Finl,CT Bank holding co 67.8 6.3 3.4 8.8
07/31/97 02/11/97 Serv-Tech Inc Provide waste management svcs 46.7 32.0 60.0 88.6
08/01/97 03/07/97 Micro Bio-Medics Inc Whl med supplies 106.0 12.2 12.2 10.4
08/04/97 03/03/97 CB Bancorp,Michigan City,IN Commercial bank;holding co 43.1 22.3 22.3 29.6
08/04/97 11/14/96 Indiana Federal,Valparaiso,IN Commercial bank;holding co 120.5 22.2 26.9 17.9
08/04/97 08/06/97 Redwood Trust Inc Investment company 697.2 25.6 18.6 11.5
08/05/97 07/12/96 Molex Inc Mnfr electronic components 849.4 (38.7) (42.9) (46.7)
08/05/97 03/24/97 OnTrak Systems Inc Mnfr equip to mnfr semiconduct 215.9 (0.9) 3.0 13.9
08/06/97 02/19/97 First Patriot Bankshares,VA Bank holding company 35.4 15.3 9.7 4.6
08/06/97 06/30/97 Oshkosh B'Gosh Inc Mnfr childrenswear,menswear 218.6 11.4 15.8 26.6
08/07/97 08/07/97 Apple Computer Inc Mnfr industrial equipment 2,024.9 (39.2) (8.6) 20.8
08/08/97 05/27/97 Alamco Inc Operate natural gas pipeline 78.8 7.7 11.5 16.7
08/13/97 03/06/97 Crop Growers Corp Insurance company 82.2 20.6 15.5 41.4
08/15/97 06/19/97 Advanced Logic Research Inc Mnfr personal computers 206.2 29.2 30.5 34.8
08/15/97 06/03/97 Alexander Haagen Properties Investment bank 180.4 (0.4) 11.1 3.4
08/25/97 03/11/97 First Citizens Financial,MD Bank holding company 91.6 26.5 42.3 47.3
08/26/97 05/13/97 Aurum Software Inc Develop software 259.9 33.0 40.4 55.8
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
08/28/97 04/08/97 BNH Bancshares,New Haven,CT Bank holding company Citizens Financial Group,RI
08/28/97 07/25/97 Imo Industries Inc Mnfr industrial controls,pumps Constellation Capital Partners
08/29/97 03/24/97 Community Bankshares,NH Bank holding company CFX Corp,Keene,New Hampshire
08/29/97 06/16/97 Core Industries Inc Manufacture electronic equip United Dominion Industries Ltd
08/29/97 09/03/97 Gaylord Entertainment Company Own,op cable TV stations Investor Group
08/29/97 02/13/97 Portsmouth Bank Shares,NH Bank holding company CFX Corp,Keene,New Hampshire
09/01/97 04/23/97 Haverfield Corp,Lakewood,Ohio Holding co Charter One Finl,Cleveland,OH
09/05/97 07/03/96 Golden Poultry Co Inc Produce,wholesale poultry Gold Kist Inc
09/12/97 06/09/97 Amrion Inc Own,op food stores Whole Foods Market Inc
09/16/97 08/14/97 American Medserve Corp Wholesale pharmaceuticals Omnicare Inc
09/17/97 08/12/97 Isomedix Inc Pvd contract sterilization svc Steris Corp
09/19/97 12/26/96 FFO Financial Group Inc Bank holding company Republic Bancshares Inc,FL
09/23/97 07/02/97 American Filtrona Corp Mnfr bonded fiber Bunzl PLC
09/23/97 07/09/97 Control Data Systems Inc Mnfr computers,peripherals CDSI Holding Corp
09/23/97 09/23/97 Security Capital Group Inc Pvd real estate research svcs Govt of Singapore Investment
09/24/97 07/31/97 Bucyrus International Inc Mnfr surface mining machinery American Industrial Partners
09/24/97 08/14/97 Talbert Medical Management Own,op medical,dental clinics MedPartners Inc
09/25/97 06/17/97 Hechinger Co Own,op retail home centers Leonard Green & Partners LP
09/25/97 09/25/97 MGM Grand Inc(Tracinda Corp) Operate hotels and airlines Tracinda Corp
09/26/97 08/01/97 Community Care of America Inc Own,op nursing homes Integrated Health Services Inc
09/26/97 07/03/97 Krystal Co Own,op fast food restaurants Port Royal Holdings Inc
09/29/97 07/31/97 Interactive Group Inc Dvlp,whl comp integrated sys DataWorks Corp
09/29/97 06/24/97 SMT Health Services Inc Operate outpatient facilities Three Rivers Holding Corp
09/30/97 07/08/97 Delchamps Inc Own and operate supermarkets Jitney-Jungle Stores of Amer
09/30/97 06/16/97 Frederick's of Hollywood, Inc. Women's clothing stores Investor Group
09/30/97 04/21/97 Imagyn Medical Inc Mnfr surgical,medical instr UroHealth Systems Inc
09/30/97 08/11/97 National Sanitary Supply Co Sanitary maintenance supplies Unisource Worldwide Inc
10/01/97 05/01/97 Cardinal Bancshares,Kentucky Bank holding co Area Bancshares Corp,Kentucky
10/01/97 11/14/96 Health Management Inc Pvd prescription distn svcs Transworld Healthcare Inc
10/02/97 07/15/97 DH Technology Inc Mnfr,whl computer printers Axiohm SA
10/03/97 08/25/97 BioWhittaker Inc Mnfr,whl medical testing prods Cambrex Corp
10/10/97 08/28/97 Versa Technologies Inc Mnfr rubber components,molds Applied Power Inc
10/13/97 04/29/97 SC Bancorp,Anaheim,California Bank holding co Western Bancorp,California
10/14/97 06/24/97 American Exploration Co Oil and gas exploration, prodn Louis Dreyfus Natural Gas
10/14/97 10/14/97 InSight Health Services Corp Own and operate medical labs General Electric Medical Sys
10/16/97 05/12/97 Dynamics Corp of America Mnfr electrical appliances CTS Corp
10/16/97 05/30/97 National Picture and Frame Co Mnfr picture,mirror frames Colonnade Capital LLC
10/21/97 08/25/97 ACC Consumer Finance Corp Pvd auto financing services Household International Inc
10/21/97 10/16/97 Storage Trust Realty Real estate investment trust Robertson Stephens & Co
10/23/97 06/20/97 Convest Energy Corp Oil and gas exploration,prodn Forcenergy Inc
10/23/97 06/20/97 Edisto Resources Corp Oil and gas exploration,prodn Forcenergy Inc
10/23/97 07/31/97 Sterling House Corp Own,op nursing homes Alternative Living Services
10/28/97 07/24/97 Astrotech International Corp Pvd storage tank maintenance ITEQ Inc
10/28/97 07/15/97 Intl Imaging Materials Mnfr thermal transfer ribbons Paxar Corp
10/30/97 11/05/97 IBP Inc Produce beef and pork products Archer Daniels Midland Co
10/31/97 10/01/97 CTG Resources Inc Gas utility CTG Resources Inc
11/06/97 07/07/97 Cairn Energy USA Inc Oil and gas exploration,prodn Meridian Resource Corp
11/07/97 07/22/97 Elexsys International Inc Manufacture circuit boards Sanmina Corp
11/07/97 11/10/97 Sepracor Inc Mnfr chiral pharmaceuticals Investor Group
11/10/97 11/10/97 AmeriCredit Corp Pvd personal credit services Investor Group
11/12/97 08/07/97 1st United Bancorp,FL Baank holding co Wachovia Corp,Winston-Salem,NC
11/12/97 10/03/96 Pittencrieff Communications Pvd radiotelephone commun svcs Nextel Communications Inc
11/13/97 06/23/97 American National Bancorp,MD Bank holding company Crestar Finl Corp,Richmond,VA
11/18/97 07/10/97 Airways Corp Passenger airline AirTran Holdings Inc
11/19/97 08/04/97 Gynecare Inc Pvd biotech prod dlvp services Johnson & Johnson
11/21/97 07/01/97 First Southeast Finl Corp,SC Bank holding co Carolina First Corp,SC
11/21/97 10/15/97 Thompson PBE Inc Whl automotive paint,supplies FinishMaster Inc(Lacey Distn)
11/23/97 12/14/95 Darden Restaurants Inc Own,operate restaurants Darden Restaurants Inc
11/24/97 09/24/97 Allergan Ligand Retinoid Manufacture pharmaceuticals Ligand Pharmaceuticals Inc
11/25/97 06/24/97 Cable Car Beverage Produce, wholesale beverages Triarc Cos Inc
11/26/97 09/29/97 CompuRAD Inc Pvd healthcare software Lumisys Inc
<CAPTION>
Premium
-----------------------------------------
1 Day 1 Week 4 Weeks
Equity Prior to Prior to Prior to
Date Date Acquiror Short Value Announcement Announcement Announcement
Effective Announced Target Name Business Description ($mil) Date Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
08/28/97 04/08/97 BNH Bancshares,New Haven,CT Savings bank;holding co 58.0 14.8 26.5 19.2
08/28/97 07/25/97 Imo Industries Inc Investment company 120.7 18.7 20.0 22.6
08/29/97 03/24/97 Community Bankshares,NH Savings and loan 102.0 63.3 64.1 54.7
08/29/97 06/16/97 Core Industries Inc Mnfr structural metal 275.2 26.6 37.9 49.3
08/29/97 09/03/97 Gaylord Entertainment Company Investor group 2,246.9 0.5 0.3 1.3
08/29/97 02/13/97 Portsmouth Bank Shares,NH Savings and loan 102.2 33.2 38.4 38.4
09/01/97 04/23/97 Haverfield Corp,Lakewood,Ohio Bank holding co 57.0 24.3 35.1 30.2
09/05/97 07/03/96 Golden Poultry Co Inc Produce, wholesale poultry 206.9 52.0 50.0 39.0
09/12/97 06/09/97 Amrion Inc Own,op natural foods stores 152.6 8.1 19.2 47.0
09/16/97 08/14/97 American Medserve Corp Whl,retail pharmaceuticals 221.6 2.5 16.1 25.8
09/17/97 08/12/97 Isomedix Inc Mnfr sterile processing sys 139.2 5.8 15.5 13.9
09/19/97 12/26/96 FFO Financial Group Inc Coml bank,bank holding co 38.0 48.6 62.1 48.6
09/23/97 07/02/97 American Filtrona Corp Whl,mnfr paper,constn material 183.5 8.8 2.2 3.4
09/23/97 07/09/97 Control Data Systems Inc Investment holding company 274.1 29.1 30.6 35.0
09/23/97 09/23/97 Security Capital Group Inc Investment company 590.9 (98.5)
09/24/97 07/31/97 Bucyrus International Inc Pvd fund mgmt & fin adv svcs 193.3 33.3 46.9 71.4
09/24/97 08/14/97 Talbert Medical Management Pvd medical services to HMO's 189.0 10.5 18.9 37.0
09/25/97 06/17/97 Hechinger Co Merchant banking firm 126.6 (14.3) (7.7) (11.1)
09/25/97 09/25/97 MGM Grand Inc(Tracinda Corp) Investment firm 2,579.8 1.7 8.7 18.9
09/26/97 08/01/97 Community Care of America Inc Pvd specialty healthcare svcs 30.4 23.1 18.5 88.2
09/26/97 07/03/97 Krystal Co Investment company 108.5 132.0 169.8 176.2
09/29/97 07/31/97 Interactive Group Inc Dvlp computer integrated sys 56.2 54.4 44.8 71.6
09/29/97 06/24/97 SMT Health Services Inc Investment company 75.6 4.4 2.2 8.0
09/30/97 07/08/97 Delchamps Inc Own and operate grocery stores 213.7 (2.4) (0.8) 6.7
09/30/97 06/16/97 Frederick's of Hollywood, Inc. Investor group 69.1 48.8 44.5 25.9
09/30/97 04/21/97 Imagyn Medical Inc Manufacture medical equipment 56.7 (24.2) (23.2) (12.2)
09/30/97 08/11/97 National Sanitary Supply Co Wholesale printing paper 136.3 (6.7) 20.0 47.4
10/01/97 05/01/97 Cardinal Bancshares,Kentucky Bank holding co 96.2 26.9 33.9 31.0
10/01/97 11/14/96 Health Management Inc Provide home health care svcs 2.8 (86.7) (82.2) (92.9)
10/02/97 07/15/97 DH Technology Inc Mnfr,whl computer printers 199.4 57.5 56.3 57.5
10/03/97 08/25/97 BioWhittaker Inc Mnfr specialty chemicals 130.6 17.8 38.9 47.7
10/10/97 08/28/97 Versa Technologies Inc Mnfr tools,equip,consumables 141.8 36.8 33.1 31.3
10/13/97 04/29/97 SC Bancorp,Anaheim,California Bank holding co 106.7 20.0 31.0 37.3
10/14/97 06/24/97 American Exploration Co Oil and gas exploration,prodn 254.2 13.0 15.0 21.6
10/14/97 10/14/97 InSight Health Services Corp Mnfr,whl MRI scanners 80.7 15.6 21.9 21.9
10/16/97 05/12/97 Dynamics Corp of America Mnfr electronic components 253.7 91.3 94.2 112.7
10/16/97 05/30/97 National Picture and Frame Co Private equity firm 60.3 31.5 28.0 28.0
10/21/97 08/25/97 ACC Consumer Finance Corp Provide financical services 186.8 35.8 34.7 29.6
10/21/97 10/16/97 Storage Trust Realty Securities brokerage firm 318.7 (0.5) (4.6) (5.0)
10/23/97 06/20/97 Convest Energy Corp Oil,gas exploration and prodn 101.2 11.1 11.1 18.9
10/23/97 06/20/97 Edisto Resources Corp Oil,gas exploration and prodn 146.5 (6.6) (6.6) (0.4)
10/23/97 07/31/97 Sterling House Corp Pvd residential care svcs 122.7 30.4 29.5 40.5
10/28/97 07/24/97 Astrotech International Corp Mnfr air purification equip 115.6 45.7 63.4 78.4
10/28/97 07/15/97 Intl Imaging Materials Mnfr label systems 257.2 67.3 60.2 64.9
10/30/97 11/05/97 IBP Inc Produce agricultural products 2,199.2 1.9 3.0 (2.3)
10/31/97 10/01/97 CTG Resources Inc Gas utility 277.0 12.4 11.5 11.8
11/06/97 07/07/97 Cairn Energy USA Inc Oil and gas exploration, prodn 233.6 22.3 29.0 26.7
11/07/97 07/22/97 Elexsys International Inc Mnfr printed circuit boards 219.5 1.5 (8.6) 40.2
11/07/97 11/10/97 Sepracor Inc Investor group 1,042.0 (4.3) 3.0 1.9
11/10/97 11/10/97 AmeriCredit Corp Investor group 1,005.2 19.8 13.0 2.7
11/12/97 08/07/97 1st United Bancorp,FL Bank holding company 218.0 5.7 16.0 27.5
11/12/97 10/03/96 Pittencrieff Communications Pvd cellular telephone svcs 148.6 9.0 14.4 30.7
11/13/97 06/23/97 American National Bancorp,MD Bank holding company 75.2 26.0 33.2 36.6
11/18/97 07/10/97 Airways Corp Passenger airline 63.7 26.7 29.8 32.9
11/19/97 08/04/97 Gynecare Inc Mnfr medical equip and prods 70.5 (2.8) 1.7 37.7
11/21/97 07/01/97 First Southeast Finl Corp,SC Bank holding company 70.6 60.9 55.1 51.4
11/21/97 10/15/97 Thompson PBE Inc Whl automotive paint,coatings 69.3 25.5 33.3 42.2
11/23/97 12/14/95 Darden Restaurants Inc Own,operate restaurants 1,842.3 (0.0) (0.0) 1.0
11/24/97 09/24/97 Allergan Ligand Retinoid Manufacture diagnostic tests 71.4 13.0 11.6 7.8
11/25/97 06/24/97 Cable Car Beverage Own,op fast-food restaurants 33.9 (11.4) (3.1) 4.9
11/26/97 09/29/97 CompuRAD Inc Mnfr medical imaging equipment 25.0 1.3 3.4 1.3
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/28/97 09/10/97 Data Documents Inc Manufacture tabulating cards Corporate Express Inc
12/01/97 07/25/97 Homegate Hospitality Inc Own and operate hotels Prime Hospitality Corp
12/01/97 05/06/97 Virginia First Finl Corp,VA Bank holding co BB&T Corp,Winston-Salem,NC
12/02/97 10/31/97 Fund AM Enterprises Hldgs Property casualty insurance Fund AM Enterprises Hldgs
12/02/97 09/10/97 Tinsley Laboratories Inc Mnfr optical instr,lenses Silicon Valley Group Inc
12/05/97 10/01/97 Alpine Lace Brands Inc Whl dairy products,cheese Land O' Lakes Inc
12/05/97 08/14/97 Uniforce Services Inc Pvd temporary personnel svcs Comforce Corp
12/09/97 02/20/97 NHP Inc(Apartment Investment) Own,op apartment buildings Apartment Investment & Mgmt Co
12/09/97 09/12/97 Unison Software Inc Develop network mgmt software Tivoli Systems Inc(IBM Corp)
12/12/97 09/24/97 Game Financial Corp Pvd fund access svcs Travelers Express Co(Viad)
12/15/97 09/09/97 Offshore Energy Development Oil and gas exploration,prodn Titan Exploration Inc
12/16/97 03/17/97 Bank Corp of Georgia,Macon,GA Bank holding co Century South Banks Inc,GA
12/16/97 07/22/97 Box Worldwide Inc Pvd interactive TV svcs TCI Music(Tele-Communications)
12/16/97 09/18/97 Guaranty National Corp Insurance company Orion Capital Corp
12/18/97 07/23/97 Alliance Imaging Inc Pvd diagnostic imaging svcs Newport Investment LLC
12/18/97 12/18/97 Central Newspapers Inc Publish newspapers Central Newspapers Inc
12/18/97 07/01/97 Marshalltown Financial Corp,IA Bank holding co HMN Financial,Spring Valley,MN
12/18/97 08/14/97 Technology Service Group Inc Mnfr cellular telephones Elcotel
12/19/97 12/19/97 Bell & Howell Co Mnfr visual commun systems Fir Tree Partners LP
12/19/97 10/06/97 EndoVascular Technologies Inc Mnfr surgical instruments Guidant Corp
12/19/97 08/18/97 Glastonbury Bank & Trust Co,CT Commercial bank;RE agency SIS Bancorp Inc,Springfield,MA
12/19/97 10/14/97 Physician Support Systems Inc Pvd business mgmt services National Data Corp
12/19/97 10/23/97 Premenos Technology Corp Develop EDI software Harbinger Corp
12/22/97 08/08/97 Titan Holdings Inc Auto,property,casualty ins co USF&G Corp
12/22/97 08/11/97 Vacation Break USA Inc Real estate development firm Fairfield Communities Inc
12/23/97 10/09/97 Melamine Chemicals Inc Manufacture melamine crystal Borden Chemical Inc(Borden)
12/23/97 12/30/97 NS Group Inc Mnfr,whl specialty steel prods Everest Capital Ltd
12/23/97 08/04/97 Perkins Family Restaurant LP Own,op franchised restaurants Restaurant Co
12/23/97 07/09/97 Seaman Furniture Co Own,op ret furniture stores Investor Group
12/29/97 10/17/97 Computational Systems Inc Manufacture measuring devices Emerson Electric Co
12/29/97 10/03/97 Natl Health Enhancement Sys Develop healthcare software HBO & Co
12/29/97 11/21/97 Shared Technologies Fairchild Mnfr telecommunications equip Intermedia Communications Inc
12/29/97 08/14/97 Tuesday Morning Corp Own, operate giftware stores Madison Dearborn Partners
12/30/97 11/28/97 Deflecta-Shield Corp Mnfr truck accessories Lund International Holdings
12/30/97 08/11/97 ProNet Inc Mnfr pagers;pager leasing svcs Metrocall Inc
12/31/97 08/14/97 Allied Capital Advisers Inc Investment advisory svcs Allied Capital Lending Corp
12/31/97 08/04/97 Belmont Homes Inc Mnfr prefabricated houses Cavalier Homes Inc
12/31/97 09/08/97 Fuqua Enterprises Inc Manufacture tanned leather Graham-Field Health Products
01/02/98 06/23/97 SHO-ME Finl,Mount Vernon,MO Bank holding co Union Planters Corp,Memphis,TN
01/05/98 05/06/97 Physicians Health Services Inc Own and operate HMO's Foundation Health Systems Inc
01/06/98 09/24/97 Vectra Banking Corp,Denver,CO Bank holding company Zions Bancorp,Utah
01/07/98 10/10/97 Puro Water Group Inc Whl bottled water United States Filter Corp
01/08/98 08/07/97 Bank of Southington State bank Hubco Inc,Mahwah,New Jersey
01/09/98 11/03/97 Sequana Therapeutics Mnfr diagnostic substances Arris Pharmaceuticals Corp
01/12/98 11/04/97 ComputerVision Corp Mnfr computers,peripherals Parametric Technology Corp
01/15/98 06/03/97 Faulding Inc(FH Faulding & Co) Mnfr pharmaceuticals FH Faulding & Co Ltd
01/16/98 08/05/97 Covenant Bancorp,New Jersey Commercial bank;holding co First Union Corp,Charlotte,NC
01/16/98 09/19/97 Sterling Electronics Corp Whl electronic components Marshall Industries
01/16/98 09/18/97 Stokely USA Inc Prod canned fruits,vegetables Chiquita Brands International
01/16/98 09/05/97 Technology Modeling Assoc Inc Dvlp simulation software Avant! Corp
01/16/98 09/12/97 WHG Resorts & Casino Inc Own,op resorts and casino Patriot Amer Hosp/Wyndham Intl
01/20/98 11/03/97 Cambridge SoundWorks Inc Mnfr stereo speakers Creative Technology Ltd
01/20/98 11/21/97 New Jersey Steel(Von Roll) Mnfr steel reinforcing bars Co-Steel Inc
01/22/98 09/23/97 El Chico Restaurants Inc Own and operate restaurants Investor Group
01/22/98 10/13/97 Netcom On-Line Communication Internet service provider ICG Communications Inc
01/23/98 01/23/98 Amerada Hess Corp Oil and gas exploration,prodn Drakes Office Systems Ltd
01/23/98 08/25/97 PerSeptive Biosystems Inc Mnfr chromatography equipment Perkin-Elmer Corp
01/23/98 12/17/97 Suburban Ostomy Supply Co Inc Whl medical and hospital equip InvaCare Corporation
01/27/98 12/23/97 Hi-Lo Automotive Inc Own,op auto parts stores O'Reilly Automotive Inc
01/27/98 07/31/97 Santa Monica Bank Commercial bank Western Bancorp,California
01/27/98 12/19/97 Software Artistry Inc Develop help-desk software Tivoli Systems Inc(IBM Corp)
<CAPTION>
Premium
----------------------------------------
1 Day 1 Week 4 Weeks
Equity Prior to Prior to Prior to
Date Date Acquiror Short Value Announcement Announcement Announcement
Effective Announced Target Name Business Description ($mil) Date Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11/28/97 09/10/97 Data Documents Inc Retail office supplies 160.6 10.9 14.9 26.1
12/01/97 07/25/97 Homegate Hospitality Inc Own,operate,franchise hotels 133.2 30.3 33.8 28.6
12/01/97 05/06/97 Virginia First Finl Corp,VA Bank holding company 144.5 77.3 77.3 74.1
12/02/97 10/31/97 Fund AM Enterprises Hldgs Property casualty insurance 797.6 15.6 14.7 13.1
12/02/97 09/10/97 Tinsley Laboratories Inc Mnfr semiconductor equipment 40.5 96.4 96.4 96.4
12/05/97 10/01/97 Alpine Lace Brands Inc Produce butter, milk and meats 49.2 15.9 49.0 46.0
12/05/97 08/14/97 Uniforce Services Inc Pvd help supply services 105.9 37.6 37.6 52.6
12/09/97 02/20/97 NHP Inc(Apartment Investment) Real estate investment trust 254.6 28.3 25.2 16.9
12/09/97 09/12/97 Unison Software Inc Dvlp systems mgmt software 185.3 9.1 25.0 22.4
12/12/97 09/24/97 Game Financial Corp Pvd money order issuance svcs 50.6 4.9 4.9 4.9
12/15/97 09/09/97 Offshore Energy Development Oil and gas exploration, prodn 75.0 94.4 (5.5) (8.1)
12/16/97 03/17/97 Bank Corp of Georgia,Macon,GA Bank holding company 60.7 24.7 21.6 33.0
12/16/97 07/22/97 Box Worldwide Inc Pvd communications services 36.1 20.0 54.8 152.6
12/16/97 09/18/97 Guaranty National Corp Insurance company;holding co 554.2 10.8 23.9 27.7
12/18/97 07/23/97 Alliance Imaging Inc Investment company 120.4 7.3 3.5 14.3
12/18/97 12/18/97 Central Newspapers Inc Publish newspapers 1,509.1 (1.1) 0.6 (0.3)
12/18/97 07/01/97 Marshalltown Financial Corp,IA Bank holding co 25.9 13.0 13.0 16.7
12/18/97 08/14/97 Technology Service Group Inc Mnfr public commun products 32.9 (4.5) 7.1 41.9
12/19/97 12/19/97 Bell & Howell Co Investment firm 632.0 18.0 19.3 13.4
12/19/97 10/06/97 EndoVascular Technologies Inc Mnfr cardiovascular equipment 188.0 22.1 22.1 73.9
12/19/97 08/18/97 Glastonbury Bank & Trust Co,CT Savings and loan;holding co 40.6 11.0 10.3 27.8
12/19/97 10/14/97 Physician Support Systems Inc Pvd info,transaction svcs 175.2 (1.0) (3.7) 4.8
12/19/97 10/23/97 Premenos Technology Corp Dvle electn commerce software 235.5 55.2 49.1 27.8
12/22/97 08/08/97 Titan Holdings Inc Insurance holding company 237.7 16.0 19.1 24.9
12/22/97 08/11/97 Vacation Break USA Inc Construct vacation resorts 178.1 41.6 39.1 95.8
12/23/97 10/09/97 Melamine Chemicals Inc Mnfr formaldehyde,resins 119.7 70.8 72.6 70.8
12/23/97 12/30/97 NS Group Inc Investment management firm 404.0 12.8 27.3 (6.0)
12/23/97 08/04/97 Perkins Family Restaurant LP Own,operate restaurants 146.7 28.7 26.6 31.8
12/23/97 07/09/97 Seaman Furniture Co Investor group 122.5 21.5 25.3 21.5
12/29/97 10/17/97 Computational Systems Inc Mnfr appliance components 159.5 45.1 48.3 62.5
12/29/97 10/03/97 Natl Health Enhancement Sys Dvlp healthcare software 97.8 16.7 41.5 121.9
12/29/97 11/21/97 Shared Technologies Fairchild Pvd telecommunications svcs 257.8 5.7 25.7 20.6
12/29/97 08/14/97 Tuesday Morning Corp Investors 298.6 22.7 25.8 11.1
12/30/97 11/28/97 Deflecta-Shield Corp Mnfr automobile parts 79.8 33.3 33.3 77.8
12/30/97 08/11/97 ProNet Inc Pvd local paging services 69.0 (10.0) (0.7) 27.1
12/31/97 08/14/97 Allied Capital Advisers Inc Closed-end mgmt investment co 48.7 10.4 4.7 10.4
12/31/97 08/04/97 Belmont Homes Inc Manufacture mobile homes 74.0 (17.9) 0.6 9.5
12/31/97 09/08/97 Fuqua Enterprises Inc Mnfr medical supply,healthcare 176.0 42.3 52.8 78.8
01/02/98 06/23/97 SHO-ME Finl,Mount Vernon,MO Commercial bank holding co 67.8 (0.4) 8.0 19.3
01/05/98 05/06/97 Physicians Health Services Inc Own,op HMO's; holding company 270.6 23.5 27.0 51.7
01/06/98 09/24/97 Vectra Banking Corp,Denver,CO Bank holding company 162.3 19.2 18.6 47.3
01/07/98 10/10/97 Puro Water Group Inc Mnfr water treatment equip 25.7 34.0 47.7 44.0
01/08/98 08/07/97 Bank of Southington Bank holding company 26.0 (9.7) 27.3 30.2
01/09/98 11/03/97 Sequana Therapeutics Manufacture synthetic drugs 169.6 44.0 47.3 23.4
01/12/98 11/04/97 ComputerVision Corp Develop,wholesale software 250.3 28.3 69.9 18.6
01/15/98 06/03/97 Faulding Inc(FH Faulding & Co) Mnfr,whl drugs,toiletries 203.7 25.6 22.7 45.9
01/16/98 08/05/97 Covenant Bancorp,New Jersey Commercial bank holding co 55.4 (10.1) (2.0) 6.3
01/16/98 09/19/97 Sterling Electronics Corp Whl electronic components 162.6 16.3 30.2 57.0
01/16/98 09/18/97 Stokely USA Inc Produce bananas,fruits 11.4 (36.0) (30.4) (36.0)
01/16/98 09/05/97 Technology Modeling Assoc Inc Develop software 151.7 29.5 52.8 43.2
01/16/98 09/12/97 WHG Resorts & Casino Inc Real estate investment trust 166.0 35.1 72.3 78.5
01/20/98 11/03/97 Cambridge SoundWorks Inc Mnfr computer peripheral equip 44.5 15.5 17.8 52.6
01/20/98 11/21/97 New Jersey Steel(Von Roll) Mnfr steel and steel products 139.5 162.9 170.6 166.7
01/22/98 09/23/97 El Chico Restaurants Inc Investor group 49.1 64.5 75.9 104.0
01/22/98 10/13/97 Netcom On-Line Communication Pvd telecommunications svcs 270.4 49.8 70.9 78.5
01/23/98 01/23/98 Amerada Hess Corp Publish business forms 5,077.0 4.5 3.5 8.3
01/23/98 08/25/97 PerSeptive Biosystems Inc Mnfr analytical instruments 287.5 16.8 24.9 50.4
01/23/98 12/17/97 Suburban Ostomy Supply Co Inc Mnfr surgical,medical supplies 130.8 8.0 13.3 13.3
01/27/98 12/23/97 Hi-Lo Automotive Inc Own,op auto supply stores 46.9 (14.1) 12.3 24.3
01/27/98 07/31/97 Santa Monica Bank Bank holding co 198.2 14.3 17.6 28.7
01/27/98 12/19/97 Software Artistry Inc Dvlp systems mgmt software 201.8 0.0 62.0 57.4
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/29/98 10/20/97 Cruise America Inc Own,op trailer dealership Budget Group Inc
01/29/98 10/13/97 Metricom Inc Mnfr wireless commun products Vulcan Ventures Inc
01/30/98 01/08/98 Rayonier Timberlands LP Own,op timber tracts Rayonier Inc
01/30/98 04/16/97 Steck-Vaughn Publishing Corp Publish books, magazines Harcourt General Inc
02/01/98 07/16/97 ArgentBank,Thibodaux,Louisiana Commercial bank Hibernia Corp,New Orleans,LA
02/02/98 02/02/98 Comdisco Inc Whl,lease computers Investor Group
02/02/98 07/30/97 Plasti-Line Inc Mnfr illuminated outdoor signs PL Holdings Corp
02/03/98 11/24/97 Communications Central Inc Pvd telecommunications svcs Davel Communications Group Inc
02/03/98 09/26/97 Sagebrush Inc Own and operate eating places WSMP Inc
02/09/98 12/29/97 Holmes Protection Group Inc Provide security systems svcs Tyco International Ltd
02/09/98 10/17/97 Tranzonic Cos Mnfr sanitary paper prod Linsalata Capital Partners II
02/12/98 10/16/97 Omni Insurance Group Inc Insurance company Hartford Financial Services
02/13/98 12/12/97 Impact Systems Inc Paper prodn control systems Voith Sulzer Paper Technology
02/13/98 01/14/98 Tredegar Industries Inc Mnfr plastic, aluminum prods Tredegar Industries Inc
02/17/98 02/18/98 Seacor Smit Inc Water transportation services Investor Group
02/19/98 12/01/97 Raptor Systems Inc Develop security mgmt software AXENT Technologies Inc
02/24/98 09/03/97 Norwich Financial Corp,CT Savings and loan; holding co Peoples Bk of Bridgeport,CT
02/25/98 01/16/98 Checkmate Electronics Inc Mnfr,whl payment systems International Verifact Inc
02/25/98 11/03/97 Individual Inc Pvd on-line info retrieval svc Desktop Data Inc
02/25/98 11/26/97 Universal Hospital Services Pvd med equip rental services Investor Group
02/25/98 08/28/97 Value Property Trust Real estate investment trust Wellsford Real Properties Inc
02/26/98 11/17/97 Granite Financial Inc Pvd business credit services Fidelity National Financial
02/27/98 10/17/97 ATC Group Services Inc Pvd engineering svcs Investor Group
02/27/98 10/23/97 Emerald Isle Bancorp,Quincy,MA Savings and loan Eastern Bank Corp,Lynn,MA
03/02/98 01/06/98 DBA Systems Inc Dvlp digital imaging systems Titan Corp
03/02/98 10/29/97 HomeCorp Inc,Rockford,Illinois Savings and loan Mercantile Bancorp,St Louis,MO
03/02/98 09/02/97 Mid-Continent Bancshares,KS Savings and loan Commercial Federal,Omaha,NE
03/02/98 11/17/97 Visigenic Software Inc Dvlp database access software Borland International Inc
03/03/98 01/27/98 State of the Art Inc Develop financial software Sage Group PLC
03/05/98 06/19/97 American Greetings Corp Mnfr greeting cards American Greetings Corp
03/05/98 01/28/98 Sun Coast Industries Inc Mnfr plastic products Kerr Group Inc
03/06/98 06/18/97 Moovies Inc Provide video tape rental svcs Video Update Inc
03/10/98 03/13/98 Storage USA Inc Real estate investment trust Security Capital US Realty
03/11/98 02/10/98 Liberty Corp Life ins co;own,op TV stn Liberty Corp
03/12/98 10/31/97 ILC Technology Inc Mnfr high intensity lamps BEC Group Inc
03/17/98 12/29/97 Heartstream Inc Mnfr defibrillators Hewlett-Packard Co
03/17/98 02/17/98 Kirby Corp Pvd petrochemical transp svcs Kirby Corp
03/19/98 10/13/97 Integrated Brands Inc Produce ice cream Yogen Fruz World-Wide Inc
03/23/98 03/23/98 BET Holdings Inc Own and operate TV stations Investor Group
03/23/98 11/07/97 Key Florida Bancorp,FL Savings institution Regions Financial Corp
03/25/98 11/13/97 Chartwell Leisure Inc Own,op hotels and motels Investor Group
03/27/98 08/15/97 Keystone Heritage Group Bank holding company Fulton Finl Corp,Lancaster,PA
03/27/98 11/12/97 Midwest Fed Finl,Baraboo,WI Savings and loan holding co AMCORE Financial,Rockford,IL
03/30/98 12/19/97 ASR Investments Corp Real estate investment trust United Dominion Realty Tr Inc
03/30/98 12/16/97 FFVA Financial Corp,VA Savings and loans One Valley Bancorp Inc,WV
03/31/98 12/11/97 First State Corp,Albany,Ga Bank holding co; coml bank Regions Finl,Birmingham,AL
03/31/98 09/17/97 Tescorp Inc Oil and gas field machinery Supercanal Holding SA
04/01/98 11/03/97 Advantage Bancorp,Kenosha,WI Savings & loan holding company Marshall & Ilsley,Milwaukee,WI
04/01/98 09/12/97 Coml Bancshares,Parkersburg,WV Bank holding company WesBanco Inc,Wheeling,WV
04/01/98 09/11/97 George Mason Bankshares Inc Bank holding company United Bankshares Inc,WV
04/01/98 03/19/98 Lawter International Inc Mnfr printing ink and resins Lawter International Inc
04/01/98 01/06/98 Schult Homes Corp Manufacture mobile homes Oakwood Homes Corp
04/04/98 04/04/98 America Online Inc Internet Service Provider Goldman Sachs & Co
04/14/98 04/17/98 Telephone and Data Systems Inc Pvd telecommunications svcs Investor Group
04/16/98 01/20/98 NACT Telecommunications(GST) Pvd telephone commun svcs World Access Inc
04/16/98 02/09/98 Summit Care Corp Provide nursing services Fountain View(Heritage)
04/20/98 09/23/97 First United Bancorp,SC Bank holding company Regions Financial Corp
04/21/98 02/19/98 Mastering Inc Provied computer training svcs PLATINUM Technology Inc
04/23/98 08/18/97 CENFED Financial,Pasadena,CA Bank holding company Golden State Bancorp Inc,CA
04/23/98 03/18/98 NetSpeak Corp Pvd Internet telephony svcs Motorola Inc
04/24/98 11/20/97 Meritrust Fed Svgs Bk,LA Savings and loan Whitney Holding Corp,Louisiana
<CAPTION>
Premium
---------------------------------------
1 Day 1 Week 4 Weeks
Equity Prior to Prior to Prior to
Date Date Acquiror Short Value Announcement Announcement Announcement
Effective Announced Target Name Business Description ($mil) Date Date Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/29/98 10/20/97 Cruise America Inc Pvd passenger car rental svcs 59.3 17.9 13.7 39.9
01/29/98 10/13/97 Metricom Inc Investment firm 165.4 (6.5) (3.7) 104.9
01/30/98 01/08/98 Rayonier Timberlands LP Manufacture logs,timber 260.0 11.2 25.3 17.5
01/30/98 04/16/97 Steck-Vaughn Publishing Corp Own,op movie theaters,stores 215.9 21.6 32.6 24.2
02/01/98 07/16/97 ArgentBank,Thibodaux,Louisiana Bank holding co 171.2 29.8 31.2 39.0
02/02/98 02/02/98 Comdisco Inc Investor group 2,566.5 0.0 6.6 3.8
02/02/98 07/30/97 Plasti-Line Inc Investor group formed by mgmt 56.8 36.5 36.5 30.3
02/03/98 11/24/97 Communications Central Inc Pvd pay telephone commun svcs 66.0 30.2 25.4 12.0
02/03/98 09/26/97 Sagebrush Inc Produce prepared sandwiches 39.4 15.9 13.4 21.2
02/09/98 12/29/97 Holmes Protection Group Inc Mnfr fire protection systems 117.1 (5.6) (5.6) (13.9)
02/09/98 10/17/97 Tranzonic Cos Investment firm 104.8 (1.5) (2.9) 4.5
02/12/98 10/16/97 Omni Insurance Group Inc Provide insurance services 184.7 78.9 75.8 130.9
02/13/98 12/12/97 Impact Systems Inc Provide paper tech dvlp svcs 28.6 57.1 49.2 44.3
02/13/98 01/14/98 Tredegar Industries Inc Mnfr plastic, aluminum prods 799.6 10.3 10.9 (2.0)
02/17/98 02/18/98 Seacor Smit Inc Investor group 751.3 3.5 2.8 (4.8)
02/19/98 12/01/97 Raptor Systems Inc Develop software 253.5 5.4 20.7 16.5
02/24/98 09/03/97 Norwich Financial Corp,CT Savings bank 164.0 (0.5) 15.4 30.4
02/25/98 01/16/98 Checkmate Electronics Inc Mnfr,whl electn payment sys 47.2 4.8 9.4 37.5
02/25/98 11/03/97 Individual Inc Pvd info retrieval svcs 88.1 0.9 14.9 (7.0)
02/25/98 11/26/97 Universal Hospital Services Investor group 89.2 29.2 29.2 25.3
02/25/98 08/28/97 Value Property Trust Real estate investment trust 186.6 25.0 20.9 18.7
02/26/98 11/17/97 Granite Financial Inc Title insurance company 132.4 89.8 89.8 87.6
02/27/98 10/17/97 ATC Group Services Inc Investor group 98.0 0.0 (8.1) 10.3
02/27/98 10/23/97 Emerald Isle Bancorp,Quincy,MA Savings and loan 76.7 29.4 28.8 33.3
03/02/98 01/06/98 DBA Systems Inc Pvd computer sys design svcs 38.4 38.4 44.3 25.6
03/02/98 10/29/97 HomeCorp Inc,Rockford,Illinois Commercial bank holding co 42.2 16.3 24.7 33.4
03/02/98 09/02/97 Mid-Continent Bancshares,KS Savings and loans holding co 79.3 28.6 27.5 24.4
03/02/98 11/17/97 Visigenic Software Inc Develop software 148.4 92.0 64.0 92.0
03/03/98 01/27/98 State of the Art Inc Dvlp,whl accounting software 266.9 33.3 35.4 35.4
03/05/98 06/19/97 American Greetings Corp Mnfr greeting cards 2,479.6 0.0 (0.9) 1.8
03/05/98 01/28/98 Sun Coast Industries Inc Mnfr plastic packaging prods 45.5 56.4 62.3 84.9
03/06/98 06/18/97 Moovies Inc Own/op record tape stores 28.5 (59.7) (52.8) (52.2)
03/10/98 03/13/98 Storage USA Inc Pvd inv management services 1,098.0 2.1 2.4 0.9
03/11/98 02/10/98 Liberty Corp Life ins co;own,op TV stn 1,066.2 11.2 15.2 11.5
03/12/98 10/31/97 ILC Technology Inc Mnfr,whl eyeglass lenses,frame 131.0 108.7 107.6 108.7
03/17/98 12/29/97 Heartstream Inc Mnfr computers, testing equip 130.6 (6.7) 18.2 (8.6)
03/17/98 02/17/98 Kirby Corp Pvd petrochemical transp svcs 595.1 12.0 15.3 21.7
03/19/98 10/13/97 Integrated Brands Inc Produce frozen yogurt 46.8 69.9 106.4 167.5
03/23/98 03/23/98 BET Holdings Inc Investor group 611.2 0.0 0.3 10.2
03/23/98 11/07/97 Key Florida Bancorp,FL Bank holding company 38.6 11.8 43.4 38.9
03/25/98 11/13/97 Chartwell Leisure Inc Investor group 240.8 11.3 4.5 11.3
03/27/98 08/15/97 Keystone Heritage Group Bank holding co 210.9 43.8 49.9 65.1
03/27/98 11/12/97 Midwest Fed Finl,Baraboo,WI Bank holding company 48.0 0.3 8.7 3.1
03/30/98 12/19/97 ASR Investments Corp Real estate investment trust 108.1 4.4 1.1 2.6
03/30/98 12/16/97 FFVA Financial Corp,VA Bank holding company 209.3 22.4 27.3 30.0
03/31/98 12/11/97 First State Corp,Albany,Ga Bank holding company 161.2 18.4 23.9 16.9
03/31/98 09/17/97 Tescorp Inc Pvd cable TV services 62.4 7.5 33.3 38.5
04/01/98 11/03/97 Advantage Bancorp,Kenosha,WI Bank holding company 215.9 11.2 12.2 11.2
04/01/98 09/12/97 Coml Bancshares,Parkersburg,WV Bank holding company 126.7 47.9 46.8 66.8
04/01/98 09/11/97 George Mason Bankshares Inc Bank holding company 207.6 12.1 20.9 20.9
04/01/98 03/19/98 Lawter International Inc Mnfr printing ink and resins 517.9 0.0 1.7 (2.7)
04/01/98 01/06/98 Schult Homes Corp Mnfr,ret factory-built homes 100.7 1.1 10.4 19.2
04/04/98 04/04/98 America Online Inc Investment bank 25,793.0 66.1 79.3 1.9
04/14/98 04/17/98 Telephone and Data Systems Inc Investor group 2,978.3 3.1 4.0 0.8
04/16/98 01/20/98 NACT Telecommunications(GST) Pvd telecommunication services 149.9 12.0 12.5 16.7
04/16/98 02/09/98 Summit Care Corp Own,op healthcare facilities 145.9 14.3 31.3 37.7
04/20/98 09/23/97 First United Bancorp,SC Bank holding company 56.5 20.8 15.7 (19.8)
04/21/98 02/19/98 Mastering Inc Develop integrated software 198.3 31.6 25.0 33.3
04/23/98 08/18/97 CENFED Financial,Pasadena,CA Bank holding company 208.2 1.3 0.5 3.5
04/23/98 03/18/98 NetSpeak Corp Mnfr electronic products 316.6 11.4 16.2 35.6
04/24/98 11/20/97 Meritrust Fed Svgs Bk,LA Commercial bank 56.5 42.5 41.7 46.7
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
04/24/98 10/23/97 Poughkeepsie Financial Corp Savings bank;bank holding co Hubco Inc,Mahwah,New Jersey
04/30/98 03/19/98 Aames Financial Corp Provide mortgage banking svcs Investor Group
04/30/98 03/02/98 First Alert Inc Mnfr fire and burglar alarms Sunbeam Corp
04/30/98 10/02/97 Kapson Senior Quarters Corp Provide residential care svcs Prometheus Senior Quarters
04/30/98 03/06/98 Proxima Corp Mnfr PC liq crys display prods ASK AS
04/30/98 03/02/98 Signature Brands USA Inc Mnfr,whl consumer housewares Sunbeam Corp
05/01/98 11/19/97 Charter Financial Inc,Illinois Savings bank;holding co Magna Group Inc,St. Louis,MO
05/01/98 12/19/97 IPC Information Systems Inc Mnfr telecommunications equip Cable Systems International
05/04/98 02/24/98 Somatogen Inc Dvlp human blood substitutes Baxter International Inc
05/06/98 01/26/98 TransAmerican Waste Industries Pvd waste management services USA Waste Services Inc
05/11/98 03/30/98 Children's Discovery Centers Operate child care centers Knowledge Beginnings Inc
05/12/98 11/17/97 Century Finl Corp,Rochester,PA Commercial bank Citizens Bancshares Inc,OH
05/15/98 04/09/98 Dart Group Corp Own,operate auto part stores Richfood Holdings Inc
05/15/98 05/15/98 Intermedia Communications Inc Pvd telecommunications svcs Investor Group
05/18/98 02/02/98 Microchip Technology Inc Mnfr,whl semiconductors Microchip Technology Inc
05/19/98 04/08/98 Blessings Corp Mnfr plastic film products Huntsman Packaging Corp
05/19/98 05/19/98 Harnischfeger Industries Inc Mnfr mining,paper machinery Investor Group
05/20/98 12/22/97 Artistic Greetings Inc Mnfr personalized stationery MDC Communications Corp
05/20/98 03/05/98 XLConnect Solutions Inc Pvd integrated sys design svcs Xerox Corp
05/22/98 11/03/97 CoBancorp Inc Commercial bank FirstMerit Corp,Akron,OH
05/22/98 12/31/97 Red Lion Inns LP Own,op hotels Boykin Lodging Co
05/26/98 12/29/97 FP Bancorp,Escondidio,CA Bank holding company Zions Bancorp,Utah
05/27/98 03/17/98 ForeFront Group Inc Develop software CBT Group PLC
05/28/98 03/16/98 Logic Works Inc Develop client/server software PLATINUM Technology Inc
05/28/98 05/28/98 MedImmune Inc Mnfr therapeutics, vaccines BB Biotech AG
05/29/98 12/15/97 MSB Bancorp Inc,Goshen,NY Savings and loan holding co Hubco Inc,Mahwah,New Jersey
05/30/98 05/30/98 Panavision Inc Mnfr camera systems Mafco Holdings Inc
06/02/98 02/19/98 California State Bank Bank holding company First Security Corp,Utah
06/02/98 01/23/97 ESELCO Inc Electric utility Wisconsin Energy Corp
06/02/98 01/14/98 Meridian Point Realty Trust Real estate investment trust EastGroup Properties
06/03/98 05/06/98 Avondale Industries Inc Mnfr, repair ships, ferryboats Avondale Industries Inc
06/03/98 12/19/97 Eclipse Telecommunications Inc Pvd radiotelecommunication svc IXC Communications Inc
06/03/98 05/07/97 Reliable Life Insurance Co Insurance company Unitrin Inc
06/05/98 02/11/98 EarthLink Network Inc Pvd Internet services Sprint Corp
06/05/98 01/29/98 Monroc Inc Mnfr,whl concrete,sand,gravel US Aggregates Inc
06/05/98 03/10/98 Portec Inc Mnfr railroad track components J Richard Industries Inc
06/09/98 02/04/98 TresCom International Inc Pvd communications svcs Primus Telecommunications
06/10/98 05/11/98 Banner Aerospace Inc Wholesale aerospace equipment Fairchild Corp
06/10/98 05/04/98 Farah Inc Mnfr, ret family apparel Tropical Sportswear Intl Corp
06/10/98 02/11/98 MTL Inc Pvd tank truck carrier svcs Sombrero Acquisition Corp
06/11/98 06/11/98 PHP Healthcare Corp Pvd health management services PHP Healthcare Corp
06/12/98 12/05/97 Wheels Sports Group Inc Publish sports trading cards Racing Champions Inc
06/15/98 05/08/98 Authentic Specialty Foods Inc Whl,mnfr Mexican foods Agrobios(Desc SA de CV)
06/17/98 12/19/97 Chemi-Trol Chemical Co Mnfr steel pressure tanks Harsco Corp
06/18/98 06/18/98 Caribiner International Inc Pvd business commun services Fir Tree Partners LP
06/19/98 03/10/98 Corcom Inc Manufacture radio filters Communications Instruments Inc
06/19/98 06/19/98 Tremont Corp Mnfr drilling lubricants Valhi Inc
06/24/98 03/24/98 Walsh International Inc Provide programming svcs Cognizant Corp
06/26/98 02/23/98 CompScript Inc Pvd pharmaceutical mgmt svcs Omnicare Inc
06/26/98 04/10/98 Dataflex Corp Whl microcomputer equipment CompuCom SystemsInc(Safeguard)
06/27/98 02/18/98 Republic Automotive Parts Inc Mnfr,whl automotive parts Keystone Automotive Inds Inc
06/29/98 04/22/98 AccelGraphics Inc Mnfr graphics accelerators Evans & Sutherland Computer
06/29/98 03/31/98 IBAH Inc Mnfr pharmaceutical products Omnicare Inc
06/30/98 01/12/98 CBT Corp,Paducah,Kentucky Bank holding co Mercantile Bancorp,St Louis,MO
06/30/98 05/07/98 InTime Systems International Pvd systems integration svcs Aris Corp
06/30/98 02/09/98 PonceBank Savings and loan Banco Bilbao Vizcaya SA
06/30/98 02/10/98 Ryan Beck & Co,Livingston,NJ Securities brokerage firm BankAtlantic Bancorp,Florida
06/30/98 12/17/97 Southwest Bancshares Inc,IL Savings and loan Alliance Bancorp,Chicago,IL
07/01/98 02/18/97 Contour Medical(Retirement) Mnfr surgical supplies Sun Healthcare Group Inc
07/01/98 03/27/98 Grand Prix Assoc Of Long Beach Own,op motorsport facilities Dover Downs Entertainment Inc
07/01/98 12/16/97 Progressive Bank,Pawling,NY Savings and loan holding co Hudson Chartered Bancorp,NY
<CAPTION>
PREMIUM
-----------------------------------
1 Day 1 Week 4 Weeks
Prior to Prior to Prior to
Date Date Acquiror Short Equity Value Announce- Announce- Announce-
Effective Announced Target Name Business Description ($mil) ment Date ment Date ment Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
04/24/98 10/23/97 Poughkeepsie Financial Corp Bank holding company 142.5 1.1 2.9 17.1
04/30/98 03/19/98 Aames Financial Corp Investor group 382.7 (7.5) (3.0) 13.5
04/30/98 03/02/98 First Alert Inc Mnfr,whl household appliances 129.2 68.0 90.9 110.0
04/30/98 10/02/97 Kapson Senior Quarters Corp Pvd nursing care services 179.4 (0.9) 9.4 1.8
04/30/98 03/06/98 Proxima Corp Mnfr liquid crystal displays 79.8 31.3 25.7 23.9
04/30/98 03/02/98 Signature Brands USA Inc Mnfr,whl household appliances 81.7 57.1 61.0 106.3
05/01/98 11/19/97 Charter Financial Inc,Illinois Bank holding company 99.3 8.7 6.5 9.0
05/01/98 12/19/97 IPC Information Systems Inc Mnfr telecommun equip 224.5 14.3 31.3 14.3
05/04/98 02/24/98 Somatogen Inc Mnfr health care products 191.0 35.8 39.8 92.0
05/06/98 01/26/98 TransAmerican Waste Industries Pvd waste disposal services 96.8 51.4 36.6 78.6
05/11/98 03/30/98 Children's Discovery Centers Own,operate child care centers 83.7 21.0 16.7 25.6
05/12/98 11/17/97 Century Finl Corp,Rochester,PA Commercial bank 137.3 39.8 41.7 61.0
05/15/98 04/09/98 Dart Group Corp Wholesale groceries 279.2 14.3 11.9 19.4
05/15/98 05/15/98 Intermedia Communications Inc Investor group 1,359.7 0.0 11.1 3.2
05/18/98 02/02/98 Microchip Technology Inc Mnfr,whl semiconductors 1,238.9 0.0 0.8 (27.5)
05/19/98 04/08/98 Blessings Corp Prod printed,laminated films 214.5 18.7 18.3 34.9
05/19/98 05/19/98 Harnischfeger Industries Inc Investor group 1,439.3 0.8 5.9 (1.3)
05/20/98 12/22/97 Artistic Greetings Inc Provide marketing services 30.7 28.5 47.1 52.0
05/20/98 03/05/98 XLConnect Solutions Inc Mnfr business machine;fin co 359.5 (11.1) 15.1 22.1
05/22/98 11/03/97 CoBancorp Inc Commercial bank 157.3 10.6 30.9 52.1
05/22/98 12/31/97 Red Lion Inns LP Real estate investment trust 100.6 (6.4) (5.5) (3.4)
05/26/98 12/29/97 FP Bancorp,Escondidio,CA Bank holding company 81.2 16.1 26.9 26.9
05/27/98 03/17/98 ForeFront Group Inc Dev educational sofatware 133.8 17.3 29.4 48.5
05/28/98 03/16/98 Logic Works Inc Develop integrated software 212.9 13.0 36.2 57.1
05/28/98 05/28/98 MedImmune Inc Manufacture pharmaceuticals 1,501.5 15.8 13.5 7.3
05/29/98 12/15/97 MSB Bancorp Inc,Goshen,NY Bank holding company 102.4 30.4 31.6 36.6
05/30/98 05/30/98 Panavision Inc Mnfr toilet preparations 505.2 1.2 1.4 1.7
06/02/98 02/19/98 California State Bank Bank holding co 280.3 11.4 14.0 18.8
06/02/98 01/23/97 ESELCO Inc Electric,gas utility;hldg co 72.2 50.8 49.6 69.5
06/02/98 01/14/98 Meridian Point Realty Trust Real estate investment trust 14.5 38.8 65.9 88.9
06/03/98 05/06/98 Avondale Industries Inc Mnfr, repair ships, ferryboats 418.5 10.0 6.9 7.2
06/03/98 12/19/97 Eclipse Telecommunications Inc Pvd long distance tele svcs 122.2 18.0 19.9 14.4
06/03/98 05/07/97 Reliable Life Insurance Co Insurance company 146.0 51.1 51.1 52.1
06/05/98 02/11/98 EarthLink Network Inc Pvd telecommunications svcs 506.3 16.5 40.1 57.9
06/05/98 01/29/98 Monroc Inc Manufacture building products 50.3 5.1 10.5 6.4
06/05/98 03/10/98 Portec Inc Investment firm 76.5 8.5 13.8 10.3
06/09/98 02/04/98 TresCom International Inc Pvd telecommunications svcs 130.1 25.2 30.9 51.5
06/10/98 05/11/98 Banner Aerospace Inc Mnfr aircraft,aircraft parts 283.8 1.4 0.3 2.4
06/10/98 05/04/98 Farah Inc Mnfr,whl mens sportswear 93.2 33.3 44.0 39.8
06/10/98 02/11/98 MTL Inc Investment company 196.3 37.9 38.5 56.1
06/11/98 06/11/98 PHP Healthcare Corp Pvd health mangement services 99.8 0.0 (2.8) (32.5)
06/12/98 12/05/97 Wheels Sports Group Inc Manufacture games,toys,etc. 32.9 1.0 (18.2) (22.7)
06/15/98 05/08/98 Authentic Specialty Foods Inc Mnfr,whl foods products 137.8 6.3 13.3 37.4
06/17/98 12/19/97 Chemi-Trol Chemical Co Mnfr scaffolding,pipes 46.1 61.4 61.4 64.3
06/18/98 06/18/98 Caribiner International Inc Investment firm 494.7 5.5 10.3 (8.1)
06/19/98 03/10/98 Corcom Inc Mnfr,whl relay systems 51.7 33.3 31.6 36.8
06/19/98 06/19/98 Tremont Corp Mnfr chemicals and pigments 377.7 6.0 5.2 0.2
06/24/98 03/24/98 Walsh International Inc Pvd information services 176.3 0.0 36.8 53.3
06/26/98 02/23/98 CompScript Inc Whl,retail pharmaceuticals 61.3 26.6 67.2 52.7
06/26/98 04/10/98 Dataflex Corp Manufacture computer equipment 24.7 8.4 9.3 23.8
06/27/98 02/18/98 Republic Automotive Parts Inc Whl auto parts and supplies 62.9 33.0 33.3 28.6
06/29/98 04/22/98 AccelGraphics Inc Mnfr computer graphics system 51.9 13.6 22.7 21.1
06/29/98 03/31/98 IBAH Inc Whl,retail pharmaceuticals 154.2 12.2 61.4 58.6
06/30/98 01/12/98 CBT Corp,Paducah,Kentucky Commercial bank holding co 275.8 3.3 1.8 19.5
06/30/98 05/07/98 InTime Systems International Pvd computer related services 41.6 18.8 15.0 28.4
06/30/98 02/09/98 PonceBank Bank;insurance;holding co 164.0 12.6 14.1 25.8
06/30/98 02/10/98 Ryan Beck & Co,Livingston,NJ Savings and loan 35.8 23.2 21.3 25.2
06/30/98 12/17/97 Southwest Bancshares Inc,IL Savings and loan;holding co 90.0 15.5 29.4 26.9
07/01/98 02/18/97 Contour Medical(Retirement) Pvd long-term healthcare svcs 51.4 21.4 47.8 58.1
07/01/98 03/27/98 Grand Prix Assoc Of Long Beach Own,op race track,casinos 92.6 11.8 22.1 21.6
07/01/98 12/16/97 Progressive Bank,Pawling,NY National commercial bank 167.6 14.3 16.3 26.8
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
07/01/98 03/02/98 Sealright Co Inc Manufacture food containers Huhtamaki Oy(Ahlgrens)
07/01/98 07/01/98 Sotheby's Holdings Inc Provide auctioning, RE svcs Investor Group
07/02/98 03/13/98 Beverly Bancorp,Tinley Park,IL Bank holding company St. Paul Bancorp,Chicago,IL
07/02/98 12/16/97 Franklin Bancorp,Washington,DC Bank holding company BB&T Corp,Winston-Salem,NC
07/02/98 05/18/98 Graco Inc Mnfr fluid handling equipment Graco Inc
07/07/98 05/28/98 Donnelley Enterprise Solutions Pvd info management services Bowne & Co Inc
07/08/98 11/25/97 Capital Savings Bancorp Inc,MO Savings and loan Union Planters Corp,Memphis,TN
07/09/98 05/22/97 Chaparral Steel Co(Texas Ind) Mnfr primary steel products Texas Industries Inc
07/10/98 03/16/98 International Murex Tech Corp Mnfr in-vitro test systems Abbott Laboratories
07/10/98 04/06/98 MoneyGram Payment Systems Inc Pvd money wire transfer svcs Viad Corp
07/13/98 11/28/97 RedFed Bancorp Inc,Redlands,CA Savings and loan Golden State Bancorp Inc,CA
07/14/98 05/11/98 Micronics Computers Inc Mnfr system boards Diamond Multimedia Systems Inc
07/19/98 07/19/98 Transatlantic Holdings Inc Fire, marine, casualty ins American International Group
07/20/98 04/28/98 Hein-Werner Corp Mnfr automotive service equip Snap-On Inc
07/20/98 06/04/98 Pollo Tropical Inc Own and operate restaurants Carrols Corp
07/21/98 04/03/98 Bertucci's Inc Own and operate restaurants NE Restaurant Co Inc
07/21/98 12/10/97 Somerset Savings Bank,MA Savings bank UST Corp,Boston,MA
07/21/98 04/17/98 XcelleNet Inc Dvlp remote computing software Sterling Commerce Inc
07/22/98 05/22/98 Pete's Brewing Co Produce beer Gambrinus Co
07/24/98 12/29/97 SuburbFed Financial Corp Bank holding company CFS Bancorp Inc
07/27/98 04/09/98 Claremont Technology Group Inc Pvd comp integrated sys svc Complete Business Solutions
07/27/98 04/27/98 CorporateFamily Solutions Inc Provide child day care svcs Bright Horizons Holdings Inc
07/28/98 06/15/98 Spartech Corp Manufacture plastic products Vita International Ltd
07/29/98 05/07/98 Salton/Maxim Houswares Inc Mnfr electric housewares,fans Salton/Maxim Houswares Inc
07/29/98 04/09/98 Spec's Music Inc Record and video retail stores Camelot Music Holdings
07/31/98 01/13/98 Bird Corp Manufacture building products CertainTeed Corp
07/31/98 01/01/98 GoodMark Foods Inc Produce meat snacks ConAgra Inc
07/31/98 05/07/98 Innovative Tech Systems Inc Dvlp facilities mgmt software Peregrine Systems Inc
07/31/98 03/13/98 MedCath Inc Pvd cardiology related svcs Investor Group
07/31/98 06/23/98 MGM Grand Inc(Tracinda Corp) Operate hotels and airlines MGM Grand Inc(Tracinda Corp)
07/31/98 04/23/98 Morrison Restaurants Inc Own,operate eating places Piccadilly Cafeterias Inc
07/31/98 06/10/98 Plenum Publishing Corp Publish technical journals Wolters Kluwer NV
07/31/98 03/19/98 Regent Bancshares Corp,PA Bank holding company JeffBanks Inc,Philadelphia,PA
07/31/98 03/26/98 Whitehall Corp Mnfr electronic components Aviation Sales Co
08/01/98 03/04/98 AP Green Industries Inc Manufacture refractory prod Global Industrial Technologies
08/03/98 03/02/98 Benchmarq Microelectronics Inc Mnfr microprocessors Unitrode Corp
08/03/98 12/15/97 Carnegie Bancorp,Princeton,NJ Bank holding company Sovereign Bancorp,PA
08/03/98 12/19/97 First Home Bancorp Inc,NJ Savings and loan;holding co Sovereign Bancorp,PA
08/05/98 02/25/97 Fina Inc Mnfr petroleum refined prods Petrofina SA
08/06/98 05/29/98 Mid-America Realty Investments Real estate investment trust Bradley Real Estate Inc
08/06/98 05/06/98 Mountbatten Inc Surety insurance company Fidelity & Deposit Co of MD
08/07/98 12/15/97 Affiliated Cmnty Bancorp,MA Savings and loan UST Corp,Boston,MA
08/11/98 04/15/98 Harborside Healthcare Corp Pvd long-term med services Investcorp
08/11/98 08/11/98 Tribune Co Publish newspaper;cable TV sys Tribune Co
08/14/98 03/19/98 Bank of South Windsor,Windsor Commercial bank New England Cmnty Bancorp,CT
08/17/98 05/29/98 Arch Petroleum Inc Oil,gas mining Pogo Producing Co
08/17/98 02/17/98 Bell Sports Corp Mnfr bicycle equip,accessories HB Acquisition Corp
08/17/98 03/03/98 Community Financial Hldg,NJ Bank holding company Hubco Inc,Mahwah,New Jersey
08/17/98 03/31/98 IBS Financial Corp Bank holding company Hubco Inc,Mahwah,New Jersey
08/20/98 07/01/98 Lecg Inc Provide management services Metzler Group Inc
08/21/98 03/31/98 Dime Financial Corp Bank holding company Hubco Inc,Mahwah,New Jersey
08/24/98 05/12/98 Virus Research Institute Inc Mnfr biological products T Cell Sciences Inc
08/25/98 05/12/98 Domain Energy Corporation Oil,gas exploration,production Lomak Petroleum Inc
08/25/98 04/21/98 PCA International Inc Pvd photo processing services Investor Group
08/27/98 06/15/98 FTP Software Inc Holding company NetManage Inc
08/28/98 06/01/98 PST Vans Inc Trucking company US Xpress Enterprises Inc
08/31/98 04/14/98 ComSouth Bankshares Inc Commercial bank Anchor Financial Corp
08/31/98 06/16/98 Personnel Management Inc Employment agency Linsalata Capital Partners
08/31/98 03/06/98 Tappan Zee Financial Inc Bank holding company USB Holding Co Inc
09/01/98 09/01/98 Duke Realty Investments Inc Real estate investment trust Investor Group
09/01/98 06/30/98 Imperial Credit Coml Mortgage Real estate investment trust Imperial Credit Coml Mortgage
<CAPTION>
PREMIUM
-----------------------------------
1 Day 1 Week 4 Weeks
Prior to Prior to Prior to
Date Date Acquiror Short Equity Value Announce- Announce- Announce-
Effective Announced Target Name Business Description ($mil) ment Date ment Date ment Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
07/01/98 03/02/98 Sealright Co Inc Mnfr food prods,drugs,packages 121.8 (2.2) (1.1) (5.4)
07/01/98 07/01/98 Sotheby's Holdings Inc Investor group 889.0 0.6 (1.1) 1.1
07/02/98 03/13/98 Beverly Bancorp,Tinley Park,IL Bank holding company 161.8 16.5 17.4 19.6
07/02/98 12/16/97 Franklin Bancorp,Washington,DC Bank holding company 160.1 21.4 32.1 54.8
07/02/98 05/18/98 Graco Inc Mnfr fluid handling equipment 840.9 (6.5) (3.2) (9.1)
07/07/98 05/28/98 Donnelley Enterprise Solutions Pvd printing svcs 105.2 60.8 61.5 83.6
07/08/98 11/25/97 Capital Savings Bancorp Inc,MO Commercial bank holding co 46.6 25.2 24.4 32.5
07/09/98 05/22/97 Chaparral Steel Co(Texas Ind) Mnfr cement,steel products 446.8 20.4 25.3 29.2
07/10/98 03/16/98 International Murex Tech Corp Mnfr pharmaceuticals,med equip 232.0 21.6 38.2 50.7
07/10/98 04/06/98 MoneyGram Payment Systems Inc Provide food catering services 294.0 11.5 15.7 42.4
07/13/98 11/28/97 RedFed Bancorp Inc,Redlands,CA Bank holding company 159.5 1.8 1.8 7.1
07/14/98 05/11/98 Micronics Computers Inc Manufacture multimedia systems 31.7 37.5 15.3 50.8
07/19/98 07/19/98 Transatlantic Holdings Inc Insurance holding company 2,756.0 (3.7) (0.9) 6.1
07/20/98 04/28/98 Hein-Werner Corp Manufacture tools 37.3 52.7 65.2 80.0
07/20/98 06/04/98 Pollo Tropical Inc Own and operate restaurants 94.6 10.0 7.3 18.1
07/21/98 04/03/98 Bertucci's Inc Own,operate restaurants 96.4 35.5 35.5 35.5
07/21/98 12/10/97 Somerset Savings Bank,MA Commercial bank;holding co 93.7 15.5 15.5 12.6
07/21/98 04/17/98 XcelleNet Inc Dvlp electn commerce software 212.2 6.1 12.5 7.7
07/22/98 05/22/98 Pete's Brewing Co Produce,wholesale beer 69.4 6.3 39.7 42.7
07/24/98 12/29/97 SuburbFed Financial Corp Bank holding company 55.7 (21.7) (20.4) (22.6)
07/27/98 04/09/98 Claremont Technology Group Inc Pvd computer programming svcs 281.8 21.3 77.0 118.2
07/27/98 04/27/98 CorporateFamily Solutions Inc Pvd children's day care svcs 125.2 (21.4) (22.3) (7.5)
07/28/98 06/15/98 Spartech Corp Manufacture plastic products 576.9 (6.1) (1.7) 2.1
07/29/98 05/07/98 Salton/Maxim Houswares Inc Mnfr electric housewares,fans 156.9 (9.9) 0.0 9.7
07/29/98 04/09/98 Spec's Music Inc Own,op chain record stores 19.2 30.4 65.0 65.0
07/31/98 01/13/98 Bird Corp Mnfr asbestos, fiberglass prods 22.9 25.7 18.9 29.4
07/31/98 01/01/98 GoodMark Foods Inc Produce meats,eggs,cooking oil 217.8 54.5 75.9 69.4
07/31/98 05/07/98 Innovative Tech Systems Inc Dvlp service desk software 73.3 8.0 10.9 25.8
07/31/98 03/13/98 MedCath Inc Investor group 227.8 15.2 10.9 34.5
07/31/98 06/23/98 MGM Grand Inc(Tracinda Corp) Operate hotels and airlines 2,030.0 31.5 25.3 5.3
07/31/98 04/23/98 Morrison Restaurants Inc Own and operate cafeterias 0.1 45.5 73.9 81.8
07/31/98 06/10/98 Plenum Publishing Corp Publish newspapers,books 258.0 6.5 6.7 10.7
07/31/98 03/19/98 Regent Bancshares Corp,PA Bank holding company 48.8 6.1 6.1 6.1
07/31/98 03/26/98 Whitehall Corp Wholesale aircraft parts 130.5 2.6 (2.9) 9.1
08/01/98 03/04/98 AP Green Industries Inc Mnfr industrial machinery 189.0 24.4 37.5 89.2
08/03/98 03/02/98 Benchmarq Microelectronics Inc Mnfr semiconductors,capacitors 146.8 15.8 14.0 67.2
08/03/98 12/15/97 Carnegie Bancorp,Princeton,NJ Bank holding company 105.9 1.3 3.7 26.5
08/03/98 12/19/97 First Home Bancorp Inc,NJ Bank holding company 79.2 (4.9) (0.8) 20.1
08/05/98 02/25/97 Fina Inc Produce,whl petroleum 1,754.0 19.7 18.5 21.5
08/06/98 05/29/98 Mid-America Realty Investments Real estate investment trust 87.2 5.0 6.3 2.4
08/06/98 05/06/98 Mountbatten Inc Surety insurance company 43.4 2.5 6.2 4.3
08/07/98 12/15/97 Affiliated Cmnty Bancorp,MA Commercial bank;holding co 271.8 22.4 25.7 39.5
08/11/98 04/15/98 Harborside Healthcare Corp Investment firm 200.2 18.3 22.7 5.8
08/11/98 08/11/98 Tribune Co Publish newspaper;cable TV sys 8,163.0 0.0 (0.6) (9.5)
08/14/98 03/19/98 Bank of South Windsor,Windsor Bank holding company 2.4 (3.2) (2.3) 14.8
08/17/98 05/29/98 Arch Petroleum Inc Oil and gas exploration,prodn 47.2 0.1 5.5 (3.5)
08/17/98 02/17/98 Bell Sports Corp Investment firm 165.6 13.9 13.1 8.6
08/17/98 03/03/98 Community Financial Hldg,NJ Bank holding company 28.3 1.1 2.7 16.2
08/17/98 03/31/98 IBS Financial Corp Bank holding company 242.4 3.6 2.4 16.0
08/20/98 07/01/98 Lecg Inc Pvd business consulting svcs 294.4 46.5 49.0 41.8
08/21/98 03/31/98 Dime Financial Corp Bank holding company 210.7 6.3 25.4 22.9
08/24/98 05/12/98 Virus Research Institute Inc Mnfr vaccines,related products 62.6 91.6 75.7 81.7
08/25/98 05/12/98 Domain Energy Corporation Oil and gas exploration,prodn 268.0 (25.1) (30.0) (28.7)
08/25/98 04/21/98 PCA International Inc Investor group 231.5 23.3 17.8 20.5
08/27/98 06/15/98 FTP Software Inc Develop networking software 77.8 14.1 (0.0) (24.0)
08/28/98 06/01/98 PST Vans Inc Trucking company 32.9 32.8 35.8 10.7
08/31/98 04/14/98 ComSouth Bankshares Inc Bank holding company 81.4 9.3 17.9 20.0
08/31/98 06/16/98 Personnel Management Inc Investment firm 34.9 25.5 23.1 23.1
08/31/98 03/06/98 Tappan Zee Financial Inc Commercial bank;bk holding co 25.5 (11.6) (10.1) (11.6)
09/01/98 09/01/98 Duke Realty Investments Inc Investor group 1,751.4 4.2 0.0 7.5
09/01/98 06/30/98 Imperial Credit Coml Mortgage Real estate investment trust 351.9 (21.9) (22.3) (27.3)
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
Date Date
Effective Announced Target Name Target Business Description Acquiror Name
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
09/02/98 07/17/98 DeCrane Aircraft Holdings Inc Mnfr avionics components DLJ Merchant Banking Inc
09/02/98 01/21/98 US Airways Group Inc Passenger, air freight carrier US Airways Group Inc
09/03/98 09/04/98 Phosphate Resource Partners LP Phosphate mining company Investor Group
09/08/98 06/17/98 Nimbus CD International Inc Mnfr compact discs Carlton Communications PLC
09/09/98 09/09/98 Star Banc Corp,Cincinnati,OH Commercial bank;holding co Investor Group
09/10/98 07/28/98 CyberMedia Inc Dvlp,whl support software prod Network Associates Inc
09/10/98 12/12/97 Timber Lodge Steakhouse Inc Own,op restaurants Santa Barbara Restaurant Group
09/11/98 07/29/98 E-Z Serve Corp Whl and retail gasoline EBC Texas Acquisition Corp
09/11/98 11/25/97 Talk.com Inc Pvd telecommunications svcs Talk.com Inc
09/11/98 11/25/97 Tel-Save Holdings Inc Pvd telecommunications svcs Tel-Save Holdings Inc
09/11/98 03/06/98 United Dental Care Inc Pvd dental svcs to subscribers Protective Life Corp
09/14/98 07/23/98 Alberto-Culver Co Mnfr and whl consumer products Alberto-Culver Co
09/14/98 01/26/98 Ambassador Bk of Commonwealth Commercial bank Fulton Finl Corp,Lancaster,PA
09/14/98 09/14/98 Icon CMT Corp Pvd Internet svcs,products Qwest Commun Int Inc
09/14/98 04/29/96 Provident Cos Pvd accident,health insurance Zurich Versicherungs GmbH
09/14/98 09/14/98 Transatlantic Holdings Inc Fire, marine, casualty ins Investor Group
09/15/98 04/20/98 Atria Communities Inc Provide residential care svcs Kapson Senior Quarters Corp
09/17/98 12/26/97 United Fed Svgs Bk,Rocky Mount Savings and loan Triangle Bancorp,Raleigh,NC
09/18/98 07/14/98 DEP Corp Manufacture personal care prod Henkel KGaA
09/21/98 08/10/98 Molecular Dynamics Inc Mnfr,whl laboratory equipment Amersham Pharmacia Biotech Ltd
09/23/98 08/21/98 Albemarle Corp Mnfr industrial chemicals Albemarle Corp
09/25/98 05/05/98 Allied Digital Technologies Co Mnfr multi media software prod Investor Group
09/25/98 08/11/98 Cooker Restaurant Corp Own,operate restaurants Cooker Restaurant Corp
09/25/98 09/25/98 Kelly Services Inc Temporary help supply services Kelly Services Inc
09/28/98 04/16/98 Award Software International Develop software Phoenix Technologies Ltd
09/29/98 01/22/98 BT Office Products Intl Inc Whl office stationary,supplies Buhrmann NV
09/29/98 07/21/98 Globalink Inc Pvd computer programming svcs Lernout & Hauspie Speech
09/29/98 07/10/97 Upper Peninsula Energy Corp Electric utility Wisconsin Public Services Corp
09/30/98 12/22/97 Essex County Gas Gas utility Eastern Enterprises
09/30/98 02/25/98 FAC Realty Trust Inc REIT;own,op shopping centers Prometheus Southeast Retail
09/30/98 06/30/98 Summit Holding Southeast Inc Pvd management services Liberty Mutual Group
09/30/98 01/09/98 Wandel & Goltermann Tech Inc Mnfr network equipment Wandel & Goltermann Management
10/01/98 02/25/98 Maryland Federal Bancorp Inc Savings and loan BB&T Corp,Winston-Salem,NC
10/01/98 07/20/98 US SerVis Inc Dvp,design,whl software HBO & Co
10/02/98 02/18/98 Fed One Bancorp,Wheeling,WV Bank holding company United Bankshares Inc,WV
10/02/98 06/22/98 GT Bicycles Inc Manufacture,wholesale bicycles Schwinn Holdings Corp
10/02/98 10/28/97 Rollins Inc Pvd pest control services Rollins Inc
10/03/98 05/18/98 HFNC Financial Corp Pvd financial credit services First Charter Corp
10/05/98 01/20/98 Buttrey Food and Drug Stores Own,op supermarkets,drug store Albertson's Inc
10/05/98 06/24/98 Penederm Inc Mnfr pharmaceutical products Mylan Laboratories Inc
10/06/98 09/01/98 Knape & Vogt Manufacturing Co Mnfr,whl storage products Knape & Vogt Manufacturing Co
10/07/98 09/29/98 Newmont Gold Co Gold mining Newmont Mining Corp
10/08/98 07/23/98 Innova Corp Mnfr millimeter wave radios Digital Microwave Corp
10/08/98 06/02/98 RF Power Products Mnfr,whl RF power delivery sys Advanced Energy Industries
10/09/98 07/09/98 American Materials & Techs Mnfr advanced composities Cytec Industries
10/16/98 08/03/98 Continental Natural Gas Inc Gas utility CMS Energy Corp
10/19/98 05/29/98 Wayne Bancorp Inc,Wayne,NJ Bank holding company Valley National Bancorp,NJ
10/20/98 05/29/98 Emerging Communications Inc Pvd local telephone svcs Innovative Communication Co
10/21/98 09/16/98 Price Enterprises Real estate development firm Price Enterprises
10/22/98 05/20/98 National Gas & Oil Co Gas utility; gas expl and prod Licking Rural Electrification
10/23/98 04/06/98 Security First Corporation Bank holding company FirstMerit Corp
10/26/98 07/14/98 New West Eyeworks Inc Own,op eyeglass stores National Vision Associates Ltd
10/27/98 09/21/98 Central Newspapers Inc Publish newspapers Central Newspapers Inc
10/28/98 07/09/98 Eltron International Inc Mnfr computer printers Zebra Technologies Corp
10/29/98 05/28/98 First Palm Beach Bancorp Inc Savings and loan Republic Security Financial
10/30/98 09/21/98 Gamma Biologicals Inc Mnfr blood transfusion prod Immucor Inc
10/30/98 07/23/98 IMNET Systems Inc Develop imaging software HBO & Co
10/30/98 03/16/98 Norwood Promotional Products Mnfr hats,promotional prods FPK LLC
11/03/98 06/04/98 Cable Michigan Inc Pvd cable TV svcs Avalon Cable
11/06/98 10/01/98 Carnegie Group Inc Operate laboratories Logica Inc(Logica PLC)
11/10/98 09/29/98 Ovid Technologies Inc. Pvd information retrieval svcs Wolter Kluwer US Corp
<CAPTION>
PREMIUM
-----------------------------------
1 Day 1 Week 4 Weeks
Prior to Prior to Prior to
Date Date Acquiror Short Equity Value Announce- Announce- Announce-
Effective Announced Target Name Business Description ($mil) ment Date ment Date ment Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
09/02/98 07/17/98 DeCrane Aircraft Holdings Inc Merchant banking firm 181.5 30.5 28.7 33.8
09/02/98 01/21/98 US Airways Group Inc Passenger, air freight carrier 5,795.1 0.0 4.8 8.8
09/03/98 09/04/98 Phosphate Resource Partners LP Investor group 842.2 8.5 21.7 1.8
09/08/98 06/17/98 Nimbus CD International Inc Pvd motion picture prodn svcs 264.9 7.0 5.7 10.8
09/09/98 09/09/98 Star Banc Corp,Cincinnati,OH Investor group 6,088.1 (0.3) 4.8 (11.0)
09/10/98 07/28/98 CyberMedia Inc Develop network software 130.1 25.6 38.2 117.1
09/10/98 12/12/97 Timber Lodge Steakhouse Inc Own,op fast food restaurants 30.3 74.1 74.1 81.2
09/11/98 07/29/98 E-Z Serve Corp Investment firm 43.2 37.1 20.0 20.0
09/11/98 11/25/97 Talk.com Inc Pvd telecommunications svcs 1,414.2 (5.0) (5.5) (8.5)
09/11/98 11/25/97 Tel-Save Holdings Inc Pvd telecommunications svcs 1,414.2 (5.0) (5.5) (8.5)
09/11/98 03/06/98 United Dental Care Inc Insurance company;holding co 180.3 20.5 49.2 57.4
09/14/98 07/23/98 Alberto-Culver Co Mnfr and whl consumer products 768.6 (17.7) (19.9) (20.7)
09/14/98 01/26/98 Ambassador Bk of Commonwealth Bank holding co 75.7 26.3 28.6 27.4
09/14/98 09/14/98 Icon CMT Corp Pvd telephone commun svcs 202.6 65.5 60.0 (4.0)
09/14/98 04/29/96 Provident Cos Insurance holding company 1,428.5 1.6 7.7 (1.9)
09/14/98 09/14/98 Transatlantic Holdings Inc Investor group 2,903.9 2.2 1.0 (8.7)
09/15/98 04/20/98 Atria Communities Inc Provide residential care svcs 473.3 2.5 7.3 (0.3)
09/17/98 12/26/97 United Fed Svgs Bk,Rocky Mount Commercial bank holding co 51.1 (1.9) 33.4 41.9
09/18/98 07/14/98 DEP Corp Mnfr,whl chemicals, detergents 36.7 31.3 95.3 78.7
09/21/98 08/10/98 Molecular Dynamics Inc Mnfr,whl biotechnology prods 243.8 36.7 47.7 100.0
09/23/98 08/21/98 Albemarle Corp Mnfr industrial chemicals 1,029.5 6.8 5.8 (6.9)
09/25/98 05/05/98 Allied Digital Technologies Co Investor group 69.2 14.3 14.3 37.9
09/25/98 08/11/98 Cooker Restaurant Corp Own,operate restaurants 121.9 43.3 39.1 27.2
09/25/98 09/25/98 Kelly Services Inc Temporary help supply services 975.8 (1.3) (1.2) (1.7)
09/28/98 04/16/98 Award Software International Develop systems software 126.4 12.8 21.3 53.1
09/29/98 01/22/98 BT Office Products Intl Inc Mnfr folding paperboard boxes 460.2 32.5 78.9 78.9
09/29/98 07/21/98 Globalink Inc Mnfr speech tech products 59.6 21.1 (6.7) 40.0
09/29/98 07/10/97 Upper Peninsula Energy Corp Electric and gas utility 72.7 33.2 29.7 35.0
09/30/98 12/22/97 Essex County Gas Gas utility holding company 83.8 26.6 55.5 61.2
09/30/98 02/25/98 FAC Realty Trust Inc Real estate investment trust 116.1 7.0 21.6 29.9
09/30/98 06/30/98 Summit Holding Southeast Inc Insurance agency 202.1 28.2 26.3 28.2
09/30/98 01/09/98 Wandel & Goltermann Tech Inc Investment management svcs 85.9 23.5 21.1 31.1
10/01/98 02/25/98 Maryland Federal Bancorp Inc Bank holding company 243.4 16.7 19.0 22.5
10/01/98 07/20/98 US SerVis Inc Dvlp healthcare software 47.4 151.6 86.0 151.6
10/02/98 02/18/98 Fed One Bancorp,Wheeling,WV Bank holding company 92.6 8.9 22.1 10.5
10/02/98 06/22/98 GT Bicycles Inc Mnfr bicycles;holding company 79.6 68.4 77.8 36.2
10/02/98 10/28/97 Rollins Inc Pvd pest control services 741.7 0.0 (5.4) (7.9)
10/03/98 05/18/98 HFNC Financial Corp Bank holding company 240.2 (12.4) (12.7) (13.4)
10/05/98 01/20/98 Buttrey Food and Drug Stores Supermarkets,department stores 139.2 44.2 44.2 47.6
10/05/98 06/24/98 Penederm Inc Mnfr,whl pharmaceuticals 193.1 39.0 39.5 88.3
10/06/98 09/01/98 Knape & Vogt Manufacturing Co Mnfr,whl storage products 74.1 9.8 10.5 3.1
10/07/98 09/29/98 Newmont Gold Co Gold,coal mining; oil,gas expl 4,235.4 (5.2) 20.8 62.4
10/08/98 07/23/98 Innova Corp Mnfr telecommunications prod 115.7 16.2 36.5 30.0
10/08/98 06/02/98 RF Power Products Mnfr power delivery systems 60.7 15.6 49.3 74.8
10/09/98 07/09/98 American Materials & Techs Manufacture chemicals 26.7 100.0 100.0 81.1
10/16/98 08/03/98 Continental Natural Gas Inc Electric and gas utility 66.2 8.8 35.6 46.8
10/19/98 05/29/98 Wayne Bancorp Inc,Wayne,NJ Bank holding company 138.6 40.3 43.2 49.5
10/20/98 05/29/98 Emerging Communications Inc Investment company 112.3 46.4 42.6 54.7
10/21/98 09/16/98 Price Enterprises Real estate development firm 130.5 27.5 28.5 25.7
10/22/98 05/20/98 National Gas & Oil Co Electric utility 93.0 6.7 18.2 26.1
10/23/98 04/06/98 Security First Corporation Commercial bank 251.7 30.8 30.8 34.6
10/26/98 07/14/98 New West Eyeworks Inc Own,op optical goods stores 74.6 23.8 33.3 30.0
10/27/98 09/21/98 Central Newspapers Inc Publish newspapers 1,328.8 (0.4) 0.9 (7.5)
10/28/98 07/09/98 Eltron International Inc Mnfr bar code printing sys 283.4 25.8 34.6 57.4
10/29/98 05/28/98 First Palm Beach Bancorp Inc Bank holding company 294.1 50.8 46.8 45.1
10/30/98 09/21/98 Gamma Biologicals Inc Mnfr blood reagent products 25.6 87.8 127.4 23.4
10/30/98 07/23/98 IMNET Systems Inc Dvlp healthcare software 261.5 55.6 59.3 62.5
10/30/98 03/16/98 Norwood Promotional Products Investment company 107.8 19.1 19.1 23.6
11/03/98 06/04/98 Cable Michigan Inc Pvd cable TV services 291.2 14.9 14.9 23.2
11/06/98 10/01/98 Carnegie Group Inc Pvd computer reearch svcs 34.6 90.5 95.1 175.9
11/10/98 09/29/98 Ovid Technologies Inc Publish newspapers, books 187.9 23.0 29.4 46.8
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION ACQUIROR NAME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/13/98 06/04/98 Allied Life Financial Corp Insurance co; holding co Nationwide Mutual Insurance Co
11/13/98 09/23/98 Golden Eagle Group Inc Pvd transp logistics svcs USFreightways Corp
11/16/98 04/23/98 AFSALA Bancorp Inc,NY Commercial bank Ambanc Holding Co,Amsterdam,NY
11/16/98 05/19/98 GTI Corp(Telemetrix PLC) Mnfr electronic components Technitrol Inc
11/16/98 05/19/98 QuesTech Inc Sys engineering, tech services CACI International Inc
11/17/98 08/03/98 Freeport-McMoRan Sulphur Inc Sulphur mining company McMoRan Oil & Gas Co
11/20/98 08/04/98 American Industrial Properties Real estate investment trust Developers Diversified Realty
11/23/98 09/21/98 Central Newspapers Inc Publish newspapers Central Newspapers Inc
11/23/98 11/23/98 Kelly Services Inc Temporary help supply services Kelly Services Inc
11/23/98 11/23/98 Life Technologies Inc(Dexter) Biological, medical products Investor Group
11/23/98 06/18/98 NSS Bancorp,Norwalk,CT Commercial bank Summit Bancorp,Princeton,NJ
11/24/98 10/08/98 Mecklermedia Corp Publishing company Penton Media Inc
11/25/98 02/18/98 National Income Realty Trust Real estate investment trust Tarragon Realty Investors
11/30/98 10/06/97 Biogen Inc Mnfr pharmaceuticals Biogen Inc
11/30/98 06/04/98 Telco Systems Inc Mnfr telecommunication prods World Access Inc
12/01/98 09/02/98 Altron Inc Mnfr,mkt circuit board prods Sanmina Corp
12/01/98 09/04/98 Monocacy Bancshares Inc Commercial bank F&M Bancorp,Frederick,MD
12/03/98 08/13/98 Clearview Cinema Group Inc Own and operate movie theaters Cablevision Systems Corp
12/03/98 12/23/97 IVAX Corp Mnfr specialty chem,drugs IVAX Corp
12/03/98 02/02/98 Sandwich Bancorp,Sandwich,MA Bank holding company CompassBank,New Bedford,MA
12/08/98 10/22/98 Lab Specialists of America Inc Provide laboratory testing svc Kroll-O'Gara Co
12/09/98 11/05/98 Alliant Techsystems Inc Mnfr ammunitions, defense sys Alliant Techsystems Inc
12/10/98 11/02/98 AquaPenn Spring Water Co Inc Produce,whl spring water Danone Group
12/10/98 09/02/98 Home Choice Holdings Inc Pvd equip rental svcs Rent-Way Inc
12/11/98 10/12/98 Consilium Inc Develop software Applied Materials Inc
12/14/98 10/27/98 Citizens Corp(Hanover Ins Co) Auto,workers comp insurance co Allmerica Financial Corp
12/14/98 12/14/98 Qwest Commun Int Inc Pvd telephone commun svcs Microsoft Corp
12/15/98 10/16/98 BRC Holdings Inc Develop health care software Affiliated Computer Services
12/15/98 06/22/98 Special Devices Inc Manufacture surgical implants JF Lehman & Co
12/15/98 08/12/98 Walshire Assurance Insurance company Kingsway Financial Services
12/16/98 06/02/98 Home Bancorp of Elgin,Elgin,IL Savings and loan State Financial Services Corp
12/16/98 08/19/98 Peerless Group Inc Develop computer software Jack Henry & Associates Inc
12/16/98 11/10/98 Steel of West Virginia Inc Manufacture steel products Roanoke Electric Steel
12/17/98 09/23/98 J&L Specialty Steel Inc Mnfr steel,steel products Usinor SA
12/18/98 12/18/98 Aeroquip-Vickers Inc Mnfr hoses, hydraulic systems Investor Group
12/18/98 09/09/98 Integrated Systems Consulting Provide consulting services First Consulting Group Inc
12/22/98 11/09/98 Global Motorsport Group Inc Wholesale motorcycle parts Stonington Partners Inc
12/22/98 11/10/98 Intensiva Healthcare Corp Pvd acute,long-term care svcs Select Medical Corp
12/22/98 12/24/98 Life Technologies Inc(Dexter) Biological, medical products Investor Group
12/22/98 08/20/98 Wolverine World Wide Inc Mnfr footwear,slippers,leather Wolverine World Wide Inc
12/23/98 07/24/98 Information Storage Devices Mnfr voice recorded circuits Windbond Electronic Corp
12/23/98 07/07/98 Life Technologies Inc(Dexter) Biological, medical products Dexter Corp
12/23/98 07/06/98 Peoples Telephone Co Inc Own,op public pay telephones Davel Communications Group Inc
12/24/98 12/28/98 USG Corp Mnfr gypssum,wood fiber Investor
12/30/98 11/17/98 Cherry Corp Mnfr switches,electrical equip Cherry Corp
12/30/98 12/30/98 First Health Group Corp Own,op HMO Richard C Blum & Associates
12/30/98 11/02/98 Intl Manufacturing Svcs Inc Pvd electn manufacturing svcs Celestica Inc(Onex Corp)
12/30/98 10/07/98 PNB Financial Group Bank & holding company Western Bancorp,California
12/31/98 10/13/98 DataWorks Corp Dvlp computer integrated sys Platinum Software Corp
12/31/98 07/20/98 Pacific Capital Bancorp,CA Commercial bank;holding co Santa Barbara Bancorp,CA
12/31/98 10/07/98 Red Brick Systems Inc Develop software Informix Corp
12/31/98 07/16/98 Southwest National Corp,PA Commercial bank First Commonwealth Financial
12/31/98 10/29/98 Transition Systems Inc Develop healthcare software Eclipsys Corp
12/31/98 08/17/98 Westco Bancorp Inc,IL Federal savings institution MAF Bancorp,Clarendon Hills,IL
01/04/99 06/25/98 1st Bancorp,Vincennes,Indiana Bank holding company German American Bancorp,IN
01/05/99 11/19/98 CN Biosciences Inc Mnfr medicinal biotech prods EM Industries Inc(Merck AG)
01/05/99 01/05/99 Tel-Save.com Inc Pvd telecommunications svcs America Online Inc
01/07/99 10/01/98 Richey Electronics Inc Whl electronic components Arrow Electronics Inc
01/08/99 08/26/98 Toastmaster Inc Mnfr electric consumer appl Salton/Maxim Houswares Inc
01/13/99 11/23/98 Total Control Products Inc Mnfr process control instr GE Fanuc Automation N America
01/21/99 07/20/98 Financial Bancorp Inc Savings and loan Dime Community Bancorp Inc,NY
<CAPTION>
PREMIUM
---------------------------------------
1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
TO TO TO
DATE DATE ACQUIROR SHORT EQUITY VALUE ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
EFFECTIVE ANNOUNCED TARGET NAME BUSINESS DESCRIPTION ($MIL) DATE DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11/13/98 06/04/98 Allied Life Financial Corp Insurance company 138.4 4.3 13.7 26.3
11/13/98 09/23/98 Golden Eagle Group Inc Provide trucking services 30.2 223.6 184.8 223.6
11/16/98 04/23/98 AFSALA Bancorp Inc,NY Bank holding company 30.0 1.2 2.4 1.2
11/16/98 05/19/98 GTI Corp(Telemetrix PLC) Mnfr electronic components 33.7 1.2 34.1 (2.7)
11/16/98 05/19/98 QuesTech Inc Pvd computer engineering svcs 34.3 25.0 42.2 52.7
11/17/98 08/03/98 Freeport-McMoRan Sulphur Inc Oil and gas exploration, prodn 123.0 14.9 6.4 4.2
11/20/98 08/04/98 American Industrial Properties Real estate investment trust 171.9 26.5 21.0 24.0
11/23/98 09/21/98 Central Newspapers Inc Publish newspapers 1,483.8 11.2 12.7 3.3
11/23/98 11/23/98 Kelly Services Inc Temporary help supply services 1,119.6 (0.5) 3.7 7.0
11/23/98 11/23/98 Life Technologies Inc(Dexter) Investor group 888.3 (0.0) (0.0) 2.4
11/23/98 06/18/98 NSS Bancorp,Norwalk,CT Bank holding company 151.3 28.2 36.8 31.5
11/24/98 10/08/98 Mecklermedia Corp Publish bus,trade magazines 266.2 43.7 52.6 39.8
11/25/98 02/18/98 National Income Realty Trust Operate real estate agencies 77.0 22.9 17.9 20.1
11/30/98 10/06/97 Biogen Inc Mnfr pharmaceuticals 2,472.0 0.0 0.2 (6.2)
11/30/98 06/04/98 Telco Systems Inc Pvd telecommunication services 194.1 77.8 65.9 63.9
12/01/98 09/02/98 Altron Inc Mnfr printed circuit boards 195.1 16.6 6.5 7.7
12/01/98 09/04/98 Monocacy Bancshares Inc Commercial bank 84.7 43.5 39.2 43.5
12/03/98 08/13/98 Clearview Cinema Group Inc Own,op cable TV systems 57.8 10.2 10.2 7.8
12/03/98 12/23/97 IVAX Corp Mnfr specialty chem,drugs 850.6 0.0 (1.8) (0.9)
12/03/98 02/02/98 Sandwich Bancorp,Sandwich,MA Savings and loan 129.6 47.1 48.8 48.8
12/08/98 10/22/98 Lab Specialists of America Inc Pvd security prods,svcs 38.2 57.7 90.4 57.7
12/09/98 11/05/98 Alliant Techsystems Inc Mnfr ammunitions, defense sys 843.9 4.3 11.1 14.9
12/10/98 11/02/98 AquaPenn Spring Water Co Inc Produce,whl milk,cookies,jams 110.3 34.2 100.0 160.0
12/10/98 09/02/98 Home Choice Holdings Inc Pvd equipment rental services 231.0 7.2 4.1 7.7
12/11/98 10/12/98 Consilium Inc Mnfr wafer fabrication systems 45.2 145.7 145.7 145.7
12/14/98 10/27/98 Citizens Corp(Hanover Ins Co) Pvd insurance services 1,165.0 20.6 17.2 20.9
12/14/98 12/14/98 Qwest Commun Int Inc Dvlp,whl computer software 14,971.5 3.7 3.7 5.3
12/15/98 10/16/98 BRC Holdings Inc Pvd data processing services 261.0 17.1 16.9 15.2
12/15/98 06/22/98 Special Devices Inc Mnfr precision power supplies 277.1 (2.5) 1.9 0.0
12/15/98 08/12/98 Walshire Assurance Pvd non-standard auto ins svcs 36.6 10.0 53.5 22.2
12/16/98 06/02/98 Home Bancorp of Elgin,Elgin,IL Bank holding company 133.6 11.3 11.3 8.9
12/16/98 08/19/98 Peerless Group Inc Develop computer software 36.8 51.0 59.1 47.2
12/16/98 11/10/98 Steel of West Virginia Inc Mnfr steel bar products 64.7 75.5 100.0 79.2
12/17/98 09/23/98 J&L Specialty Steel Inc Manufacture,wholesale steel 247.1 100.0 112.5 37.8
12/18/98 12/18/98 Aeroquip-Vickers Inc Investor group 1,074.1 35.9 17.9 7.4
12/18/98 09/09/98 Integrated Systems Consulting Pvd mgmt consulting services 390.1 125.6 119.6 90.2
12/22/98 11/09/98 Global Motorsport Group Inc Investment firm 106.2 13.5 33.8 31.1
12/22/98 11/10/98 Intensiva Healthcare Corp Own,op acute hospitals 102.2 54.0 60.4 92.5
12/22/98 12/24/98 Life Technologies Inc(Dexter) Investor group 933.7 0.1 0.7 5.5
12/22/98 08/20/98 Wolverine World Wide Inc Mnfr footwear,slippers,leather 537.2 0.0 (6.9) (22.6)
12/23/98 07/24/98 Information Storage Devices Mnfr electronic equipment 76.4 46.3 36.4 44.6
12/23/98 07/07/98 Life Technologies Inc(Dexter) Mnfr adhesives,coatings 924.1 25.2 24.7 19.0
12/23/98 07/06/98 Peoples Telephone Co Inc Pvd pay telephone commun svcs 114.4 87.5 80.3 118.0
12/24/98 12/28/98 USG Corp Investor 2,509.3 1.6 1.6 2.1
12/30/98 11/17/98 Cherry Corp Mnfr switches,electrical equip 73.8 14.8 14.8 66.4
12/30/98 12/30/98 First Health Group Corp Investment firm 1,050.4 11.9 10.1 4.7
12/30/98 11/02/98 Intl Manufacturing Svcs Inc Mnfr memory prod,power sys 153.2 42.9 172.6 83.1
12/30/98 10/07/98 PNB Financial Group Bank holding co 89.9 7.7 (1.3) (0.4)
12/31/98 10/13/98 DataWorks Corp Develop modular software 96.5 23.7 54.2 23.7
12/31/98 07/20/98 Pacific Capital Bancorp,CA Bank holding co 291.9 27.4 41.8 45.1
12/31/98 10/07/98 Red Brick Systems Inc Dvlp management software 33.6 15.8 22.6 12.7
12/31/98 07/16/98 Southwest National Corp,PA Bank holding company 269.8 61.1 80.9 77.3
12/31/98 10/29/98 Transition Systems Inc Pvd integrated software svcs 284.7 57.5 49.9 72.5
12/31/98 08/17/98 Westco Bancorp Inc,IL Savings and loans 82.1 14.3 8.3 6.4
01/04/99 06/25/98 1st Bancorp,Vincennes,Indiana Bank holding company 55.9 59.2 69.1 69.8
01/05/99 11/19/98 CN Biosciences Inc Wholesale chemicals 149.7 8.1 (4.3) (0.5)
01/05/99 01/05/99 Tel-Save.com Inc Internet Service Provider 957.7 11.8 25.1 87.7
01/07/99 10/01/98 Richey Electronics Inc Whl electronic components 102.0 52.7 68.0 127.0
01/08/99 08/26/98 Toastmaster Inc Mnfr electric housewares,fans 53.3 3.7 21.7 36.6
01/13/99 11/23/98 Total Control Products Inc Mnfr factory automation equip 99.6 15.8 12.8 18.9
01/21/99 07/20/98 Financial Bancorp Inc Savings and loan 72.1 24.3 20.5 34.8
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION ACQUIROR NAME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
01/21/99 09/03/98 Gryphon Holdings Inc Insurance co; holding co Markel Corp
01/22/99 12/03/98 Microdyne Corp Mnfr,whl telemetry products L-3 Communications Holdings
01/22/99 06/30/98 Reliance Bancshares Inc Savings and loan St Francis Capital Corp,WI
01/25/99 12/16/98 LCS Industries Inc Pvd mail advertising svcs CustomerOne Holding Corp
01/25/99 12/22/98 PEP Boys-Manny Moe & Jack Inc Own,operate auto parts stores PEP Boys-Manny Moe & Jack Inc
01/26/99 01/26/99 Total-Tel USA Communications Provide telecommun services Investor Group
01/27/99 12/11/98 C-ATS Software Inc Develop risk mgmt software Misys PLC
01/31/99 07/02/98 First Mutual Bancorp,Illinois Pvd business credit services Union Planters Corp,Memphis,TN
02/03/99 02/03/99 Texas Industries Inc Mnfr cement,steel products Investor
02/04/99 12/17/98 Rival Co Mnfr household appliances Moriarty Acquisition Corp
02/08/99 12/15/97 Christiana Cos Inc Pvd warehousing,logistical svc EVI Inc
02/10/99 02/11/99 John H Harland Co Pvd commercial printing svcs Investor Group
02/12/99 10/16/98 BRC Holdings Inc Develop health care software Affiliated Computer Services
02/16/99 12/11/98 Logans Roadhouse Inc Own,operate restaurants Cracker Barrel Old Country Str
02/17/99 11/10/98 Rockford Industries Inc Pvd medical equip finance svcs American Express Co
02/18/99 01/06/99 ExecuStay Corp Own and operate rooming houses Marriott International Inc
02/19/99 04/08/98 NAI Technologies Inc Mnfr,whl rugged computer sys DRS Technologies Inc
02/22/99 01/11/99 Alarmguard Holdings Inc Pvd security sys svcs;hldg co ADT Inc(ADT Group PLC)
02/22/99 11/19/98 Reno Air Inc Passenger airline American Airlines Inc(AMR)
02/24/99 01/07/99 Defiance Inc Mnfr,whl bearings General Chemical Group Inc
02/25/99 01/19/99 ABT Building Products Corp Mnfr,whl building materials Louisiana-Pacific Corp
02/25/99 09/23/98 Ryerson Tull Inc Wholesale steel Inland Steel Industries Inc
03/01/99 01/06/99 ExecuStay Corp Own and operate rooming houses Marriott International Inc
03/01/99 10/05/98 Insignia Properties Trust Real estate investment trust Apartment Investment & Mgmt Co
03/01/99 11/09/98 Primadonna Resorts Inc Own,op casino-hotels MGM Grand Inc(Tracinda Corp)
03/01/99 10/19/98 Shiva Corp Mnfr communications equip Intel Corp
03/08/99 07/13/98 AVECOR Cardiovascular Inc Mnfr,whl medical devices Medtronic Inc
03/11/99 10/19/98 DepoTech Corp Mnfr sustained-release prods SkyePharma PLC
03/11/99 05/07/96 John Wiley & Sons Inc Publish books,magazines John Wiley & Sons Inc
03/11/99 12/03/98 Vincam Group Inc Provide temporary help svcs Automatic Data Processing, Inc
03/15/99 12/17/98 Pharmhouse Corp Own and operate drug stores Phar-Mor Inc
03/15/99 02/04/98 Spice Entertainment Cos Inc Pvd adult entertainment svcs Playboy Enterprises Inc
03/16/99 05/04/98 Marquee Group Inc Pvd professional mgmt services SFX Entertainment Inc
03/17/99 02/24/99 Capital Re Corp Reinsurance co;holding co ACE Ltd
03/17/99 10/22/98 CardioGenesis Corp Mnfr electromedical equipment Eclipse Surgical Technologies
03/17/99 10/06/98 N2K Inc Retail music prods on Internet CDnow Inc
03/18/99 11/02/98 LandCARE USA Inc Pvd landscape,tree svcs ServiceMaster Co
03/19/99 09/03/98 Cross-Continent Auto Retailers Whl,retail motor vehicles Republic Industries Inc
03/19/99 10/26/98 GeneMedicine Inc Mnfr,dvlp gene therapy prods MegaBios Corp
03/19/99 09/28/98 Glenway Financial Corp. Bank holding company Fidelity Financial of Ohio Inc
03/22/99 07/20/98 Bayonne Bancshares,New Jersey Savings bank Richmond County Financial,NY
03/22/99 10/28/98 General Scanning Inc Mnfr optical test equip Lumonics Inc
03/22/99 11/12/98 Hills Stores Co Own,op dept stores,shoe stores Ames Department Stores Inc
03/24/99 01/19/99 Audits & Surveys Worldwide Inc Pvd marketing research svcs United Information Group
03/24/99 11/24/98 Besicorp Group Inc Mnfr, whl heating equipment BGI Acquisition LLC
03/25/99 11/11/98 Sulcus Hospitality Mnfr computers, dvlp software Eltrax Systems Inc
03/26/99 08/10/98 Scott & Stringfellow Financial Securities brokerage hldg co BB&T Corp,Winston-Salem,NC
03/26/99 03/31/98 Thermo Voltek Corp Mnfr electronic components Thermedics(Thermo Electron)
03/29/99 10/28/98 First Coastal Bankshares Inc Commercial bank Centura Banks Inc,NC
03/29/99 12/15/98 Pharmaceutical Marketing Svcs Pvd info,market research svcs Quintiles Transnational Corp
03/30/99 10/14/98 Quarterdeck Corp Dvlp utilities,commun software Symantec Corp
03/31/99 10/21/98 Fort Bend Holding,Rosenberg,TX Bank holding company Southwest Bancorporation,TX
03/31/99 09/22/98 Raritan Bancorp Savings & loan holding company United National Bancorp,NJ
04/01/99 10/15/98 1st Bergen Bancorp Savings and loan Kearny Federal Savings Bank
04/01/99 10/27/98 Interstate/Johnson Lane Inc Investment banking holding co Wachovia Corp,Winston-Salem,NC
04/01/99 09/25/98 Youth Services International Pvd youth rehabilitation svcs Correctional Services Corp
04/05/99 12/03/98 Back Bay Restaurants Group Inc Own,op Italian restaurants Investor Group
04/06/99 11/20/98 Integrated Process Equipment Mnfr planarization systems SpeedFam-IPEC Inc
04/07/99 10/19/98 Bayard Drilling Technologies Oil and gas drilling services Nabors Industries Inc
04/08/99 12/03/98 Banner Aerospace Inc Wholesale aerospace equipment Fairchild Corp
04/09/99 01/19/99 AG Associates Inc Mnfr single-wafer equipment Steag AG(Ruhrkohle AG)
<CAPTION>
PREMIUM
-----------------------------
1 DAY 1 WEEK 4 WEEKS
PRIOR PRIOR PRIOR
TO TO TO
ANNOUNCE- ANNOUNCE- ANNOUNCE-
DATE DATE ACQUIROR SHORT EQUITY VALUE MENT MENT MENT
EFFECTIVE ANNOUNCED TARGET NAME BUSINESS DESCRIPTION ($MIL) DATE DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/21/99 09/03/98 Gryphon Holdings Inc Insurance firm,agency 133.4 33.3 49.0 20.6
01/22/99 12/03/98 Microdyne Corp Communications Equipment 65.4 15.9 60.0 44.1
01/22/99 06/30/98 Reliance Bancshares Inc Bank holding company 25.2 18.9 28.0 22.4
01/25/99 12/16/98 LCS Industries Inc Advertising Services 88.1 11.1 21.7 52.2
01/25/99 12/22/98 PEP Boys-Manny Moe & Jack Inc Miscellaneous Retail Trade 1,021.1 16.4 18.5 8.9
01/26/99 01/26/99 Total-Tel USA Communications Investor group 185.3 41.2 37.1 26.3
01/27/99 12/11/98 C-ATS Software Inc Computer and Office Equipment 59.0 71.4 66.7 90.5
01/31/99 07/02/98 First Mutual Bancorp,Illinois Bank holding company 67.6 5.7 4.2 9.6
02/03/99 02/03/99 Texas Industries Inc Investor 740.2 26.8 32.2 27.1
02/04/99 12/17/98 Rival Co Investment company 129.4 22.9 25.0 93.0
02/08/99 12/15/97 Christiana Cos Inc Mnfr oil field products 103.3 (14.7) (16.5) (15.0)
02/10/99 02/11/99 John H Harland Co Investor group 438.2 5.6 7.1 1.4
02/12/99 10/16/98 BRC Holdings Inc Pvd data processing services 261.0 17.1 16.9 15.2
02/16/99 12/11/98 Logans Roadhouse Inc Own,operate restaurants 178.2 13.9 10.3 33.8
02/17/99 11/10/98 Rockford Industries Inc Financial,investment services 54.2 9.2 28.4 137.6
02/18/99 01/06/99 ExecuStay Corp Own,op hotels,restaurants 107.0 (4.1) (0.5) 2.0
02/19/99 04/08/98 NAI Technologies Inc Mnfr defense electn equipment 43.2 29.5 17.2 69.7
02/22/99 01/11/99 Alarmguard Holdings Inc Mnfr electronic security sys 53.2 (5.1) 13.0 21.3
02/22/99 11/19/98 Reno Air Inc Passenger airline 141.3 6.9 15.9 44.2
02/24/99 01/07/99 Defiance Inc Chemicals and Allied Products 57.8 43.4 43.4 46.2
02/25/99 01/19/99 ABT Building Products Corp Wood Products, Furniture, and Fixtures 172.0 6.2 29.0 50.0
02/25/99 09/23/98 Ryerson Tull Inc Mnfr steel; holding company 61.1 (8.5) (11.6) (40.8)
03/01/99 01/06/99 ExecuStay Corp Own,op hotels,restaurants 116.0 3.2 7.2 9.8
03/01/99 10/05/98 Insignia Properties Trust Real estate investment trust 254.5 7.5 7.5
03/01/99 11/09/98 Primadonna Resorts Inc Operate hotels and airlines 267.5 3.1 32.6 86.8
03/01/99 10/19/98 Shiva Corp Mnfr,whl microprocessors 184.2 41.2 92.0 45.5
03/08/99 07/13/98 AVECOR Cardiovascular Inc Mnfr medical technology prods 106.7 31.6 76.3 114.4
03/11/99 10/19/98 DepoTech Corp Dvlp drug-delivery sys 26.4 43.2 50.7 30.2
03/11/99 05/07/96 John Wiley & Sons Inc Publish books,magazines 435.5 (0.7) (1.4) 1.1
03/11/99 12/03/98 Vincam Group Inc Business Services 294.9 24.3 26.4 39.2
03/15/99 12/17/98 Pharmhouse Corp Own,op discount drug stores 8.4 79.3 188.9 181.1
03/15/99 02/04/98 Spice Entertainment Cos Inc Publish magazines;night clubs 84.4 17.6 17.6 42.8
03/16/99 05/04/98 Marquee Group Inc Pvd music,entertainment svcs 90.8 (29.1) (26.0) (12.2)
03/17/99 02/24/99 Capital Re Corp Insurance company;holding co 533.9 14.4 41.3 (8.1)
03/17/99 10/22/98 CardioGenesis Corp Mnfr surgical supplies 93.2 167.6 155.5 134.2
03/17/99 10/06/98 N2K Inc Retail music prods on Internet 105.9 50.7 (10.5) (18.2)
03/18/99 11/02/98 LandCARE USA Inc Janitorial, laundry, mgmt svcs 172.0 29.3 27.3 68.9
03/19/99 09/03/98 Cross-Continent Auto Retailers Provide waste disposal svcs 147.9 66.2 67.8 55.6
03/19/99 10/26/98 GeneMedicine Inc Mnfr,dvlp gene delivery sys 34.9 19.6 12.5 (1.9)
03/19/99 09/28/98 Glenway Financial Corp. Bank holding company 46.6 (8.6) (0.6) (0.6)
03/22/99 07/20/98 Bayonne Bancshares,New Jersey Bank holding company 177.9 11.1 16.7 18.9
03/22/99 10/28/98 General Scanning Inc Mnfr laser, laser systems 98.5 49.5 80.3 39.3
03/22/99 11/12/98 Hills Stores Co Operate department stores 16.9 14.3 9.1 (11.1)
03/24/99 01/19/99 Audits & Surveys Worldwide Inc Business Services 43.2 32.9 36.4 29.6
03/24/99 11/24/98 Besicorp Group Inc Investment company 111.8 11.2 11.6 6.4
03/25/99 11/11/98 Sulcus Hospitality Pvd network integration svcs 70.7 159.6 149.6 260.5
03/26/99 08/10/98 Scott & Stringfellow Financial Bank holding company 127.8 19.8 28.7 35.0
03/26/99 03/31/98 Thermo Voltek Corp Mnfr biomedical systems 85.4 45.5 60.0 40.0
03/29/99 10/28/98 First Coastal Bankshares Inc Bank holding company 124.8 27.8 56.1 68.5
03/29/99 12/15/98 Pharmaceutical Marketing Svcs Business Services 242.7 28.7 27.4 42.2
03/30/99 10/14/98 Quarterdeck Corp Develop utility software prods 31.3 28.0 66.4 28.0
03/31/99 10/21/98 Fort Bend Holding,Rosenberg,TX Bank holding co 66.2 14.5 14.5 7.4
03/31/99 09/22/98 Raritan Bancorp Bank holding company 98.2 16.5 52.2 31.7
04/01/99 10/15/98 1st Bergen Bancorp Savings bank 64.7 31.5 65.5 37.1
04/01/99 10/27/98 Interstate/Johnson Lane Inc Bank holding company 203.6 (5.9) 12.3 5.8
04/01/99 09/25/98 Youth Services International Pvd management svcs 44.3 0.9 (14.8) (43.8)
04/05/99 12/03/98 Back Bay Restaurants Group Inc Investment & Commodity Firms,Dealers,Exchanges 38.9 12.3 13.9 28.1
04/06/99 11/20/98 Integrated Process Equipment Mnfr,whl planarization systems 188.7 (2.9) (0.6) 19.0
04/07/99 10/19/98 Bayard Drilling Technologies Pvd oil and gas drilling svcs 80.5 (10.6) 3.8 (7.1)
04/08/99 12/03/98 Banner Aerospace Inc Metal and Metal Products 283.3 25.7 41.9 40.8
04/09/99 01/19/99 AG Associates Inc Electric, Gas, and Water Distribution 34.6 25.7 33.3 49.2
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION ACQUIROR NAME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
04/19/99 12/03/98 IVAX Corp Mnfr specialty chem,drugs IVAX Corp
04/23/99 12/02/98 Brylane Inc Own,op mail-order house Pinault-Printemps Redoute
04/26/99 11/19/98 Prism Solutions Inc Dvlp data management software Ardent Software Inc
04/28/99 01/18/99 FDP Corp Develop software SunGard Data Systems Inc
04/28/99 03/24/99 PFF Bancorp Inc,Pomona,CA Bank holding company PFF Bancorp Inc,Pomona,CA
04/29/99 03/01/99 Aydin Corp Mnfr telecommun equipment L-3 Communications Holdings
05/03/99 09/09/98 Calumet Bancorp Inc Commercial bank holding co FBOP Corp,Oak Park,Illinois
05/03/99 11/02/98 Quality Semiconductor Manufacture semiconductors Integrated Device Tech Inc
05/07/99 12/02/98 Intercargo Corp Insurance company EXEL Ltd
05/10/99 01/28/99 Signature Inns Inc Hotels and Casinos Real estate investment trust
05/13/99 12/11/98 STB Systems Inc Mnfr,whl multimedia systems 3Dfx Interactive Inc
05/14/99 11/12/98 Aquila Gas Pipeline Corp Gas utility UtiliCorp United Inc
05/14/99 09/28/98 Enterprise Federal Bancorp,OH Bank holding co Fifth Third Bancorp,OH
05/14/99 10/19/98 Karrington Health Inc Pvd daily assistance svcs Sunrise Assisted Living Inc
05/14/99 11/18/98 National Information Group Fire insurance holding company First American Financial Corp
05/20/99 01/26/99 Little Falls Bancorp Inc Commercial Banks, Bank Holding Companies Bank holding company
05/20/99 11/11/98 Village Bancorp Inc Commercial bank Webster Finl Corp,Waterbury,CT
05/24/99 05/06/98 Universal Corp(VA) Produce reconstituted tobacco Universal Corp(VA)
05/25/99 12/09/98 Quickturn Design Systems Inc Dvlp computer systems Cadence Design Systems Inc
05/26/99 04/02/98 Arctic Cat Inc Mnfr and whl snowmobiles Arctic Cat Inc
05/27/99 05/27/99 Security First Technologies Dvlp Internet banking software Intuit Inc
05/30/99 03/15/99 Haskel International Inc Mnfr pumps,plungers,boosters Investor Group
06/01/99 01/13/99 Comstock Bancorp,Reno,Nevada Savings and loan First Security Corp,Utah
06/01/99 05/04/99 Hilite Industries Inc Mnfr motor vehicle equipment Hilite Industries Inc
06/07/99 01/05/99 FCB Financial Corp,Neenah,WI Bank holding co Anchor Bancorp Wisconsin Inc
06/08/99 12/15/98 Hallwood Energy Partners LP Oil and gas exploration, prodn Hallwood Consolidated Resource
<CAPTION>
PREMIUM
-----------------------------
1 DAY 1 WEEK 4 WEEKS
PRIOR PRIOR PRIOR
TO TO TO
ANNOUNCE- ANNOUNCE- ANNOUNCE-
DATE ACQUIROR SHORT EQUITY VALUE MENT MENT MENT
EFFECTIVE ANNOUNCED TARGET NAME BUSINESS DESCRIPTION ($MIL) DATE DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
04/19/99 12/03/98 IVAX Corp Drugs 1,148.2 0.0 (3.1) (6.0)
04/23/99 12/02/98 Brylane Inc Retail Trade-General Merchandise and Apparel 426.2 45.2 88.5 44.1
04/26/99 11/19/98 Prism Solutions Inc Develop applications software 42.5 (31.7) 13.2 34.2
04/28/99 01/18/99 FDP Corp Business Services 89.7 14.5 20.7 37.1
04/28/99 03/24/99 PFF Bancorp Inc,Pomona,CA Savings and Loans, Mutual Savings Banks 279.9 0.0 5.1 5.1
04/29/99 03/01/99 Aydin Corp Communications Equipment 71.4 64.9 64.9 62.4
05/03/99 09/09/98 Calumet Bancorp Inc Commercial bank;holding co 110.6 18.5 19.6 3.2
05/03/99 11/02/98 Quality Semiconductor Mnfr,whl integrated circuits 36.0 62.4 146.2 131.3
05/07/99 12/02/98 Intercargo Corp Insurance 91.9 18.5 7.9 3.2
05/10/99 01/28/99 Signature Inns Inc Investment & Commodity Firms,Dealers,Exchanges 41.2 56.5 106.4 100.0
05/13/99 12/11/98 STB Systems Inc Electronic and Electrical Equipment 136.1 81.2 81.2 73.8
05/14/99 11/12/98 Aquila Gas Pipeline Corp Pvd electric/gas utility svcs 235.2 23.1 17.4 68.4
05/14/99 09/28/98 Enterprise Federal Bancorp,OH Pvd commercial banking svcs 104.2 51.6 49.7 74.4
05/14/99 10/19/98 Karrington Health Inc Pvd assisted living svcs 82.2 32.4 28.0 100.0
05/14/99 11/18/98 National Information Group Provide financial services 96.0 100.6 159.2 273.2
05/20/99 01/26/99 Little Falls Bancorp Inc Commercial Banks, Bank Holding Companies 54.1 5.7 4.7 4.4
05/20/99 11/11/98 Village Bancorp Inc Bank holding co 50.9 21.0 27.1 26.3
05/24/99 05/06/98 Universal Corp(VA) Produce reconstituted tobacco 1,324.3 (3.5) (0.7) (12.5)
05/25/99 12/09/98 Quickturn Design Systems Inc Develop CAD software 290.1 23.1 33.3 36.4
05/26/99 04/02/98 Arctic Cat Inc Mnfr and whl snowmobiles 825.7 208.1 205.1 189.6
05/27/99 05/27/99 Security First Technologies Develop finance software 582.1 60.3 6.2 (54.4)
05/30/99 03/15/99 Haskel International Inc Investor group 64.9 42.3 49.6 51.8
06/01/99 01/13/99 Comstock Bancorp,Reno,Nevada Bank holding co 57.3 23.2 24.7 29.4
06/01/99 05/04/99 Hilite Industries Inc Mnfr motor vehicle equipment 69.8 3.2 6.5 32.6
06/07/99 01/05/99 FCB Financial Corp,Neenah,WI Bank holding company 174.9 57.7 63.5 50.9
06/08/99 12/15/98 Hallwood Energy Partners LP Oil and gas exploration,prodn 48.0 27.8 10.0 (3.4)
----------------------------------
AVERAGE 23.2% 29.1% 34.4%
----------------------------------
----------------------------------
MEDIAN 16.8% 22.0 26.9
----------------------------------
</TABLE>
- -----------------------------
Source: Securities Data Corporation, 6/10/99.
<PAGE> 37
PROJECT SOUNDER
PREMIUMS ANALYSIS: HEALTHCARE SERVICES MERGERS AND ACQUISITIONS BETWEEN $25 AND
$300 MILLION
EFFECTIVE JANUARY 1, 1997 THROUGH JUNE 9, 1999
<TABLE>
<CAPTION>
DATE DATE
EFFECTIVE ANNOUNCED TARGET NAME TARGET BUSINESS DESCRIPTION ACQUIROR NAME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
02/07/97 12/19/96 HealthPlan Services Corp Own and operate HMO Automatic Data Processing, Inc
03/17/97 11/11/96 AHI Healthcare Systems Inc Pvd physician contracting svcs FPA Medical Management Inc
04/21/97 04/18/97 Vitalink Pharmacy Services Inc Pvd health and allied svcs Manor Care Inc
06/02/97 01/13/97 Somatix Therapy Corp Mnfr cell biology products Cell Genesys Inc
07/09/97 05/30/97 Integrated Living Communities Pvd nursing,personal care svcs Whitehall Street Real Estate
09/24/97 08/14/97 Talbert Medical Management Own,op medical,dental clinics MedPartners Inc
09/26/97 08/01/97 Community Care of America Inc Own,op nursing homes Integrated Health Services Inc
09/29/97 06/24/97 SMT Health Services Inc Operate outpatient facilities Three Rivers Holding Corp
10/01/97 11/14/96 Health Management Inc Pvd prescription distn svcs Transworld Healthcare Inc
10/14/97 10/14/97 InSight Health Services Corp Own and operate medical labs General Electric Medical Sys
10/23/97 07/31/97 Sterling House Corp Own,op nursing homes Alternative Living Services
11/19/97 08/04/97 Gynecare Inc Pvd biotech prod dlvp services Johnson & Johnson
12/18/97 07/23/97 Alliance Imaging Inc Pvd diagnostic imaging svcs Newport Investment LLC
01/05/98 05/06/97 Physicians Health Services Inc Own and operate HMO's Foundation Health Systems Inc
04/16/98 02/09/98 Summit Care Corp Provide nursing services Fountain View(Heritage)
04/30/98 10/02/97 Kapson Senior Quarters Corp Provide residential care svcs Prometheus Senior Quarters
06/11/98 06/11/98 PHP Healthcare Corp Pvd health mangement services PHP Healthcare Corp
07/31/98 03/13/98 MedCath Inc Pvd cardiology related svcs Investor Group
08/11/98 04/15/98 Harborside Healthcare Corp Pvd long-term med services Investcorp
09/15/98 04/20/98 Atria Communities Inc Provide residential care svcs Kapson Senior Quarters Corp
12/22/98 11/10/98 Intensiva Healthcare Corp Pvd acute,long-term care svcs Select Medical Corp
12/22/98 12/24/98 Life Technologies Inc(Dexter) Biological, medical products Investor Group
12/30/98 12/30/98 First Health Group Corp Own,op HMO Richard C Blum & Associates
05/14/99 10/19/98 Karrington Health Inc Pvd daily assistance svcs Sunrise Assisted Living Inc
<CAPTION>
PREMIUM
---------------------------------------
1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
TO TO TO
DATE DATE ACQUIROR SHORT EQUITY VALUE ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
EFFECTIVE ANNOUNCED TARGET NAME BUSINESS DESCRIPTION ($MIL) DATE DATE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
02/07/97 12/19/96 HealthPlan Services Corp Pvd data processing services $ 298.2 (4.2)% 3.9% 3.9%
03/17/97 11/11/96 AHI Healthcare Systems Inc Pvd health care mgmt services 116.8 10.9 34.0 23.7
04/21/97 04/18/97 Vitalink Pharmacy Services Inc Own,op nursing homes,hotels 279.6 14.3 8.1 (4.2)
06/02/97 01/13/97 Somatix Therapy Corp Pvd biological research svcs 86.0 (7.9) (3.1) 6.1
07/09/97 05/30/97 Integrated Living Communities Real estate development firm 79.7 26.9 21.1 50.8
09/24/97 08/14/97 Talbert Medical Management Pvd medical services to HMO's 189.0 10.5 18.9 37.0
09/26/97 08/01/97 Community Care of America Inc Pvd specialty healthcare svcs 30.4 23.1 18.5 88.2
09/29/97 06/24/97 SMT Health Services Inc Investment company 75.6 4.4 2.2 8.0
10/01/97 11/14/96 Health Management Inc Provide home health care svcs 2.8 (86.7) (82.2) (92.9)
10/14/97 10/14/97 InSight Health Services Corp Mnfr,whl MRI scanners 80.7 15.6 21.9 21.9
10/23/97 07/31/97 Sterling House Corp Pvd residential care svcs 122.7 30.4 29.5 40.5
11/19/97 08/04/97 Gynecare Inc Mnfr medical equip and prods 70.5 (2.8) 1.7 37.7
12/18/97 07/23/97 Alliance Imaging Inc Investment company 120.4 7.3 3.5 14.3
01/05/98 05/06/97 Physicians Health Services Inc Own,op HMO's; holding company 270.6 23.5 27.0 51.7
04/16/98 02/09/98 Summit Care Corp Own,op healthcare facilities 145.9 14.3 31.3 37.7
04/30/98 10/02/97 Kapson Senior Quarters Corp Pvd nursing care services 179.4 (0.9) 9.4 1.8
06/11/98 06/11/98 PHP Healthcare Corp Pvd health mangement services 99.8 0.0 (2.8) (32.5)
07/31/98 03/13/98 MedCath Inc Investor group 224.0 15.2 10.9 34.5
08/11/98 04/15/98 Harborside Healthcare Corp Investment firm 200.2 18.3 22.7 5.8
09/15/98 04/20/98 Atria Communities Inc Provide residential care svcs 473.3 2.5 7.3 (0.3)
12/22/98 11/10/98 Intensiva Healthcare Corp Own,op acute hospitals 102.2 54.0 60.4 92.5
12/22/98 12/24/98 Life Technologies Inc(Dexter) Investor group 933.7 0.1 0.7 5.5
12/30/98 12/30/98 First Health Group Corp Investment firm 1,050.4 11.9 10.1 4.7
05/14/99 10/19/98 Karrington Health Inc Pvd assisted living svcs 82.2 32.4 28.0 100.0
-------------------------------------------
AVERAGE 8.9% 11.8% 22.3%
-------------------------------------------
-------------------------------------------
MEDIAN 11.4 10.5 18.1
-------------------------------------------
</TABLE>
- -----------------------------------
Source: Securities Data Corporation, 6/10/99.
<PAGE> 38
PROJECT SOUNDER
PREMIUMS ANALYSIS: LBO'S AND PRIVATIZATIONS OF PUBLIC COMPANIES
JANUARY 1, 1996 THROUGH JUNE 9, 1999
<TABLE>
<CAPTION>
VALUE OF
DATE DATE TRANSACTION
EFFECTIVE ANNOUNCED TARGET NAME ACQUIROR NAME ($MM)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
08/28/96 01/03/96 International Jensen Inc Recoton Corp $ 64.1
02/15/96 01/05/96 Swing-N-Slide Corp(GreenGrass) GreenGrass Holdings 39.0
09/09/96 01/05/96 Finl Institutions Ins Grp Ltd Investor Group 55.4
09/30/96 02/05/96 Customedix Corp CUS Acquisition Inc 7.8
06/19/96 02/05/96 CTL Credit Inc Bay View Capital,San Mateo,CA 64.9
04/30/96 02/05/96 DiMark Inc Harte-Hanks Inc 150.6
07/01/96 02/13/96 S-K-I Ltd LBO Enterprises 105.4
05/14/96 02/15/96 Andros Inc Genstar Capital Partners II LP 88.4
07/11/96 02/28/96 Salton/Maxim Houswares Inc Windmere Corp 21.1
07/10/96 02/29/96 Big O Tires Inc TBC Corp 54.7
08/01/96 03/28/96 Stop & Shop Cos Koninklijke Ahold NV 1,758.8
08/05/97 04/15/96 Enserch Exploration Inc Shareholders 1,007.5
10/01/96 04/25/96 Sterling Chemicals Inc Investor Group 668.3
03/17/98 05/03/96 Homeowners Group Inc Cross Country Group Inc 11.5
09/04/96 05/24/96 Clinton Gas Systems Inc Joint Energy Dvlp Investments 38.1
06/05/96 06/05/96 YES Clothing Co Investor Group NA
10/01/96 06/06/96 AT&T Capital Corp(AT&T Corp) Investor Group 2,128.6
08/23/96 06/10/96 Bailey Corp Vemco Acquisition Corp 48.7
08/23/96 06/10/96 Orbit Semiconductor Inc DII Group Inc 103.2
07/23/96 06/11/96 Community Health Systems Inc Forstmann Little & Co 1,080.0
09/27/96 06/28/96 Salem Corp Investor Group 46.6
08/08/96 07/02/96 Ambar Inc Beacon Group Energy Investment 66.6
11/07/96 08/14/96 Payco American Corp OSI Holdings Corp 145.4
06/27/97 09/30/96 Belden & Blake Corp Texas Pacific Group Inc 313.0
02/13/97 10/03/96 Kinder-Care Learning Centers Kohlberg Kravis Roberts & Co 379.0
12/11/96 10/07/96 Augat Inc Thomas & Betts Corp 572.7
11/22/96 10/08/96 Super Food Services Inc Nash Finch Co 170.8
11/27/96 10/10/96 WCI Steel Inc(Renco Group Inc) Renco Group Inc 364.0
06/03/97 10/15/96 Conrail Inc Investor Group 10,190.4
02/27/97 10/17/96 Triad Systems Corp Investor Group 174.3
03/31/97 10/21/96 Detroit & Canada Tunnel Corp Investor Group 36.5
04/16/97 10/23/96 Syratech Corp Thomas H Lee Equity Fund III 282.6
03/14/97 11/05/96 Panatech Research&Development Harbour Group Ltd 29.2
06/12/97 11/12/96 Leslie's Poolmart Investor Group 98.8
<CAPTION>
PREMIUM
--------------------------------------------------
1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO
DATE DATE ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
EFFECTIVE ANNOUNCED TARGET NAME DATE DATE DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
08/28/96 01/03/96 International Jensen Inc 29.4% 57.1% 49.2%
02/15/96 01/05/96 Swing-N-Slide Corp(GreenGrass) (25.7) (29.7) (36.6)
09/09/96 01/05/96 Finl Institutions Ins Grp Ltd 9.4 (1.5) (4.1)
09/30/96 02/05/96 Customedix Corp 22.6 26.7 5.6
06/19/96 02/05/96 CTL Credit Inc 53.2 82.3 69.4
04/30/96 02/05/96 DiMark Inc 1.7 1.7 0.8
07/01/96 02/13/96 S-K-I Ltd 44.0 44.0 39.8
05/14/96 02/15/96 Andros Inc 16.1 24.1 35.8
07/11/96 02/28/96 Salton/Maxim Houswares Inc (0.2) 12.8 3.8
07/10/96 02/29/96 Big O Tires Inc 5.6 7.3 12.8
08/01/96 03/28/96 Stop & Shop Cos 25.2 27.0 45.7
08/05/97 04/15/96 Enserch Exploration Inc (22.0) (17.9) (19.0)
10/01/96 04/25/96 Sterling Chemicals Inc 29.7 47.7 47.7
03/17/98 05/03/96 Homeowners Group Inc 22.1 26.8 93.9
09/04/96 05/24/96 Clinton Gas Systems Inc 3.8 14.9 31.7
06/05/96 06/05/96 YES Clothing Co (99.5) (99.4) (99.2)
10/01/96 06/06/96 AT&T Capital Corp(AT&T Corp) 37.4 38.5 42.3
08/23/96 06/10/96 Bailey Corp 5.5 6.1 11.1
08/23/96 06/10/96 Orbit Semiconductor Inc 37.8 36.1 57.2
07/23/96 06/11/96 Community Health Systems Inc 20.2 19.9 18.9
09/27/96 06/28/96 Salem Corp 22.0 23.5 11.7
08/08/96 07/02/96 Ambar Inc 24.1 17.1 50.0
11/07/96 08/14/96 Payco American Corp 19.1 17.9 60.0
06/27/97 09/30/96 Belden & Blake Corp 32.5 27.8 31.7
02/13/97 10/03/96 Kinder-Care Learning Centers 17.8 18.8 26.7
12/11/96 10/07/96 Augat Inc 32.8 30.5 45.9
11/22/96 10/08/96 Super Food Services Inc 37.8 36.3 29.2
11/27/96 10/10/96 WCI Steel Inc(Renco Group Inc) 17.6 29.0 77.8
06/03/97 10/15/96 Conrail Inc 62.0 60.3 60.3
02/27/97 10/17/96 Triad Systems Corp 68.2 60.9 89.7
03/31/97 10/21/96 Detroit & Canada Tunnel Corp 64.9 74.2 54.3
04/16/97 10/23/96 Syratech Corp 21.9 28.0 29.3
03/14/97 11/05/96 Panatech Research&Development 55.6 55.6 51.4
06/12/97 11/12/96 Leslie's Poolmart 26.1 31.8 31.8
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
VALUE OF
DATE DATE TRANSACTION
EFFECTIVE ANNOUNCED TARGET NAME ACQUIROR NAME ($MM)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/27/96 11/27/96 Central Tractor Farm & Country JW Childs Equity Partners LP 148.2
03/27/97 11/27/96 Central Tractor Farm & Country JW Childs Equity Partners LP 154.0
05/30/97 01/07/97 Thermal Industries Inc HIG Investment Group 30.3
07/09/97 01/21/97 Mafco Consolidated Grp(Mafco) Mafco Holdings Inc 778.5
06/25/97 02/14/97 Winthrop Resources Corp TCF Finl Corp,Minneapolis,MN 324.3
08/01/97 03/07/97 Micro Bio-Medics Inc Henry Schein Inc 106.0
04/15/97 03/11/97 TPC Corp PacifiCorp Holdings Inc 253.8
06/17/97 03/20/97 Falcon Building Products Inc InvestCorp 359.9
06/27/97 03/25/97 Ascent Entertainment Group Inc Shareholders 245.5
03/31/97 03/31/97 Halter Marine Group Inc Shareholders 290.6
07/10/97 04/18/97 LIVE Entertainment Inc Investor Group 53.1
06/03/97 04/30/97 GKN Sinter Metals Inc(GKN PLC) GKN PLC 285.7
07/30/97 05/01/97 David White Inc Choucroute Partners 5.9
11/04/97 05/08/97 Living Centers of America Inc Apollo Management LP 809.9
09/02/97 05/28/97 Mission West Properties Investor Group 0.2
02/10/98 05/28/97 CommNet Cellular Inc Blackstone Capital Partners 495.6
10/16/97 05/30/97 National Picture and Frame Co Colonnade Capital LLC 60.3
07/09/97 05/30/97 Integrated Living Communities Whitehall Street Real Estate 79.7
09/30/97 06/16/97 Frederick's of Hollywood, Inc. Investor Group 69.1
07/25/97 06/24/97 Jillians Entertainment Corp JW Childs Equity Partners LP 4.7
09/29/97 06/24/97 SMT Health Services Inc Three Rivers Holding Corp 75.6
09/26/97 07/03/97 Krystal Co Port Royal Holdings Inc 108.5
12/23/97 07/09/97 Seaman Furniture Co Investor Group 122.5
09/23/97 07/09/97 Control Data Systems Inc CDSI Holding Corp 274.1
11/18/97 07/10/97 Kinetic Concepts Inc Investor Group 851.7
10/28/97 07/14/97 Katz Media Group Investor Group 151.6
02/27/98 07/21/97 Zilog Inc Texas Pacific Group Inc 409.6
12/18/97 07/23/97 Alliance Imaging Inc Newport Investment LLC 120.4
08/28/97 07/25/97 Imo Industries Inc Constellation Capital Partners 120.7
02/02/98 07/30/97 Plasti-Line Inc PL Holdings Corp 56.8
10/03/97 07/31/97 Delaware Otsego Corp Investor Group 43.8
09/24/97 07/31/97 Bucyrus International Inc American Industrial Partners 193.3
09/30/97 08/07/97 Outboard Marine Corp Investor Group 366.1
01/21/98 08/07/97 Fisher Scientific Intl Inc Investor Group 1,051.0
12/19/97 08/11/97 Amscan Holdings Inc Confetti Acquisition Inc 350.0
03/03/98 08/12/97 LIN Television Corp Hicks Muse Tate & Furst Inc 1,690.5
12/31/97 08/14/97 Allied Capital Advisers Inc Allied Capital Lending Corp 48.7
12/29/97 08/14/97 Tuesday Morning Corp Madison Dearborn Partners 298.6
12/31/97 08/14/97 Allied Capital Commercial Corp Allied Capital Lending Corp 380.6
12/03/97 09/02/97 Ground Round Restaurants GRR Holdings LLC 18.4
12/30/97 09/04/97 Cinergi Pictures Entertainment Investor Group 33.9
01/22/98 09/23/97 El Chico Restaurants Inc Investor Group 49.1
11/26/97 09/30/97 Arbor Health Care Co AHC Acquisition Corp 317.2
<CAPTION>
PREMIUM
---------------------------------------------------
1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO
DATE DATE ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
EFFECTIVE ANNOUNCED TARGET NAME DATE DATE DATE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/27/96 11/27/96 Central Tractor Farm & Country 15.5 15.5 16.7
03/27/97 11/27/96 Central Tractor Farm & Country 17.5 17.5 18.8
05/30/97 01/07/97 Thermal Industries Inc 18.8 25.0 25.0
07/09/97 01/21/97 Mafco Consolidated Grp(Mafco) 23.5 23.5 27.6
06/25/97 02/14/97 Winthrop Resources Corp 7.6 20.0 23.0
08/01/97 03/07/97 Micro Bio-Medics Inc 12.2 12.2 10.4
04/15/97 03/11/97 TPC Corp 52.2 65.0 55.5
06/17/97 03/20/97 Falcon Building Products Inc 43.4 49.5 52.7
06/27/97 03/25/97 Ascent Entertainment Group Inc (19.5) (20.5) (32.7)
03/31/97 03/31/97 Halter Marine Group Inc (5.3) 0.0 (1.6)
07/10/97 04/18/97 LIVE Entertainment Inc 6.7 6.7 50.0
06/03/97 04/30/97 GKN Sinter Metals Inc(GKN PLC) 37.0 38.3 32.7
07/30/97 05/01/97 David White Inc 11.6 14.3 18.5
11/04/97 05/08/97 Living Centers of America Inc 17.8 22.7 41.5
09/02/97 05/28/97 Mission West Properties (93.5) (93.5) (92.5)
02/10/98 05/28/97 CommNet Cellular Inc 21.8 28.6 39.8
10/16/97 05/30/97 National Picture and Frame Co 31.5 28.0 28.0
07/09/97 05/30/97 Integrated Living Communities 26.9 21.1 50.8
09/30/97 06/16/97 Frederick's of Hollywood, Inc. 48.8 44.5 25.9
07/25/97 06/24/97 Jillians Entertainment Corp 14.3 77.8 45.5
09/29/97 06/24/97 SMT Health Services Inc 4.4 2.2 8.0
09/26/97 07/03/97 Krystal Co 132.0 169.8 176.2
12/23/97 07/09/97 Seaman Furniture Co 21.5 25.3 21.5
09/23/97 07/09/97 Control Data Systems Inc 29.1 30.6 35.0
11/18/97 07/10/97 Kinetic Concepts Inc 6.9 7.7 9.2
10/28/97 07/14/97 Katz Media Group 44.3 69.2 93.4
02/27/98 07/21/97 Zilog Inc (10.6) (9.1) (0.6)
12/18/97 07/23/97 Alliance Imaging Inc 7.3 3.5 14.3
08/28/97 07/25/97 Imo Industries Inc 18.7 20.0 22.6
02/02/98 07/30/97 Plasti-Line Inc 36.5 36.5 30.3
10/03/97 07/31/97 Delaware Otsego Corp 0.0 15.0 17.3
09/24/97 07/31/97 Bucyrus International Inc 33.3 46.9 71.4
09/30/97 08/07/97 Outboard Marine Corp (7.7) (2.4) 20.0
01/21/98 08/07/97 Fisher Scientific Intl Inc (5.2) (0.4) 5.5
12/19/97 08/11/97 Amscan Holdings Inc 36.1 37.5 46.7
03/03/98 08/12/97 LIN Television Corp 15.9 18.8 18.0
12/31/97 08/14/97 Allied Capital Advisers Inc 10.4 4.7 10.4
12/29/97 08/14/97 Tuesday Morning Corp 22.7 25.8 11.1
12/31/97 08/14/97 Allied Capital Commercial Corp 7.5 7.8 10.6
12/03/97 09/02/97 Ground Round Restaurants 10.0 10.0 (5.7)
12/30/97 09/04/97 Cinergi Pictures Entertainment 26.9 24.7 56.6
01/22/98 09/23/97 El Chico Restaurants Inc 64.5 75.9 104.0
11/26/97 09/30/97 Arbor Health Care Co 15.4 19.6 26.8
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
VALUE OF
DATE DATE TRANSACTION
EFFECTIVE ANNOUNCED TARGET NAME ACQUIROR NAME ($MM)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
04/07/98 10/08/97 Associates First Capital Corp Shareholders 29,032.3
02/09/98 10/17/97 Tranzonic Cos Linsalata Capital Partners II 104.8
03/25/98 11/13/97 Chartwell Leisure Inc Investor Group 240.8
08/12/98 11/19/97 Telemundo Group Inc Investor Group 510.6
02/25/98 11/26/97 Universal Hospital Services Investor Group 89.2
05/21/98 12/22/97 Dynatech Corp Investor Group 805.6
05/27/98 01/20/98 Regal Cinemas Inc Investor Group 1,172.4
05/22/98 01/21/98 Thermadyne Holdings Corp DLJ Merchant Bkg Partners II 386.0
02/03/99 01/30/98 Harveys Casino Resorts Colony Capital Inc 302.0
02/04/98 02/04/98 Tremont Corp Investor Group 365.6
03/20/98 02/04/98 Industrial Acoustics Inc IAC Holdings Corp 32.8
08/17/98 02/17/98 Bell Sports Corp HB Acquisition Corp 165.6
07/31/98 03/13/98 MedCath Inc Investor Group 227.8
10/30/98 03/16/98 Norwood Promotional Products FPK LLC 107.8
07/31/98 03/17/98 BET Holdings Inc Investor Group 717.2
08/17/98 03/24/98 Insilco Corp DLJ Merchant Bkg Partners II 185.5
07/15/98 03/27/98 Intl Specialty Prods ISP Holdings Inc 1,789.6
08/11/98 04/15/98 Harborside Healthcare Corp Investcorp 200.2
08/25/98 04/21/98 PCA International Inc Investor Group 231.5
06/26/98 05/01/98 First Virtual Holdings Inc Investor Group 11.1
09/25/98 05/05/98 Allied Digital Technologies Co Investor Group 69.2
08/31/98 06/16/98 Personnel Management Inc Linsalata Capital Partners 34.9
12/15/98 06/22/98 Special Devices Inc JF Lehman & Co 277.1
08/31/98 06/30/98 Newstar Media Inc Investor Group 9.7
01/08/99 07/02/98 Centennial Cellular Corp Investor Group 632.9
09/21/98 07/07/98 Republic Engineered Steels Investor Group 143.9
09/02/98 07/17/98 DeCrane Aircraft Holdings Inc DLJ Merchant Banking Inc 181.5
09/11/98 07/29/98 E-Z Serve Corp EBC Texas Acquisition Corp 43.2
01/04/99 08/03/98 Priority Healthcare Corp Shareholders 536.6
12/22/98 11/09/98 Global Motorsport Group Inc Stonington Partners Inc 109.0
03/04/99 12/24/98 COHR Inc Investor Group 41.8
03/24/99 11/24/98 Besicorp Group Inc BGI Acquisition LLC 111.8
04/05/99 12/03/98 Back Bay Restaurants Group Inc Investor Group 38.9
05/24/99 12/09/98 Tower Realty Trust Inc Investor Group 645.5
03/24/99 12/13/98 Cellular Communications Intl Kensington Acquisition Sub Inc 1,687.9
02/04/99 12/17/98 Rival Co Moriarty Acquisition Corp 129.4
03/04/99 12/24/98 COHR Inc Investor Group 21.7
05/07/99 02/16/99 American Media Inc Evercore Capital Partners LP 765.7
05/30/99 03/15/99 Haskel International Inc Investor Group 65.4
<CAPTION>
PREMIUM
-----------------------------------------------------
1 DAY PRIOR TO 1 WEEK PRIOR TO 4 WEEKS PRIOR TO
DATE DATE ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
EFFECTIVE ANNOUNCED TARGET NAME DATE DATE DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
04/07/98 10/08/97 Associates First Capital Corp 32.7 36.3 31.2
02/09/98 10/17/97 Tranzonic Cos (1.5) (2.9) 4.5
03/25/98 11/13/97 Chartwell Leisure Inc 11.3 4.5 11.3
08/12/98 11/19/97 Telemundo Group Inc 19.7 29.1 25.0
02/25/98 11/26/97 Universal Hospital Services 29.2 29.2 25.3
05/21/98 12/22/97 Dynatech Corp 29.9 37.2 29.9
05/27/98 01/20/98 Regal Cinemas Inc 14.3 10.7 34.8
05/22/98 01/21/98 Thermadyne Holdings Corp 19.5 21.1 18.5
02/03/99 01/30/98 Harveys Casino Resorts 24.4 23.8 34.1
02/04/98 02/04/98 Tremont Corp (6.4) (4.4) 0.5
03/20/98 02/04/98 Industrial Acoustics Inc 0.0 4.8 10.0
08/17/98 02/17/98 Bell Sports Corp 13.9 13.1 8.6
07/31/98 03/13/98 MedCath Inc 15.2 10.9 34.5
10/30/98 03/16/98 Norwood Promotional Products 19.1 19.1 23.6
07/31/98 03/17/98 BET Holdings Inc 53.7 58.5 58.2
08/17/98 03/24/98 Insilco Corp 4.7 11.1 12.9
07/15/98 03/27/98 Intl Specialty Prods 4.3 1.7 14.5
08/11/98 04/15/98 Harborside Healthcare Corp 18.3 22.7 5.8
08/25/98 04/21/98 PCA International Inc 23.3 17.8 20.5
06/26/98 05/01/98 First Virtual Holdings Inc (65.7) (23.2) (31.4)
09/25/98 05/05/98 Allied Digital Technologies Co 14.3 14.3 37.9
08/31/98 06/16/98 Personnel Management Inc 25.5 23.1 23.1
12/15/98 06/22/98 Special Devices Inc (2.5) 1.9 0.0
08/31/98 06/30/98 Newstar Media Inc 4.6 (8.0) (25.8)
01/08/99 07/02/98 Centennial Cellular Corp 66.8 69.4 64.4
09/21/98 07/07/98 Republic Engineered Steels 56.8 68.1 45.0
09/02/98 07/17/98 DeCrane Aircraft Holdings Inc 30.5 28.7 33.8
09/11/98 07/29/98 E-Z Serve Corp 37.1 20.0 20.0
01/04/99 08/03/98 Priority Healthcare Corp 99.4 101.8 127.2
12/22/98 11/09/98 Global Motorsport Group Inc 13.5 33.8 31.1
03/04/99 12/24/98 COHR Inc 66.4 89.1 116.7
03/24/99 11/24/98 Besicorp Group Inc 11.2 11.6 6.4
04/05/99 12/03/98 Back Bay Restaurants Group Inc 12.3 13.9 28.1
05/24/99 12/09/98 Tower Realty Trust Inc 9.4 9.8 16.4
03/24/99 12/13/98 Cellular Communications Intl 20.8 25.5 27.0
02/04/99 12/17/98 Rival Co 22.9 25.0 93.0
03/04/99 12/24/98 COHR Inc 66.4 89.1 116.7
05/07/99 02/16/99 American Media Inc 13.1 21.7 36.6
05/30/99 03/15/99 Haskel International Inc 42.3 49.6 51.8
-----------------------------------------------------------
AVERAGE 20.5% 24.6% 30.1%
-----------------------------------------------------------
-----------------------------------------------------------
MEDIAN 19.3 22.7 27.3
-----------------------------------------------------------
</TABLE>
* Excluded from average NA - Not Available
- ------------------------------------------------
Source: Securities Data Corporation, 6/10/99.
<PAGE> 41
(THE ROBINSON-HUMPHREY COMPANY, LLC LETTERHEAD)
CORPORATE FINANCE INVESTMENT BANKERS
DEPARTMENT SINCE 1994
June 12, 1999
Special Committee of the Board of Directors
Physicians' Specialty Corp.
1150 Lake Hearn Drive, Suite 640
Atlanta, GA 30342
Dear Sirs:
We understand that Physicians' Specialty Corp. (the "Company") intends to
enter into an Agreement and Plan of Merger (the "Merger Agreement") by and among
TA MergerCo, Inc. ("MergerCo"), TA/Advent VIII L.P., TA/Atlantic and Pacific IV
L.P., TA Executives Fund LLC and TA Investors LLC (each, a "Guarantor," and
together, the "Guarantors") and the Company (the "Proposed Transaction"). We
understand that under the Merger Agreement MergerCo will be merged with and into
the Company and each share of Company common stock issued and outstanding
immediately prior to the effective time of the merger (excluding shares owned by
the Voting Agreement Stockholders, as defined in the Merger Agreement and
described below, and dissenting shares) shall be converted into the right to
receive $10.50 per share in cash (the "Merger Consideration"). We further
understand that as a condition to the willingness of MergerCo to enter into the
Merger Agreement, certain members of management and certain physician
stockholders of the Company who constitute the Voting Agreement Stockholders
have entered into Voting Agreements, Roll-Over Agreements and Stock Purchase
Agreements under which MergerCo will purchase a portion of the Voting Agreement
Stockholders' shares for $10.50 per share in cash and the remaining shares held
by Voting Agreement Stockholders will be converted into common stock in the
Surviving Corporation. The terms and conditions of the Proposed Transaction are
set forth in more detail in the Merger Agreement to be dated June 14, 1999.
We have been requested by the Special Committee of the Board of Directors
of the Company to render our opinion with respect to the fairness, from a
financial point of view, to the Company's stockholders (other than the Voting
Agreement Stockholders) of the Merger Consideration to be received in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with, effect or consummate the Proposed Transaction. In addition, we
have not been requested to opine as to, and our opinion does not in any manner
address, the decision by the Voting Agreement Stockholders to enter into the
Roll-Over Agreements and Stock Purchase Agreements or the consideration to be
ATLANTA FINANCIAL CENTER
3333 PEACHTREE ROAD, NE - ATLANTA, GEORGIA 30326
(404) 266-6000
<PAGE> 42
Special Committee of
the Board of Directors
Physicians' Speciality Corp.
June 12, 1999
- --------------------------
received as a result of such Voting Agreement Stockholders' entering into the
Roll-Over Agreements and Stock Purchase Agreements.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement to be dated June 14, 1999, (2) publicly available information
concerning the Company which we believe to be relevant to our inquiry, (3)
financial and operating information with respect to the business, operations
and prospects of the Company furnished to us by the Company, (4) a trading
history of the Company's Common Stock from March 20, 1997 to the present and a
comparison of that trading history with those of other companies which we deemed
relevant, (5) certain other factors, including the proposals and responses, as
communicated to us, that resulted from the discussions that the Company's other
financial advisor held with various potential acquirors and investors, (6) a
comparison of the historical financial results and present financial condition
of the Company with those of other companies which we deemed relevant, (7) a
comparison of the financial terms of the Proposed Transaction with the
financial terms of certain other recent transactions which we deemed relevant,
and (8) certain historical data relating to acquisitions of publicly traded
companies, including percentage premiums and price/earnings ratios paid in such
acquisitions of publicly traded companies, including percentage premiums and
price/earnings ratios paid in such acquisitions. In addition, we have had
discussions with the management of the Company concerning its business,
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial projections provided by
the Company, we have assumed that such projections have been reasonably
prepared on bases reflecting the best currently available estimates and
judgements of the management of the Company as to the future financial
performance of the Company. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of the Company and have
not made nor obtained any evaluations or appraisals of the assets or
liabilities of the Company. In addition, we have not been authorized to
solicit, and we have not solicited, any indications of interest from any third
party with respect to the purchase of all or a part of the Company's business.
Our opinion is necessarily based upon market, economic and other conditions as
they exist on, and can be evaluated as of, the date of this letter.
We have acted as financial advisor to the Special Committee of the
Board of Directors of the Company in connection with the Proposed Transaction
and will receive a fee for our services which is in part contingent upon the
consummation of the Proposed Transaction. In addition, the Company has agreed
to indemnify us for certain liabilities arising out of the rendering of this
opinion. In the ordinary course of our business, we
<PAGE> 43
Special Committee of
the Board of Directors
Physicians' Specialty Corp.
June 12, 1999
- ------------------------
actively trade in the common stock of the Company for our own account and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
This Opinion is for the use and benefit of the Board of Directors of the
Company and the Special Committee of the Board of Directors and is not
intended to be and does not constitute a recommendation to any shareholder as
to how such shareholder should vote with respect to the Merger.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the Merger Consideration to be received in the Proposed
Transaction is fair, from a financial point of view, to the stockholders of
the Company (other than the Voting Agreement Stockholders).
Very truly yours,
/s/ The Robinson-Humphrey Company, LLC
THE ROBINSON-HUMPHREY COMPANY, LLC
<PAGE> 44
PHYSICIANS' SPECIALTY CORP AND SUBSIDIARIES
PROJECTED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Audited
Balance
12/31/98 Debit Credit
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $4,925,501 $28,652,619 $31,821,832
Accounts receivable, net 16,166,944 18,598,267 16,886,944
Notes receivable 80,000 1,475,000 1,000
Other current assets 1,779,070 1,249,042 1,779,070
----------- ----------- ----------
Total current assets 22,951,515 49,974,928 50,488,846
EQUIPMENT, NET 8,861,850 1,300,443 244,286
INTANGIBLE ASSETS, NET 26,267,950 3,292,547 442,146
PROMISSORY NOTE RECEIVABLE 0 2,152,000 0
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY 5,396,609 0 2,133,766
OTHER ASSETS 207,231 328,760 222,231
----------- ----------- -----------
Total assets $63,685,155 $57,048,678 $53,531,275
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $4,563,773 $4,563,773 $4,667,887
Other current liabilities 0 0 568,791
Deferred taxes 0 170,000 176,838
----------- ----------- -----------
Total current liabilities 4,563,773 4,733,773 5,413,516
SUBORDINATED SELLER NOTES & DEBENTURE 7,563,701 272,000 1,360,000
REVOLVING LINE OF CREDIT 3,750,000 0 0
----------- ----------- -----------
Total long-term debt 11,313,701 272,000 1,360,000
----------- ----------- -----------
Total liabilities 15,877,474 5,005,773 6,773,516
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock 9,152 0 20
Additional paid-in capital 41,083,033 0 64,355
Retained earnings 6,715,496 0 1,685,285
----------- ----------- -----------
Total stockholders' equity 47,807,681 0 1,749,660
----------- ----------- -----------
Total liabilities and stockholders'
equity $63,685,155 $5,005,773 $8,523,176
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Actual Projected
Balance Balance
03/31/99 Debit Credit 06/30/99 Debit
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,756,288 $31,074,079 $31,830,367 $1,000,000 $32,332,750
Accounts receivable, net 17,878,267 19,949,080 18,878,267 18,949,080 21,361,950
Notes receivable 1,554,000 0 0 1,554,000 0
Other current assets 1,249,042 1,824,000 1,249,042 1,824,000 1,960,000
---------- ----------- ----------- ----------- -----------
Total current assets 22,437,597 52,847,159 51,957,676 23,327,080 55,654,700
EQUIPMENT, NET 9,918,007 700,000 250,000 10,368,007 1,150,000
INTANGIBLE ASSETS, NET 29,118,351 5,834,400 475,000 34,477,751 4,610,400
PROMISSORY NOTE RECEIVABLE 2,152,000 0 0 2,152,000 0
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY 3,262,843 1,220,000 0 4,482,843 0
OTHER ASSETS 313,760 0 0 313,760 0
---------- ----------- ----------- ----------- -----------
Total assets $67,202,558 $60,601,559 $52,682,676 $75,121,441 $61,415,100
========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $4,667,887 $4,667,887 $6,110,400 $6,110,400 $6,110,400
Other current liabilities 568,791 0 0 568,791 0
Deferred taxes 6,838 0 240,000 246,838 0
---------- ---------- ---------- ---------- ----------
Total current liabilities 5,243,516 4,667,887 6,350,400 6,926,029 6,110,400
SUBORDINATED SELLER NOTES & DEBENTURE 8,651,701 0 2,125,000 10,776,701 30,000
REVOLVING LINE OF CREDIT 3,750,000 0 2,296,370 6,046,370 0
---------- ---------- ---------- ---------- ----------
Total long-term debt 12,401,701 0 4,421,370 16,823,071 30,000
---------- ---------- ---------- ---------- ----------
Total liabilities 17,645,217 4,667,887 10,771,770 23,749,100 6,140,400
----------- ---------- ----------- ----------- ----------
STOCKHOLDERS' EQUITY
Common stock 9,172 0 0 9,172 0
Additional paid-in capital 41,147,388 0 0 41,147,388 0
Retained earnings 8,400,781 0 1,815,000 10,215,781 0
----------- ---------- ----------- ----------- ----------
Total stockholders' equity 49,557,341 0 1,815,000 51,372,341 0
----------- ---------- ----------- ----------- ----------
Total liabilities and stockholders'
equity $67,202,558 $4,667,887 $12,586,770 $75,121,441 $6,140,400
=========== ========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Projected Projected
Balance Balance
Credit 09/30/99 Debit Credit 12/31/99
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $32,332,750 $1,000,000 $40,706,941 $40,706,941 $1,000,000
Accounts receivable, net 19,949,080 20,361,950 24,024,150 22,361,950 22,024,150
Notes receivable 0 1,554,000 0 0 1,554,000
Other current assets 1,824,000 1,960,000 530,000 1,960,000 530,000
---------- ----------- ----------- ----------- -----------
Total current assets 54,105,830 24,875,950 65,261,091 65,028,891 25,108,150
EQUIPMENT, NET 268,333 11,249,674 2,500,000 293,333 13,456,340
INTANGIBLE ASSETS, NET 536,667 38,551,484 11,288,000 586,667 49,252,818
PROMISSORY NOTE RECEIVABLE 0 2,152,000 0 0 2,152,000
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY 0 4,482,843 0 0 4,482,843
OTHER ASSETS 0 313,760 0 0 313,760
----------- ----------- ----------- ----------- -----------
Total assets $54,910,830 $81,625,711 $79,049,091 $65,908,891 $94,765,911
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $6,566,000 $6,566,000 $6,566,000 $1,775,500 $1,775,500
Other current liabilities 0 568,791 568,791 662,500 662,500
Deferred taxes 240,000 486,838 0 800,000 1,286,838
---------- ----------- ----------- ----------- -----------
Total current liabilities 6,806,000 7,621,629 7,134,791 3,238,000 3,724,838
SUBORDINATED SELLER NOTES & DEBENTURE 2,650,000 13,396,701 30,000 4,000,000 17,366,701
REVOLVING LINE OF CREDIT 1,247,670 7,294,040 0 11,053,991 18,348,031
---------- ----------- ----------- ----------- -----------
Total long-term debt 3,897,670 20,690,741 30,000 15,053,991 35,714,732
---------- ----------- ----------- ----------- -----------
Total liabilities 10,703,670 28,312,370 7,164,791 18,291,991 39,439,570
---------- ----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock 0 9,172 0 0 9,172
Additional paid-in capital 0 41,147,388 0 0 41,147,388
Retained earnings 1,941,000 12,156,781 0 2,013,000 14,169,781
---------- ----------- ----------- ----------- -----------
Total stockholders' equity 1,941,000 53,313,341 0 2,013,000 55,326,341
---------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity $12,644,670 $81,625,711 $7,164,791 $20,304,991 $94,765,911
=========== =========== ========== =========== ===========
</TABLE>
<PAGE> 45
PHYSICIANS' SPECIALTY CORP
PROJECTED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDING DECEMBER 31, 1999
<TABLE>
<CAPTION>
(Actual) Projected Projected Projected Projected
3 Months 3 Months 3 Months 3 Months 12 Months
Ending Ending Ending Ending Ending
03/31/99 06/30/99 09/30/99 12/31/99 12/31/99
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $21,511,179 $ 22,800,000 $ 24,500,000 $ 26,500,000 $ 95,311,179
EBITDA 3,463,953 3,900,000 4,288,000 4,505,000 16,156,953
Depreciation and amortization 686,432 725,000 805,000 880,000 3,096,432
------------ ------------ ------------ ------------ ------------
Operating income 2,777,521 3,175,000 3,483,000 3,625,000 13,060,521
Other income (expense) (14,767) (200,000) (300,000) (325,000) (839,767)
------------ ------------ ------------ ------------ ------------
Pretax income 2,762,754 2,975,000 3,183,000 3,300,000 12,220,754
Net income $ 1,685,277 $ 1,815,000 $ 1,941,000 $ 2,013,000 $ 7,454,277
============ ============ ============ ============ ============
Quarterly EBITDA $ 3,463,953 $ 3,900,000 $ 4,288,000 $ 4,505,000
Annualized EBITDA 13,855,812 15,600,000 17,152,000 18,020,000
Acquisition EBITDA 0 1,205,000 1,045,000 2,000,000
------------ ------------ ------------ ------------
Subtotal 13,855,812 16,805,000 18,197,000 20,020,000
4.25x 4.25x 4.25x 4.25x
------------ ------------ ------------ ------------
Borrowing Base 58,887,201 71,421,250 77,337,250 85,085,000
O/S Debt 12,401,701 16,823,071 20,690,741 35,714,732
------------ ------------ ------------ ------------
Availability $ 46,485,500 $ 54,598,179 $ 56,646,509 $ 49,370,268
============ ============ ============ ============
</TABLE>
<PAGE> 46
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
- -------------------------------------- -----
<S> <C>
Sources and Uses of Funds 1
Analysis of Shares to be Acquired 2
Forecasting Assumptions 3
Balance Sheet - Adjustments 4
Income Statement 5
Balance Sheet 6
Cash Flow Statement 7
Coverage Ratios 8
Returns Analysis 9
Acquisition Schedule 10
Depreciation and Amortization Schedule 11
Debt Amortization Schedule 12
Quarterly Acquisition Schedule 13-14
</TABLE>
<PAGE> 47
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
PURCHASE PRICE AT $10.50 A SHARE WITH 9,543,795 SHARES OUTSTANDING
(DOLLARS IN THOUSANDS)
<TABLE>
- ----------------------------------------------------------------
SOURCES & USES OF FUNDS
- ----------------------------------------------------------------
<S> <C>
SOURCES OF ACQUISITION FUNDS:
- ----------------------------
Cash From Balance Sheet-Payoff of Debt $ 0.0
Revolving Facility 41,966.5
Bank Term Loan 0.0
New Subordinated Notes (7 year) 15,000.0
Subordinated Seller Note 0.0
Management & Physician Equity Rolled 21,737.4
New Investor Redeemable Preferred 27,800.0
New Investor Convertible Preferred 5,000.0
----------
TOTAL SOURCES $111,503.9
==========
- ----------------------------------------------------------------
PURCHASE PRICE FOR 100.0% OF EQUITY: $100,209.8
- ----------------------------------------------------------------
APPLICATIONS OF ACQUISITION FUNDS:
- ----------------------------------
Cash to Purchase 78.4%
of Equity $ 78,472.5
Management & Physician Equity Rolled 21,737.4
Paydown of Existing Debt 7,294.0
Increase Available Cash 0.0
Cash Fees and Expenses 4,000.0
----------
TOTAL APPLICATIONS $111,503.9
==========
</TABLE>
<TABLE>
<CAPTION>
Projected Fiscal Years Ending December 31, [1]
----------------------------------------------------------------
1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT ITEMS:
- -----------------------
Net Sales $95,311.2 $137,200.0 $178,000.0 $218,800.0 $259,600.0
Gross Profit 67,274.9 97,833.0 126,847.0 155,987.0 185,258.0
% of Net Sales 70.58% 71.31% 71.26% 71.29% 71.36%
EBITDA 16,156.9 24,459.0 31,711.0 38,997.0 46,314.0
% of Net Sales 16.95% 17.83% 17.82% 17.82% 17.84%
EBIT 13,060.5 19,554.4 25,195.2 30,875,7 36,592.9
% of Net Sales 13.70% 14.25% 14.15% 14.11% 14.10%
Pretax Income 10,802.4 12,972.1 17,891.0 23,226.8 28,988.0
% of Net Sales 11.3% 9.5% 10.1% 10.6% 11.2%
---------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 5,954.8 $ 5,586.6 $ 8,427.6 $ 11,512.9 $ 14,847.2
% of Net Sales 6.25% 4.07% 4.73% 5.26% 5.72%
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOW ITEMS:
- ----------------
Cash Flow From Operations $ 6,426.2 $ 4,394.5 $ 9,183.1 $ 14,000.8 $ 19,068.8
Cash Flow From Investing (8,747.0) (22,288.0) (22,338.0) (22,388.0) (22,438.0)
Cash Flow From Financing (excluding cash sweep) 967.4 13,029.8 12,468.7 11,907.7 11,346.7
---------------------------------------------------------------
Cash Flow (Deficit) Available to Decrease (Increase)
Revolver or Increase Cash ($ 1,353.4) $ (4,863.7) $ (686.2) $ 3,520.5 $ 7,977.5
===============================================================
Pro Forma
BALANCE SHEET ITEMS: 1999
- -------------------- ---------
Cash and Equivalents $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0
Revolving Facility 41,966.5 43,319.9 48,183.6 48,869.8 45,349.3 37,371.8
Bank Term Loan 0.0 0.0 0.0 0.0 0.0 0.0
New Subordinated Notes (7 year) 15,000.0 15,131.3 15,660.8 16,209.0 16,776.3 17,363.5
Seller Note 13,396.7 12,961.5 20,380.9 27,239.2 33,536.5 39,272.8
---------------------------------------------------------------------------
Total Debt 70,363.2 71,412.7 84,225.4 92,318.0 95,662.2 94,008.1
Total Stockholders' Equity 7,640.8 15,415.2 28,305.2 44,137.9 63,163.5 85,637.5
---------------------------------------------------------------------------
Total Invested Capital $78,004.1 $ 86,827.9 $112,530.6 $136,455.9 $158,825.6 $179,645.6
===========================================================================
</TABLE>
- ----------------------
[1] Based on projections provided by management.
<PAGE> 48
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Analysis of Shares to be Acquired(1)
- ---------------------------------------------------------------------------------------------------------------------
Shares Shares to
Currently be Acquired Purchase Shares To % Shares
Owned @$10.50/share Price Be Retained Acquired
--------- ------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Outside Directors 12,732 12,732 $ 133,686 -- 100.0%
H/C Professional Options 29,256 29,256 307,188 -- 100.0%
PSC Management Team 315,610 126,244 1,325,562 189,366 40.0%
Ramie A. Tritt, MD 1,761,257 380,953 4,000,007 1,380,304 21.6%
Affiliated Physicians 1,709,449 1,236,395 12,982,148 473,054 72.3%
Brock, Benjamin & Co. Partners, L.P. 293,948 266,448 2,797,704 27,500 90.6%
Public Shareholders 5,421,543 5,421,543 56,926,202 -- 100.0%
--------- --------- ----------- --------- ------
9,543,795 7,473,571 $78,472,496 2,070,224 78.3%
--------- --------- ----------- --------- ------
</TABLE>
- -------------------------
[1] Based on recapitalization schedule provided by management.
<PAGE> 49
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
FORECASTING ASSUMPTIONS
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS ENDING DECEMBER 31,[1]
----------------------------------------------------
FISCAL
INCOME STATEMENT 1998 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Systemwide Revenue Growth Rate -- 54.72% 43.95% 29.74% 22.92% 18.65%
Base Business Revenue Growth
Rate -- 38.97% 5.00% 5.00% 5.00% 5.00%
Provider Claims, Wages and
Benefits as a % of Systemwide
Revenues 28.56% 31.46% 31.37% 31.36% 31.37% 31.40%
G & A Expenses (net of
depreciation) as a % of
Systemwide Revenues 21.33 22.17% 22.10% 22.09% 22.10% 22.12%
EBITDA Margin 16.43% 16.95% 17.83% 17.82% 17.82% 17.84%
Depreciation and Amortization $1,850.0 $3,096.4 $4,904.6 $6,515.8 $8,121.3 $9,721.1
Depreciation and Amortization as
a % of Systemwide Revenues 3.00% 3.25% 3.57% 3.66% 3.71% 3.74%
EBIT Margin 13.4% 13.7% 14.3% 14.2% 14.1% 14.1%
Interest Expense:
Revolving Facility NM 8.25% 8.25% 8.25% 8.25% 8.25%
New Subordinated Notes (7
year) NM 12.00% 12.00% 12.00% 12.00% 12.00%
Subordinated Seller Note NM 6.00% 6.00% 6.00% 6.00% 6.00%
Interest Income as % of Average
Cash Balance NM 4.00% 4.00% 4.00% 4.00% 4.00%
Income Taxes as a % of Pretax 39.03% 39.80% 39.80% 39.80% 39.80% 39.80%
Subordinated Debt PIK Dividend NM 3.50% 3.50% 3.50% 3.50% 3.50%
Redeemable Preferred PIK
Dividend NM 6.00% 6.00% 6.00% 6.00% 6.00%
Maintenance Capital Expenditures $ 250.0 $ 300.0 $ 350.0 $ 400.0 $ 450.0
FF&E Capital Expenditures $1,800.0 $7,200.0 $7,200.0 $7,200.0 $7,200.0
---------------------------------------------------------------
Total Capital Expenditures $2,050.0 $7,500.0 $7.550.0 $7,600.0 $7,650.0
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS ENDING DECEMBER 31,[1]
---------------------------------------------------------
PRO FORMA
BALANCE SHEET SEPT 30, 1999 1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receivables as a % of
Systemwide Revenues 33.05% 24.66% 24.66% 24.66% 24.66% 24.66%
Days in
Receivables 120.6 90.0 90.0 90.0 90.0 90.0
Notes Receivables as a
% of Cost of Sales 7.49% 5.54% 3.95% 3.04% 2.47% 2.09%
Prepaid Expenses and
Other Current Assets
as a % of Cost of
Sales 3.18% 2.13% 2.13% 2.13% 2.13% 2.13%
Deferred Income Tax
Asset as a % of
Systemwide Revenues 3.49% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Assets as a % of
Systemwide Revenues 0.51% 0.33% 0.23% 0.18% 0.14% 0.12%
Transaction Costs, Net $4,000.0 $ 3,971.3 $ 3,771.3 $ 3,571.3 $ 3,371.3 $ 3,171.3
Goodwill, Net $38,551.5 $40,226.7 $49,151.7 $57,719.7 $65,944.7 $73,840.7
Accts. Payable &
Accrued Expense as a
% of Operating
Expenses 12.75% 8.35% 8.44% 8.43% 8.44% 8.44%
Days in
Payables 46.6 30.5 30.8 30.8 30.8 30.8
Accts. Payable &
Accrued Expense as a
% of Systemwide
Revenues 16.07% 6.932% 6.932% 6.932% 6.932% 6.932%
Other Current
Liabilities as % of
Cost of Sales 2.74% 2.74% 2.74% 2.74% 2.74% 2.74%
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS ENDING DECEMBER 31,[1]
------------------------------------------------------------------
PRO FORMA
ANALYSIS OF SHARES OUTSTANDING 1999 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 5,563.3 5,874.5 6,928.3 7,332.8 7,596.3
Shares used for acquisition 311.2 1,053.8 404.4 263.5 192.5
---------- ----------- ----------- ----------- -----------
Ending balance 5,563.3 5,874.5 6,928.3 7,332.8 7,596.3 7,788.8
Prior year EBITDA (2) 13,586.0 16,516.9 24,459.0 31,711.0 38,997.0
Prior year shares outstanding 5,563.3 5,874.5 6,928.3 7,332.8 7,596.3
EBITDA multiple for price per share 9.00x 9.0x 9.0x 9.0x 9.0x
Implied Enterprise Value 124,704.0 145,412.0 220,131.0 285,399.0 350,973.0
Less: Debt and redeemable Preferred Outstanding (99,629.7) (114,135.4) (124,022.6) (129,269.1) (129,631.4)
---------- ----------- ----------- ----------- -----------
Implied Equity Value 25,074.3 31,276.6 96,108.4 156,129.9 221,341.6
Implied price per share $ 4.51 $ 5.32 $ 13.87 $ 21.29 $ 29.14
DEBT AS A PERCENTAGE OF ORIGINAL BALANCE:
REVOLVING FACILITY 100.00% 103.22% 114.81% 116.45% 108.06% 89.05%
BANK TERM LOAN 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
NEW SUBORDINATED NOTES (7 YEAR) 100.00% 100.88% 104.41% 108.06% 111.84% 115.76%
SUBORDINATED SELLER NOTE 100.00% 96.75% 152.13% 203.33% 250.33% 293.15%
</TABLE>
- ----------------------
[1] Based on projections provided by management.
[2] 1999 Prior year EBITDA based on run-rate for Q1 1999
<PAGE> 50
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED
SEPTEMBER 30, REPURCHASE ACQUISITION PRO FORMA VALUATION PRO FORMA
BALANCE SHEET ADJUSTMENTS(1) 1999 ADJUSTMENTS ADJUSTMENTS ACQUISITION ADJUSTMENTS SEPT. 30, 1999
- ---------------------------- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $ 1,000.0 $ 0.0 $ 1,000.0 $ 1,000.0
Accounts Receivable 20,362.0 20,362.0 20,362.0
Notes Receivables 1,554.0 1,554.0 1,554.0
Prepayments and Other
Current Assets 1,960.0 1,960.0 1,960.0
--------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 24,876.0 0.0 0.0 24,876.0 0.0 24,876.0
Fixed Assets 13,249.7 13,249.7 13,249.7
Less: Accumulated Depreciation 2,000.0 2,000.0 2,000.0
--------------------------------------------------------------------------------------------
NET FIXED ASSETS 11,249.7 0.0 0.0 11,249.7 0.0 11,249.7
Transaction Costs (20 Year
Amortization) 0.0 4,000.0 4,000.0 4,000.0
Goodwill and Intangibles, Net
(25 Year Amortization) 38,551.5 38,551,5 38,551.5
Investment in unconsolidated sub 4,482.8 4,482.8 4,482.8
Promissory Note Receivable 2,152.0 2,152.0 2,152.0
Other Assets 313.8 313.8 313.8
--------------------------------------------------------------------------------------------
TOTAL ASSETS $ 81,625.7 $0.0 $ 4,000.0 $ 85,625.7 $0.0 $ 85,625.7
============================================================================================
Accrued Expenses and Accounts
Payable 6,566.0 6,566.0 6,566.0
Deferred Income Taxes 486.8 486.8 486.8
Other Current Liabilities 568.8 568.8 568.8
--------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,621.6 0.0 0.0 7,621.6 0.0 7,621.6
Long-Term Debt:
Revolving Facility 7,294.0 34,672.5 41,966.5 41,966.5
Bank Term Loan 0.0 0.0 0.0 0.0
New Subordinated Notes
(7 Year) 0.0 15,000.0 15,000.0 15,000.0
Subordinated Seller Note 13,396.7 13,396.7 13,396.7
--------------------------------------------------------------------------------------------
Total Long-Term Debt 20,690.7 0.0 49,672.5 70,363.2 0.0 70,363.2
Stockholders' Equity:
Common Stock 41,156.6 0.0 41,156.6 41,156.6
Retained Earnings 12,156.8 0.0 12,156.8 12,156.8
Redeemable Preferred Stock 0.0 27,800.0 27,800.0 27,800.0
Convertible Preferred Stock 0.0 5,000.0 5,000.0 5,000.0
Treasury Stock 0.0 (78,472.5) (78,472.5) (78,472.5)
--------------------------------------------------------------------------------------------
Total Stockholders' Equity 53,313.3 0.0 (45,672.5) 7,640.8 0.0 7,640.8
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY $ 81,625.7 $0.0 $ 4,000.0 $ 85,625.7 $0.0 $ 85,625.7
============================================================================================
</TABLE>
- ----------------------------
(1) Based on projections and recapitalization schedules provided by management
<PAGE> 51
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS ENDING DECEMBER 31, [1]
FISCAL -------------------------------------------------------------
INCOME STATEMENT 1998 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Systemwide Revenues $61,602.0 $95,311.2 $137,200.0 $178,000.0 $218,800.0 $259,600.0
Management fees-base business 34,000.0 47,250.0 49,613.0 52,093.0 54,698.0 57,433.0
Management fees-new business 0.0 5,578.1 38,250.0 63,750.0 89,250.0 114,750.0
Capitation Revenues 4,917.0 5,600.0 5,600.0 $ 5,600.0 $ 5,600.0 $ 5,600.0
Net Patient Service Revenues 1,310.0 1,337.0 1,370.0 1,404.0 1,439.0 1,475.0
Ancillary Services 630.0 2,000.0 3,000.0 4,000.0 5,000.0 6,000.0
-------------------------------------------------------------------------
Amounts Retained by Physicians 20,745.0 28,036.3 39,376.0 51,153.0 62,813.0 74,342.0
-------------------------------------------------------------------------
NET REVENUES 40,857.0 67,274.9 97,833.0 126,847.0 155,987.0 185,258.0
Provider Claims, Wages, Benefits 17,595.0 29,989.4 43,046.0 55,813.0 68,634.0 81,514.0
General and Administrative 13,141.0 21,128.6 30,328.0 39,323.0 48,356.0 57,430.0
-------------------------------------------------------------------------
EBITDA 10,121.0 16,156.9 24,459.0 31,711.0 38,997.0 46,314.0
Depreciation and Existing
Amortization 1,850.0 2,045.8 2,841.6 4,095.8 5,358.3 6,291.1
Amortization of Goodwill (25 Years) 0.0 1,021.8 1,863.0 2,220.9 2,563.0 2,892.0
Amortization of Transaction Costs (20 Years) 0.0 28.8 200.0 200.0 200.0 200.0
-------------------------------------------------------------------------
EBIT 8,271.0 13,060.5 19,554.4 25,195.2 30,875.7 36,592.9
Interest Expense:
Revolving Facility 0.0 1,055.4 3,774.5 4,003.5 3,886.5 3,412.2
Bank Term Loan 0.0 0.0 0.0 0.0 0.0 0.0
New Subordinated Notes (7 year) 0.0 452.0 1,847.5 1,912.2 1,979.1 2,048.4
Seller Note 0.0 790.7 1,000.3 1,428.6 1,823.3 2,184.3
Other Interest Expense/(Income) 54.0 (40.0) (40.0) (40.0) (40.0) (40.0)
-------------------------------------------------------------------------
Net Cash Interest Expense 54.0 2,258.1 6,582.3 7,304.2 7,648.9 7,604.9
INCOME BEFORE INCOME TAXES 8,217.0 10,802.4 12,972.1 17,891.0 23,226.8 28,988.0
Income Taxes 3,207.0 4,299.4 5,162.9 7,120.6 9,244.3 11,537.2
Cumulative Effect of Accounting Change &
Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0
-------------------------------------------------------------------------
Net Income Before Preferred Dividend 5,010.0 6,503.0 7,809.2 10,770.4 13,982.5 17,450.8
Subordinated Debt PIK Dividend 0.0 131.3 529.6 548.1 567.3 587.2
Redeemable Preferred PIK Dividend 0.0 417.0 1,693.0 1,794.6 1,902.3 2,106.4
NET INCOME AVAILABLE TO COMMON $ 5,010.0 $ 5,954.8 $ 5,586.6 $ 8,427.6 $ 11,512.9 $ 14,847.2
========================================================================================================================
INCOME RATIOS & ANALYSIS:
Net Revenues as a % of Systemwide Revenues 66.32% 70.58% 71.31% 71.26% 71.29% 71.36%
EBITDA as a % of Net Revenues 24.77% 24.02% 25.00% 25.00% 25.00% 25.00%
EBIT as a % of Net Revenues 20.24% 19.41% 19.99% 19.86% 19.79% 19.75%
Pretax Profit as a % of Systemwide Revenues 13.34% 11.33% 9.45% 10.05% 10.62% 11.17%
Net Income as a % of Systemwide Revenues 8.13% 6.25% 4.07% 4.73% 5.26% 5.72%
</TABLE>
- ---------------
[1] Based on projections provided by management.
<PAGE> 52
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Projected Fiscal Years Ending December 31, [1]
Pro Forma -------------------------------------------------------------------
BALANCE SHEET Sept. 30, 1999 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and Equivalents [2] $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0
Accounts Receivable 20,362.0 23,501.4 33,830.1 43,890.4 53,950.7 64,011.0
Notes Receivables 1,554.0 1,554.0 1,554.0 1,554.0 1,554.0 1,554.0
Prepayments and Other
Current Assets 1,960.0 2,034.8 2,929.0 3,800.0 4,671.1 5,542.1
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS 24,876.0 28,090.1 39,313.2 50,244.5 61,175.7 72,107.0
Fixed Assets 13,249.7 15,299.7 22,799.7 30,349.7 37,949.7 45,599.7
Less Accumulated Depreciation 2,000.0 4,045.8 6,887.4 10,983.2 16,341.4 22,970.6
---------- ---------- ---------- ---------- ---------- ----------
NET FIXED ASSETS 11,249.7 11,253.9 15,912.3 19,366.5 21,608.2 22,629.1
Transaction Costs
(20 Year Amortization) 4,000.0 3,971.3 3,771.3 3,571.3 3,371.3 3,171.3
Goodwill and Intangibles,
Net (25 Year Amortization) 38,551.5 40,226.7 49,151.7 57.719.7 65,944.7 73,840.7
Investment in unconsolidated sub 4,482.8 8,482.8 12,482.8 16,482.8 20,482.8 24,482.8
Promissory Note Receivable 2,152.0 2,152.0 2,152.0 2,152.0 2,152.0 2,152.0
Other Assets 313.8 313.8 313.8 313.8 313.8 313.8
---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 85,625.7 94,490.5 123,096.9 149,850.5 175,048.5 198,696.7
========== ========== ========== ========== ========== ==========
Accrued Expenses and Accounts
Payable 6,566.0 6,607.0 9,510.7 12,339.0 15,167.2 17,995.5
Deferred Income Taxes 486.8 486.8 486.8 486.8 486.8 486.8
Other Current Liabilities 568.8 568.8 568.8 568.8 568.8 568.8
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 7,621.6 7,662.6 10,566.3 13,394.6 16,222.8 19,051.1
Revolving Facility 41,966.5 43,319.9 48,183.6 48,869.8 45,349.3 37,371.8
Bank Term Loan - - - - - -
New Subordinated Notes
(7 year) 15,000.0 15,131.3 15,660.8 16,209.0 16,776.3 17,363.5
Subordinated Seller Note 13,396.7 12,961.5 20,380.9 27,239.2 33,536.5 39,272.8
---------- ---------- ---------- ---------- ---------- ----------
Total Long-Term Debt 70,363.2 71,412.7 84,225.4 92,318.0 95,662.2 94,008.1
Stockholders' Equity:
Common Stock 41,156.6 42,559.2 48,169.6 53,780.0 59,390.4 65,000.8
Retained Earnings 12,156.8 18,111.6 23,698.1 32,125.8 43,638.7 58,485.9
Redeemable Preferred Stock 27,800.0 28,217.0 29,910.0 31,704.6 33,606.9 35,623.3
Convertible Preferred Stock 5,000.0 5,000.0 5,000.0 5,000.0 5,000.0 5,000.0
Treasury Stock (78,472.5) (78,472.5) (78,472.5) (78,472.5) (78,472.5) (78,472.5)
Total Stockholders' Equity 7,640.8 15,415.2 28,305.2 44,137.9 63,163.5 85,637.5
---------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES & EQUITY 85,625.7 94,490.5 123,096.9 149,850.5 175,048.5 198,696.7
========== ========== ========== ========== ========== ==========
LOAN AVAILABILITY:
EBITDA [3] 20,020.0 24,459.0 31,711.0 38,997.0 46,314.0
Borrowing multiplier 4.25x 4.25x 4.25x 4.25x 4.25x
---------- ---------- ---------- ---------- ----------
BORROWING BASE 85,085.0 103,950.8 134,771.8 165,737.3 196,834.5
---------- ---------- ---------- ---------- ----------
Revolver Balance 43,319.9 48,183.6 48,869.8 45,349.3 37,371.8
Subordinated Debt Balance 28,092.8 36,041.7 43,448.2 50,312.8 56,636.3
EXCESS AVAILABILITY 13,672.3 19,725.4 42,453.7 70,075.1 102,826.4
========== ========== ========== ========== ==========
Revolver Availability
@ 3.0x EBITDA or $60M 60,000.0 60,000.0 60,000.0 60,000.0 60,000.0
---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------------------
[1] Based on projections provided by management.
[2] Assumes a minimum of $1000.0 of cash is necessary for the operation of the
business.
[3] EBITDA for 1999 is based on the annualized EBITDA for the fourth quarter of
1999.
<PAGE> 53
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS ENDING DECEMBER 31, [1]
-------------------------------------------------------------
CASH FLOW STATEMENT 1999 2000 2001 2002 2003
- ----------------------------------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income Available to Common $ 5,954.8 $ 5,586.6 $ 8,427.6 $ 11,512.9 $ 14,847.2
Adjustments to Reconcile Net Income to Net Cash Provided
by (Used for) Operating Activities:
Depreciation and Amortization 2,045.8 2,841.6 4,095.8 5,358.3 6,629.1
Amortization of Transaction Costs (20 Year Amortization) 28.8 200.0 200.0 200.0 200.0
Amortization of Goodwill and Intangibles 1,021.8 1,863.0 2,220.0 2,563.0 2,892.0
Net Increase (Reduction) in Subordinated Debt 131.3 529.6 548.1 567.3 587.2
Net Increase (Reduction) in Redeemable Preferred 417.0 1,693.0 1,794.6 1,902.3 2,016.4
Deferred Income Tax Asset 0.0 0.0 0.0 0.0 0.0
Other Assets 0.0 0.0 0.0 0.0 0.0
-------------------------------------------------------------
Reconciliation Sub Total 3,644.6 7,127.2 8,858.5 10,590.9 12,324.7
Change in Current Assets Except Cash (3,214.2) (11,223.0) (10,931.3) (10,931.3) (10,931.3)
Change in Current Liabilities Except Debt 41.0 2,903.7 2,828.3 2,828.3 2,828.3
-------------------------------------------------------------
Net Source (Use) of Cash Provided by Working Capital (3,173.2) (8,319.3) (8,103.0) (8,103.0) (8,103.0)
-------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) OPERATIONS $ 6,426.2 $ 4,394.5 $ 9,183.1 $ 14,000.8 $ 19,068.8
=============================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment ($250.0) ($300.0) ($350.0) ($400.0) ($450.0)
Sale of Assets 0.0 0.0 0.0 0.0 0.0
Additional Investment in Unconsolidated Sub. (4,000.0) (4,000.0) (4,000.0) (4,000.0) (4,000.0)
Acquisition of Physician Practice Assets (4,497.0) (17,988.0) (17,988.0) (17,988.0) (17,988.0)
-------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) INVESTMENTS ($8,747.0) ($22,288.0) ($22,338.0) ($22,388.0) ($22,438.0)
=============================================================
(2,320.820) (17,893.486) (13,154.894) (8,387.230) (3,369.165)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Borrowings (Repayments) Under Senior Debt (excluding
cash sweep) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Net Borrowings (Repayments) Under Seller Subordinated Note (435.2) 7,419.4 6,858.3 6,297.3 5,736.3
Net Borrowings (Repayments) Under Subordinated Debt 0.0 0.0 0.0 0.0 0.0
Issuance of Common Stock 1,402.6 5,610.4 5,610.4 5,610.4 5,610.4
-------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING $ 967.4 $13,029.8 $12,468.7 $11,907.7 $11,346.7
=============================================================
EFFECT ON SENIOR REVOLVING FACILITY:
Cash From Balance Sheet (previous year) $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0
Minimum Cash Balance 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0
-------------------------------------------------------------
Cash Available (Required) From Balance Sheet 0.0 0.0 0.0 0.0 0.0
Cash Flow (Deficit) Available to (Increase) Decrease Revolver (1,353.4) (4,863.7) (686.2) 3,520.5 7,977.5
-------------------------------------------------------------
Total Cash Available (Required) ($1,353.4) ($4,863.7) ($686.2) $ 3,520.5 $ 7,977.5
Beginning Balance of Senior Revolving Facility $41,966.5 $43,319.9 $48,183.6 $48,869.8 $45,349.3
Cash Used to Decrease (Increase) Senior Revolving Facility (1,353.4) (4,863.7) (686.2) 3,520.5 7,977.5
-------------------------------------------------------------
Ending Balance of Senior Revolving Facility $43,319.9 $48,183.6 $48,869.8 $45,349.3 $37,371.8
=============================================================
AFFECT ON SENIOR DEBT
Cash Before Senior Sweep $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0 $ 1,000.0
Additional Cash Used to Decrease Senior Debt $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated Debt Repayment and Cash Increase ($918.2) ($13,201.3) ($20,745.8) ($23,522.6) ($21,281.4)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
[1] Based on projections provided by management.
<PAGE> 54
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Projected Fiscal Years Ending December 31,(1)
----------------------------------------------------------
COVERAGE RATIOS & FINANCIAL ANALYSIS 1999 2000 2001 2002 2003
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COVERAGE RATIOS:
Senior Interest Coverage
Earnings Before Interest, Taxes, Depreciation &
Amortization (EBITDA) $ 16,156.9 $ 24,459.0 $ 31,711.0 $ 38,997.0 $ 46,314.0
Senior Interest $ 1,055.4 $ 3,774.5 $ 4,003.5 $ 3,886.5 $ 3,412.2
Senior Interest Coverage 15.31 6.48 7.92 10.03 13.57
Subordinated Interest Coverage
Earnings Before Interest, Taxes, Depreciation &
Amortization (EBITDA) $ 16,156.9 $ 24,459.0 $ 31,711.0 $ 38,997.0 $ 46,314.0
Subordinated Interest $ 452.0 $ 1,847.5 $ 1,912.2 $ 1,979.1 $ 2,048.4
Subordinated Interest Coverage 35.75 13.24 16.58 19.70 22.61
Adjusted Subordinated Interest Coverage
EBITDA less Capital Expenditures $ 14,106.9 $ 16,959.0 $ 24,161.0 $ 31,397.0 $ 38,664.0
Subordinated Interest $ 452.0 $ 1,847.5 $ 1,912.2 $ 1,979.1 $ 2,048.4
Adjusted Subordinated Interest Coverage 31.21 9.18 12.64 15.86 18.88
Total Interest Coverage
Earnings Before Interest, Taxes, Depreciation &
Amortization (EBITDA) $ 16,156.9 $ 24,459.0 $ 31,711.0 $ 38,997.0 $ 46,314.0
Total Net Interest $ 2,258.1 $ 6,582.3 $ 7,304.2 $ 7,648.9 $ 7,604.9
Total Interest Coverage 7.15 3.72 4.34 5.10 6.09
Total Financing Coverage
Earnings Before Interest, Taxes, Depreciation &
Amortization (EBITDA) $ 16,156.9 $ 24,459.0 $ 31,711.0 $ 38,997.0 $ 46,314.0
Total Net Interest + Principal Repayment $ 2,258.1 $ 6,582.3 $ 7,304.2 $ 7,648.9 $ 7,604.9
Total Interest Coverage 7.15 3.72 4.34 5.10 6.09
Total Fixed Coverage
Earnings Before Interest, Taxes, Depreciation &
Amortization (EBITDA) $ 16,156.9 $ 24,459.0 $ 31,711.0 $ 38,997.0 $ 46,314.0
Total Net Interest + Principal Repayment +
Capital Expenditures + Cash Taxes $ 11,054.5 $ 29,733.2 $ 32,412.9 $ 34,881.2 $ 37,130.1
Total Fixed Coverage 1.46 0.82 0.98 1.12 1.25
Maintenance of Funded Debt
Total Debt/EBITDA 4.42 3.44 2.91 2.45 2.03
Total Debt/EBITDA less Capital Expenditures 5.06 4.97 3.82 3.05 2.43
Total Senior Debt/EBITDA 2.68 1.97 1.54 1.16 0.81
FINANCIAL ANALYSIS:
Income Statement:
Gross Margin 70.58% 71.31% 71.26% 71.29% 71.36%
EBIT Margin 13.70% 14.25% 14.15% 14.11% 14.10%
Pretax Margin 11.33% 9.45% 10.05% 10.62% 11.17%
Net Margin 6.25% 4.07% 4.73% 5.26% 5.72%
Asset Turnover 1.01 1.11 1.19 1.25 1.31
Return on Average Assets 6.61% 5.14% 6.18% 7.09% 7.95%
Return on Average Equity 51.65% 25.56% 23.27% 21.46% 19.96%
Balance Sheet:
Total Debt $ 71,412.7 $ 84,225.4 $ 92,318.0 $ 95,662.2 $ 94,008.1
Total Stockholders' Equity 15,415.2 28,305.2 44,137.9 63,163.5 85,637.5
Total Capitalization 86,827.9 112,530.6 136,455.9 158,825.6 179,645.6
Tangible Equity (24,811.4) (20,846.4) (13,581.8) (2,781.2) 11,796.8
Total Debt/Total Capitalization 82.25% 74.85% 67.65% 60.23% 52.33%
Total Debt/Total Stockholders' Equity 463.26% 297.56% 209.16% 151.45% 109.77%
Current Ratio (x) 3.67 3.72 3.75 3.77 3.78
Quick Ratio (x) 3.20 3.30 3.35 3.39 3.41
Accounts Receivable Turns (x) 4.1 4.1 4.1 4.1 4.1
Accounts Receivable Days Outstanding 90.0 90.0 90.0 90.0 90.0
Accounts Payable Days Outstanding 86.0 88.2 88.0 88.1 88.4
</TABLE>
<PAGE> 55
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
RETURN ANALYSIS
<TABLE>
<CAPTION>
Pro Forma Cap'n
CAPITAL STRUCTURE: at Closing % Cap'n 1999 2000 2001 2002 2003 Cap'n
--------------- ------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revolving Facility $ 41,966.5 33.6% 43,319.9 48,183.6 48,869.8 45,349.3 37,371.8 23.9%
New Subordinated Notes (7 Year) 15,000.0 12.0% 15,131.3 15,660.8 16,209.0 16,766.3 17,363.5 11.1%
Subordinated Seller Notes 13,396.7 10.7% 12,961.5 20,380.9 27,239.2 33,536.5 39,272.8 25.1%
TA Redeemable Preferred 27,800.0 22.3% 28,217.0 29,910.0 31,704.6 33,606.9 35,623.3 22.8%
TA Convertible Preferred 5,000.0 4.0% 5,000.0 5,000.0 5,000.0 5,000.0 5,000.0 3.2%
Management Common Equity 21,737.4 17.4% 21,737.4 21,737.4 21,737.4 21,737.4 21,737.4 13.9%
New Physician Common Equity 0.0 0.0% 1,402.6 7,013.0 12.623.4 18,233.8 23,844.2 15.2%
--------------- ------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL CAPITAL $124,900.6 100.0% $126,367.1 $140,872.8 $150,760.0 $156,006.4 $156,368.8 100.0%
=============== ======= ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Shares Outstanding % of Total % of Total
OWNERSHIP ANALYSIS: at Closing at Closing 1999 2000 2001 2002 2003 2003
---------------- --------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sub. Debt Warrants 110,717 1.99% 110,717 110,717 110,717 110,717 110,717 1.42%
Management Option Pool 276,792 4.98% 276,792 276,792 276,792 276,792 276,792 3.55%
TA Associates Convertible
Preferred 3,105,602 55.82% 3,105,602 3,105,602 3,105,602 3,105,602 3,105,602 39.87%
PSC Physicians and Management
Team 2,070,224 37.21% 2,070,224 2,070,224 2,070,224 2,070,224 2,070,224 26.58%
New Physicians Shareholders 0 0.00% 311,201 1,364,975 1,769,421 2,032,917 2,225,461 28.57%
--------------- ------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL $5,563,335 100.0% $5,874,536 $6,928,310 $7,332,756 $7,596,252 $7,788,796 100.0%
=============== ======= ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
EQUITY VALUE CALCULATION:
2003 EBITDA 46,314.0 46,314.0 46,314.0
EBITDA Multiples 8.00x 9.00x 10.00x
---------- ---------- ----------
Terminal Enterprise Value 370,512.0 416,826.0 463,140.0
Less:
Revolving Facility 37,371.8 37,371.8 37,371.8
New Subordinated Notes (7 year) 17,363.5 17,363.5 17,363.5
Subordinated Seller Notes 39,272.8 39,272.8 39,272.8
TA Redeemable Preferred 35,623.3 35,623.3 35,623.3
---------- ---------- ----------
129,631.4 129,631.4 129,631.4
Implied Equity Value $ 240,881 $ 287,195 $ 335,509
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
FIVE YEAR RETURNS ASSUMING 9.0x EXIT MULTIPLE
- --------------------------------------------------------------------------------------------------------------------------------
Equity Sept. IRR
OWNERSHIP ANALYSIS: % 1999 1999 2000 2001 2002 2003 %
------- ---------- ------ -------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Subordinated Notes (7 year)
Principal ($15,000.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 17,363.5
Interest 452.0 1,847.5 1,912.2 1,979.1 2,048.4
Equity Ownership 1.421% 4,082.4
-----------------------------------------------------------------------
TOTAL ($15,000.0) $452.0 $1,847.5 $1,912.2 $1,979.1 $ 23,494.3 16.466%
TA Investments
Principal ($32,800.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 35,623.3
Interest 0.0 0.0 0.0 0.0 0.0
Equity Ownership 39.873% 114,512.2
-----------------------------------------------------------------------
TOTAL ($32,800.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 $150,135.5 35.557%
PSC Physicians and Management Team 26.580% ($21,737.4) $0.0 $ 0.0 $0.0 $0.0 76,334.9 28.559%
</TABLE>
<PAGE> 56
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
ACQUISITION SCHEDULE (1)
<TABLE>
<CAPTION>
---------------------------------------------------------------
ACQUISITION PROGRESSION AND SOURCES AND USES 1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MDs
New This Quarter 12.0 48.0 48.0 48.0 48.0
Cumulative 48.0 96.0 144.0 192.0 240.0
Revenue/MD/Year 0.0 0.0 0.0 0.0 0.0
New Revenue This Year 1,275.0 5,100.0 5,100.0 5,100.0 5,100.0
Revenue - new MDs 8,925.0 61,200.0 102,000.0 142,800.0 183,600.0
Management Fee to Sounder 5,578.1 38,250.0 63,750.0 89,250.0 114,750.0
Rate: 0.625
Systemwide Revenues - New MD 8,925.0 61,200.0 102,000.0 142,800.0 183,600.0
Systemwide Revenues 95,311.2 137,200.0 178,000.0 218,800.0 259,600.0
Balance Sheet for Acquisitions
Purchase Price This Year 7,013.0 28,052.0 28,052.0 28,052.0 28,052.0
Source of Funds:
Cash 2,805.2 11,220.8 11,220.8 11,220.8 11,220.8
Notes 2,805.2 11,220.8 11,220.8 11,220.8 11,220.8
Stock 1,402.6 5,610.4 5,610.4 5,610.4 5,610.4
Cumulative Source
Cash 2,805.2 14,026.0 25,246.8 36,467.6 47,688.4
Notes 2,805.2 14,026.0 25,246.8 36,467.6 47,688.4
Stock 1,402.6 7,013.0 12,623.4 18,233.8 23,844.2
Use of Funds:
FF&E 1,800.0 7,200.0 7,200.0 7,200.0 7,200.0
A/R 2,515.0 10,060.0 10,060.0 10,060.0 10,060.0
Goodwill 2,697.0 10,788.0 10,788.0 10,788.0 10,788.0
Cumulative Use:
FF&E 7,200.0 12,600.0 19,800.0 27,000.0 34,200.0
A/R 10,060.0 17,605.0 27,665.0 37,725.0 47,785.0
Goodwill 10,788.0 18,879.0 29,667.0 40,455.0 51,243.0
</TABLE>
- ----------------------
[1] Based on projections provided by management.
<PAGE> 57
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION SCHEDULE(1) 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Book Depreciation 9/30/99
-------
Depreciable Assets: 6.0 11,249.7 1,874.9 1,874.9 1,874.9 1,874.9 1,874.9
Book depreciation of existing assets 11,249.7 1,874.9 1,874.9 1,874.9 1,874.9 1,874.9
Straight-line depreciable life
Annual capital spending
1999 2,050.0 170.8 341.7 341.7 341.7 341.7
2000 7,500.0 625.0 1,250.0 1,250.0 1,250.0
2001 7,550.0 629.2 1,258.3 1,258.3
2002 7,600.0 633.3 1,266.7
2003 7,650.0 637.5
------------------------------------------------------------------------
Book depreciation on capital spending 170.8 966.7 2,220.8 3,483.3 4,754.2
------------------------------------------------------------------------
Total book depreciation 2,045.8 2,841.6 4,095.8 5,358.3 6,629.1
========================================================================
Goodwill amortization (existing and new)
Beginning goodwill 38,551.5 38,551.5 40,226.7 49,151.7 57,719.7 65,944.7
Goodwill from acquisitions 2,697.0 10,788.0 10,788.0 10,788.0 10,788.0
Amortization (1,021.8) (1,863.0) (2,220.0) (2,563.0) (2,892.0)
------------------------------------------------------------------------
Ending Goodwill 40,226.7 49,151.7 57,719.7 65,944.7 73,840.7
Transaction expense amortization 9/30/99
-------
Beginning transaction expense 4,000.0 4,000.0 3,971.3 3,771.3 3,571.3 3,371.3
Amortization of non-financing expenses 20.0 0.0 28.8 200.0 200.0 200.0 200.0
Amortization of bank term loan expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of senior subordinated
debt expense 7.0 0.0 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------
Ending transaction expenses 3,971.3 3,771.3 3,571.3 3,371.3 3,171.3
Total book depreciation and amortization 1,052.7 1,178.6 2,075.8 2,995.3 3,937.1
====================================================================================================================================
Property and Equipment
Years ending December 31,
Property and equipment 13,249.7 15,299.7 22,799.7 30,349.7 37,949.7 45,599.7
Accumulated depreciation and amortization 2,000.0 4,045.8 6,887.4 10,983.2 16,341.4 22,970.6
Property and equipment, net 11,249.7 11,253.9 15,912.3 19,366.5 21,608.2 22,629.1
</TABLE>
- ---------------------------
(1) Based on projections provided by management.
<PAGE> 58
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
DEBT AMORTIZATION SCHEDULE[1] Sept 30, 1999 1999 2000 2001 2002 2003
- ----------------------------- ------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing Debt
Revolving Credit facility 8.25% 8.25% 8.25% 8.25% 8.25%
New subordinated debt 12.00% 12.00% 12.00% 12.00% 12.00%
Subordinated seller notes 6.00% 6.00% 6.00% 6.00% 6.00%
Total debt
Interest Income 4.00% 4.00% 4.00% 4.00% 4.00%
Debt amortization
Revolving credit facility (1,353.4) (4,863.7) (686.2) 3,520.5 7,977.5
New subordinated debt (131.3) (529.6) (548.1) (567.3) (587.2)
Subordinated seller notes 435.2 (7,419.4) (6,858.3) (6,297.3) (5,736.3)
-------- -------- -------- -------- --------
Total debt (1,049.5) (12,812.7) (8,092.6) (3,344.1) 1,654.1
Remaining Debt
Revolving credit facility 41,966.5 43,319.9 48,183.6 48,869.8 45,349.3 37,371.8
New subordinated debt 15,000.0 15,131.3 15,660.8 16,029.0 16,776.3 17,363.5
Subordinated seller notes 13,396.7 12,961.5 20,380.9 27,239.2 33,536.5 39,272.8
-------- -------- -------- -------- -------- --------
Total debt 70,363.2 71,412.7 84,225.4 92,318.0 95,662.2 94,008.1
Interest Expense
Revolving credit facility 1,055.4 3,774.5 4,003.5 3,886.5 3,412.2
New subordinated debt 452.0 1,847.5 1,912.2 1,979.1 2,048.4
Subordinated seller notes 790.7 1,000.3 1,428.6 1,823.3 2,184.3
-------- -------- -------- -------- --------
Total debt 2,298.1 6,622.3 7,344.2 7,688.9 7,644.9
Interest Income 40.0 40.0 40.0 40.0 40.0
Consideration paid for acquisitions
Cash 2,805.2 11,220.8 11,220.8 11,220.8 11,220.8
Notes 2,805.2 11,220.8 11,220.8 11,220.8 11,220.8
Stock 1,402.6 5,610.4 5,610.4 5,610.4 5,610.4
-------- -------- -------- -------- --------
Total Investment 7,013.0 28,052.0 28,052.0 28,052.0 28,052.0
<CAPTION>
ACQUISITION DEBT SCHEDULE Existing 1999 2000 2001 2002 2003
- ----------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
New notes issued 13,396.7 2,805.2 11,220.8 11,220.8 11,220.8 11,220.8
Repayments
Existing (2,679.3) (2,679.3) (2,679.3) (2,679.3) (2,679.3)
1999 5.0 (561.0) (561.0) (561.0) (561.0) (561.0)
2000 (561.0) (561.0) (561.0) (561.0)
2001 (561.0) (561.0) (561.0)
2002 (561.0) (561.0)
2003 (561.0)
Net change in debt (435.2) 7,419.4 6,858.3 6,297.3 5,736.3
Debt balance 12,961.5 20,380.9 27,239.2 33,536.5 39,272.8
</TABLE>
- -----------------------------
[1] Based on projections provided by management.
<PAGE> 59
PROJECT SOUNDER
FINANCIAL BUYER ANALYSIS
(DOLLARS IN THOUSANDS)
ACQUISITION SCHEDULE (1)
<TABLE>
<CAPTION>
----------------------------------------------------
1999 BY QUARTER Q1 Q2 Q3 Q4 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MDs
New This Quarter 0.0 0.0 0.0 12.0 12.0
Cumulative 0.0 0.0 0.0 48.0 48.0
Revenue/MD/Quarter 0.0 0.0 0.0 212.5
New Revenue This Quarter 0.0 0.0 0.0 1,275.0 1,275.0
Revenue- new MDs 0.0 0.0 0.0 8,925.0 8,925.0
Management Fee to Sounder 0.0 0.0 0.0 5,578.1 5,578.1
Rate: 0.625
Systemwide Revenues- New MD 0.0 0.0 0.0 8,925.0 8,925.0
Systemwide Revenues 19,000.0 21,511.2 22,800.0 24,500.0 26,500.0 95,311.2
BALANCE SHEET FOR ACQUISITIONS:
Purchase Price This Quarter 0.0 0.0 0.0 7,013.0 7,013.0
Source of Funds:
Cash 0.4 0.0 0.0 0.0 2,805.2 2,805.2
Notes 0.4 0.0 0.0 0.0 2,805.2 2,805.2
Stock 0.2 0.0 0.0 0.0 1,402.6 1,402.6
Cumulative Source
Cash 0.0 0.0 0.0 2,805.2 2,805.2
Notes 0.0 0.0 0.0 2,805.2 2,805.2
Stock 0.0 0.0 0.0 1,402.6 1,402.6
Use of Funds:
FF&E 150.0 0.0 0.0 0.0 1,800.0 1,800.0
A/R 90.0 0.0 0.0 0.0 2,515.0 2,515.0
Goodwill 0.0 0.0 0.0 2,697.0 2,697.0
Cumulative Use:
FF&E 0.0 0.0 0.0 7,200.0 7,200.0
A/R 0.0 0.0 0.0 10,060.0 10,060.0
Goodwill 0.0 0.0 0.0 10,788.0 10,788.0
<CAPTION>
2000 BY QUARTER Q1 Q2 Q3 Q4 2000
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MDs
New This Quarter 12.0 12.0 12.0 12.0 48.0
Cumulative 60.0 72.0 84.0 96.0 96.0
Revenue/MD/Quarter 212.5 212.5 212.5 212.5
New Revenue This Quarter 1,275.0 1,275.0 1,275.0 1,275.0 5,100.0
Revenue- new MDs 11,475.0 14,025.0 16,575.0 19,125.0 61,200.0
Management Fee to Sounder 7,171.9 8,765.6 10,359.4 11,953.1 38,250.0
Rate: 0.625
Systemwide Revenues- New MD 11,475.0 14,025.0 16,575.0 19,125.0 61,200.0
Systemwide Revenues 19,000.0 30,475.0 33,025.0 35,575.0 38,125.0 137,200.0
Balance Sheet for Acquisitions:
Purchase Price This Quarter 7,013.0 7,013.0 7,013.0 7,013.0 28,052.0
Source of Funds:
Cash 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11,220.8
Notes 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11,220.8
Stock 0.2 1,402.6 1,402.6 1,402.6 1,402.6 5,610.4
Cumulative Source
Cash 5,610.4 8,415.6 11,220.8 14,026.0 14,026.0
Notes 5,610.4 8,415.6 11,220.8 14,026.0 14,026.0
Stock 2,805.2 4,207.8 5,610.4 7,013.0 7,013.0
Use of Funds:
FF&E 150.0 1,800.0 1,800.0 1,800.0 1,800.0 7,200.0
A/R 90.0 2,515.0 2,515.0 2,515.0 2,515.0 10,060.0
Goodwill 2,697.0 2,697.0 2,697.0 2,697.0 10,788.0
Cumulative Use:
FF&E 7,200.0 9,000.0 10,800.0 12,600.0 12,600.0
A/R 10,060.0 12,575.0 15,090.0 17,605.0 17,605.0
Goodwill 10,788.0 13,485.0 16,182.0 18,879.0 18,879.0
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
2001 BY QUARTER Q1 Q2 Q3 Q4 2001
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MDs
New This Quarter 12.0 12.0 12.0 12.0 48.0
Cumulative 108.0 120.0 132.0 144.0 144.0
Revenue/MD/Quarter 212.5 212.5 212.5 212.5
New Revenue This Quarter 1,275.0 1,275.0 1,275.0 1,275.0 5,100.0
Revenue - new MDs 21,675.0 24,225.0 26.775.0 29,325.0 102,000.0
Management Fee to Sounder 13,546.9 15,140.6 16,734.4 18,328.1 63,750.0
Rate: 0.625
Systemwide Revenues - New MD 21,675.0 24,225.0 26,775.0 29,325.0 102,000.0
Systemwide Revenues 19,000.0 40,675.0 43,225.0 45,775.0 48,325.0 178.000.0
Balance Sheet for Acquisitions:
Purchase Price This Quarter 7,013.0 7,013.0 7,013.0 7,013.0 28,052.0
Source of Funds:
Cash 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11,220.8
Notes 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11.220.8
Stock 0.2 1,402.6 1,402.6 1,402.6 1,402.6 5,610.4
Cumulative Source
Cash 16,831.2 19,636.4 22,441.6 25,246.8 25,246.8
Notes 16,831.2 19,636.4 22,441.6 25,246.8 25,246.8
Stock 8,415.6 9,818.2 11,220.8 12,623.4 12,623.4
Use of Funds:
FF&E 150.0 1,800.0 1,800.0 1,800.0 1,800.0 7,200.0
A/R 90.0 2,515.0 2,515.0 2,515.0 2,515.0 10,060.0
Goodwill 2,697.0 2,697.0 2,697.0 2,697.0 10,788.0
Cumulative Use:
FF&E 14,400.0 16,200.0 18,000.0 19,800.0 19,800.0
A/R 20,120.0 22,635.0 25,150.0 27,665.0 27,665.0
Goodwill 21,576.0 24,273.0 26,970.0 29,667.0 29,667.0
</TABLE>
<TABLE>
<CAPTION>
2002 BY QUARTER Q1 Q2 Q3 Q4 2002
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MDs
New This Quarter 12.0 12.0 12.0 12.0 48.0
Cumulative 156.0 168.0 180.0 192.0 192.0
Revenue/MD/Quarter 212.5 212.5 212.5 212.5
New Revenue This Quarter 1,275.0 1,275.0 1,275.0 1,275.0 5,100.0
Revenue - new MDs 31,875.0 34,425.0 36,975.0 39,525.0 142,800.0
Management Fee to Sounder 19,921.9 21,515.6 23,109.4 24,703.1 89,250.0
Rate: 0.625
Systemwide Revenues - New MD 31,875.0 34,425.0 36,975.0 39,525.0 142,800.0
Systemwide Revenues 19,000.0 50,875.0 53,425.0 55,975.0 58,525.0 218,800.0
Balance Sheet for Acquisitions:
Purchase Price This Quarter 7,013.0 7,013.0 7,013.0 7,013.0 28,052.0
Source of Funds:
Cash 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11,220.8
Notes 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11,220.8
Stock 0.2 1,402.6 1,402.6 1,402.6 1,402.6 5,610.4
Cumulative Source
Cash 28,052.0 30,857.2 33,662.4 36,467.6 36,467.6
Notes 28,052.0 30,857.2 33,662.4 36,467.6 36,467.6
Stock 14,026.0 15,428.6 16,831.2 18,233.8 18,233.8
Use of Funds:
FF&E 150.0 1,800.0 1,800.0 1,800.0 1,800.0 7,200.0
A/R 90.0 2,515.0 2,515.0 2,515.0 2,515.0 10,060.0
Goodwill 2,697.0 2,697.0 2,697.0 2,697.0 10,788.0
Cumulative Use:
FF&E 21,600.0 23,400.0 25,200.0 27,000.0 27,000.0
A/R 30,180.0 32,695.0 35,210.0 37,725.0 37,725.0
Goodwill 32,364.0 35,061.0 37,758.0 40,455.0 40,455.0
</TABLE>
<TABLE>
<CAPTION>
2003 BY QUARTER Q1 Q2 Q3 Q4 2003
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MDs
New This Quarter 12.0 12.0 12.0 12.0 48.0
Cumulative 204.0 216.0 228.0 240.0 240.0
Revenue/MD/Quarter 212.5 212.5 212.5 212.5
New Revenue This Quarter 1,275.0 1,275.0 1,275.0 1,275.0 5,100.0
Revenue - new MDs 42,075.0 44,625.0 47,175.0 49,725.0 183,600.0
Management Fee to Sounder 26,296.9 27,890.6 29,484.4 31,078.1 114,750.0
Rate: 0.625
Systemwide Revenues - New MD 42,075.0 44,625.0 47,175.0 49,725.0 183,600.0
Systemwide Revenues 19,000.0 61,075.0 63,625.0 66,175.0 68,725.0 259,600.0
Balance Sheet for Acquisitions:
Purchase Price This Quarter 7,013.0 7,013.0 7,013.0 7,013.0 28,052.0
Source of Funds:
Cash 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11,220.8
Notes 0.4 2,805.2 2,805.2 2,805.2 2,805.2 11,220.8
Stock 0.2 1,402.6 1,402.6 1,402.6 1,402.6 5,610.4
Cumulative Source
Cash 39,272.8 42,078.0 44,883.2 47,688.4 47,688.4
Notes 39,272.8 42,078.0 44,883.2 47,688.4 47,688.4
Stock 19,636.4 21,039.0 22,441.6 23,844.2 23,844.2
Use of Funds:
FF&E 150.0 1,800.0 1,800.0 1,800.0 1,800.0 7,200.0
A/R 90.0 2,515.0 2,515.0 2,515.0 2,515.0 10,060.0
Goodwill 2,697.0 2,697.0 2,697.0 2,697.0 10,788.0
Cumulative Use:
FF&E 28,800.0 30,600.0 32,400.0 34,200.0 34,200.0
A/R 40,240.0 42,755.0 45,270.0 47,785.0 47,785.0
Goodwill 43,152.0 45,849.0 48,546.0 51,243.0 51,243.0
</TABLE>
<PAGE> 1
EXHIBIT (c)(2)
STOCK OPTION EXERCISE AND TERMINATION AGREEMENT
STOCK OPTION EXERCISE AND TERMINATION AGREEMENT, dated as of June 14,
1999 (this "Agreement"), among Physicians' Specialty Corp., a Delaware
corporation ("Target"), and each of the individuals listed on Exhibit A hereto
(the "Optionholders" and each an "Optionholder").
WHEREAS, Target and TA MergerCo, Inc., a Delaware corporation
("MergerCo"), are entering into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended from time to time, the "Merger
Agreement"), which provides, upon the terms and subject to the conditions
thereof, for the merger of MergerCo with and into Target (the "Merger"); and
WHEREAS, certain of the Optionholders own beneficially or of record
shares of common stock of Target, par value $.001 per share ("Target Common
Stock"); and
WHEREAS, the Optionholders hold options to purchase shares of Target
Common Stock, the number and exercise price of which are set forth on Exhibit A
hereto (the "Target Options"); and
WHEREAS, certain Optionholders and MergerCo are entering into a
Roll-over Agreement dated as of the date hereof (the "Roll-over Agreement") and
a Stock Purchase Agreement dated as of the date hereof (the "Stock Purchase
Agreement"), which provide for such Optionholders to sell certain shares of
Target Common Stock (including shares issuable upon the exercise of target
Options that have an exercise price of less than $10.50 per share ("In the Money
Options")) to MergerCo for cash consideration and to receive shares of MergerCo
common stock in the Merger in exchange for the remainder of the shares of Target
Common Stock (including shares issuable upon the exercise of In the Money
Options) held by such Optionholders; and
WHEREAS, as a condition to the willingness of MergerCo to enter into
the Merger Agreement, MergerCo has requested that each Optionholder agree, and,
in order to induce MergerCo to enter into the Merger Agreement each Optionholder
is willing to agree, to exercise all In the Money Options held by such
Optionholder, and to terminate and cancel all Target Options held by such
Optionholder to the extent that such options have an exercise price greater than
or equal to $10.50 per share ("Out of the Money Options").
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements and covenants set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
<PAGE> 2
1. Ownership. Each Optionholder hereby represents and warrants
that all options to acquire Target Common Stock that are held by such
Optionholder are set forth on Exhibit A hereto and that the information set
forth with respect to the Target Options held by such Optionholder on Exhibit A
is complete and correct.
2. Exercisability. Each Optionholder and Target acknowledge and
agree that prior to the consummation of the transactions contemplated by the
Stock Purchase Agreement all Target Options shall become fully exercisable,
either as a result of the operation of the option plans and agreements under
which such Target Options were issued or as a result of appropriate action of
the board of directors of Target.
3. Exercise; Termination. Each Optionholder hereby exercises all
of the In the Money Options set forth opposite such Optionholder's name on
Exhibit A hereto, effective simultaneously with the consummation of the
transactions contemplated by the Stock Purchase Agreement, and Target and such
Optionholder agree that Target shall effect such exercise by issuing to such
Optionholder for no cash consideration a number of shares of Target Common Stock
equal to (A) the number of shares of Target Common Stock issuable upon the
exercise of such In the Money Options as set forth on Exhibit A minus (B) the
aggregate exercise price of such In the Money Options as set forth on Exhibit A
divided by $10.50. Each Optionholder agrees that all Out of the Money Options
held by such Optionholder shall be canceled and terminated and become null, void
and of no further effect simultaneously with the consummation of the
transactions contemplated by the Stock Purchase Agreement and such Optionholder
shall not be entitled to receive any shares of Target Common Stock with respect
to such terminated and canceled Out of the Money Options.
4. No Additional Rights. Each Optionholder agrees that upon the
exercise or cancellation of the Target Options pursuant to Section 3 hereof,
such Optionholder shall not have any further rights with respect to the Target
Options or any further rights under any option plan, or option agreement of
Target or to which Target and such Optionholder are parties, including without
limitation the Target's 1996 Stock Option Plan and the Target's 1996 HealthCare
Professionals Stock Option Plan.
5. Investment Representation. Such Stockholder acknowledges that
it has been provided access to all information requested by it in order to
evaluate the merits and risks of the transactions contemplated by this
Agreement. Such Stockholder has relied solely upon the advice of his, her or its
own counsel, accountant and other advisors, with regard to the legal,
investment, tax and other considerations regarding this Agreement and the
transactions contemplated hereby.
6. General Provisions.
a. Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of any of the parties hereto
will bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so
expressed or not.
2
<PAGE> 3
b. Further Assurance. After the consummation of the
transactions contemplated hereby, as and when requested by
MergerCo, the Optionholders shall, without further
consideration, execute and deliver all such documents and
instruments and shall take such further actions as MergerCo
may deem reasonably necessary or desirable in order to carry
out fully the provisions and purposes of this Agreement.
c. Survival of Representations and Warranties. All
representations and warranties contained herein or made in
writing by any party in connection herewith shall survive the
execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
d. Severability. Whenever possible, each provision of
this Agreement shall 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 shall not affect any other provision or any
other jurisdiction, but this Agreement shall be reformed,
construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been
contained herein.
e. 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.
f. Counterparts. This Agreement may be executed in
separate counterparts each of which shall be an original and
all of which taken together shall constitute one and the same
agreement.
g. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of
this Agreement was not performed in accordance with the terms
hereof or was otherwise breached. It is accordingly agreed
that the parties shall be entitled to specific relief
hereunder, including, without limitation, an injunction or
injunctions to prevent and enjoin breaches of the provisions
of this Agreement and to enforce specifically the terms and
provisions hereof, in any state or federal court in the State
of Delaware, in addition to any other remedy to which they may
be entitled at law or in equity. Any requirements for the
securing or posting of any bond with respect to any such
remedy are hereby waived.
h. Governing Law. Choice of Law/Consent to Jurisdiction.
All disputes,
3
<PAGE> 4
claims or controversies arising out of or relating to this
Agreement, or the negotiation, validity or performance of this
Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its
rules of conflict of laws. Each Optionholder, the Company and
MergerCo hereby irrevocably and unconditionally consents to
submit to the sole and exclusive jurisdiction of the courts of
the State of Delaware and of the United States located in the
State of Delaware (the "Delaware Courts") for any litigation
arising out of or relating to this Agreement, or the
negotiation, validity or performance of this Agreement (and
agrees not to commence any litigation relating thereto except
in such courts), waives any objection to the laying of venue
of any such litigation in the Delaware Courts and agrees not
to plead or claim in any Delaware Court that such litigation
brought therein has been brought in any inconvenient forum.
Each of the parties hereto agrees, (a) to the extent such
party is not otherwise subject to service of process in the
State of Delaware, to appoint and maintain an agent in the
State of Delaware as such party's agent for acceptance of
legal process, and (b) that service of process may also be
made on such party by prepaid certified mail with a proof of
mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant
to (a) or (b) above shall have the same legal force and effect
as if served upon such party personally within the State of
Delaware. For purposes of implementing the parties' agreement
to appoint and maintain an agent for service of process in the
State of Delaware, each such party does hereby appoint CT
Corporation, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801, as such agent.
i. Construction. Whenever the context requires, each
term stated in either the singular or the plural shall include
the singular and the plural and pronouns stated in either the
masculine, the feminine or the neuter gender shall include the
masculine, feminine and neuter. All references to Sections and
Paragraphs refer to sections and paragraphs of this Agreement.
The use of the word "including" in this Agreement shall be by
way of example rather than limitation.
j. Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior
written consent of each of the parties hereto, provided,
however, that the Company and MergerCo may together in writing
waive or consent to a modification of any provision of this
Agreement with respect to any Stockholder without the
agreement of any other party hereto. Notwithstanding anything
to the contrary herein, the provisions of this Agreement may
not be amended or waived in a manner that would adversely
affect the rights of MergerCo hereunder without the prior
written consent of MergerCo.
k. Third Party Beneficiary. MergerCo is a third-party
beneficiary of this Agreement and shall be entitled to enforce
this Agreement against each of the Optionholders in the same
manner as if it were a party hereto.
4
<PAGE> 5
l. No Agreement Until Executed. Irrespective of
negotiations among the parties or the exchanging of drafts of
this Agreement, this Agreement shall not constitute or be
deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until this
Agreement is executed by the parties hereto.
m. Exculpation. No Optionholder shall have any liability
or obligation whatsoever under or by reason of this Agreement
because of a breach by any other Optionholder of its
obligations, representations or warranties hereunder.
n. Termination. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall terminate upon
the termination of the Merger Agreement pursuant to Section
9.1 thereof.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Stock Option
Exercise Agreement on the date first written above.
PHYSICIANS' SPECIALTY CORP.
By: /s/ Ramie A. Tritt, M.D.
-----------------------------------------
Name: Ramie A. Tritt, M.D.
Title: Chairman and President
6
<PAGE> 7
EXHIBIT A
_________
TARGET OPTION INFORMATION
_________________________
In the Money Options
<TABLE>
<CAPTION>
Out of the Money
Name No. Target Shares Issuable Exercise Price Options to be Terminated
- ------------------- -------------------------- -------------- ------------------------
<S> <C> <C> <C>
Richard Ballard 179,968 $ 6.80
Richard Ballard 40,000 $10.00
Richard Ballard 150,000 $ 7.75
Gerald R. Benjamin 40,000 $10.00
Gerald R. Benjamin 150,000 $ 7.75
Robert DiProva 119,980 $ 6.80
Robert DiProva 30,000 $10.00
Robert DiProva 50,000 $ 7.75
Larry Kraska 59,992 $ 6.80
Larry Kraska 50,000 $10.00
Larry Kraska 125,000 $ 7.75
Ramie Tritt, M.D 200,000 $8.525
Ramie Tritt, M.D 50,000
</TABLE>
7
<PAGE> 8
[OPTIONHOLDER SIGNATURE PAGES OMITTED]
8
<PAGE> 1
Exhibit (c)(3)
EXECUTION COPY
VOTING AGREEMENT
VOTING AGREEMENT, dated as of June 14, 1999 (this "AGREEMENT"), among
TA MergerCo, Inc., a Delaware corporation ("MERGERCO"), the persons listed on
EXHIBIT A hereto (the "STOCKHOLDERS" and each a "STOCKHOLDER", which term shall
include certain of the undersigned only in the event they exercise any Target
Options (hereinafter defined) held by them prior to the consummation of the
transactions contemplated by the Merger Agreement (as hereinafter defined)), and
Physicians' Specialty Corp., a Delaware corporation ("TARGET").
WHEREAS, as of the date hereof each Stockholder owns (either
beneficially or of record) the number of shares of common stock, par value $.01
per share (the "TARGET STOCK"), of Target set forth on EXHIBIT A hereto (all
such shares and any shares of Target hereafter acquired by the Stockholders
prior to the termination of this Agreement, including any shares of Target Stock
set forth on EXHIBIT A hereto that are issued upon the exercise of options to
purchase Target Stock at an exercise price of less than $10.50 per share (the
"Target Options") held by such Stockholder, being referred to herein as the
"SHARES"); and
WHEREAS, MergerCo and Target are entering into an Agreement and Plan of
Merger, dated as of the date hereof (as the same may be amended from time to
time, the "MERGER AGREEMENT"), which provides, upon the terms and subject to the
conditions thereof, for the merger of MergerCo with and into Target (the
"MERGER"); and
WHEREAS, certain of the Stockholders and MergerCo are entering into a
Roll-over Agreement and a Stock Purchase Agreement dated as of the date hereof
(the "ROLL-OVER AND STOCK PURCHASE AGREEMENTS"), which provide for such
Stockholders to sell certain of the Shares to MergerCo for cash consideration
and to receive shares of MergerCo common stock in the Merger in exchange for the
remainder of the Shares; and
WHEREAS, as a condition to the willingness of MergerCo to enter into
the Merger Agreement, MergerCo has requested that each Stockholder agree, and,
in order to induce MergerCo to enter into the Merger Agreement each such
Stockholder is willing to agree, to grant MergerCo an irrevocable proxy to vote
the Shares pursuant to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements and covenants set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
Each Stockholder hereby represents and warrants to MergerCo as follows:
<PAGE> 2
SECTION 1.01. DUE AUTHORITY. (a) Such Stockholder has full power,
corporate or otherwise, and authority to execute and deliver this Agreement and
to perform its obligations hereunder. This Agreement has been duly executed and
delivered by or on behalf of such Stockholder and, assuming its due
authorization, execution and delivery by MergerCo, constitutes a legal, valid
and binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization and other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
(b) There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which such Stockholder is trustee whose consent
is required for the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
SECTION 1.02. NO CONFLICT; CONSENTS. (a) The execution and delivery of
this Agreement by such Stockholder do not, and the performance by such
Stockholder of the obligations under this Agreement and the compliance by such
Stockholder with any provisions hereof do not and will not, (i) conflict with or
violate any law, statute, rule, regulation, order, writ, judgment or decree
applicable to such Stockholder or such Stockholder's Shares, (ii) conflict with
or violate the Stockholder's charter, bylaws, partnership agreement or other
organizational documents, if applicable, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of such Stockholder's Shares pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which such Stockholder is a party or by which
such Stockholder or such Stockholder's Shares are bound.
(b) The execution and delivery of this Agreement by such
Stockholder do not, and the performance of this Agreement by such Stockholder
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority except for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended, and except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, could not
prevent or delay the performance by such Stockholder of his or her obligations
under this Agreement in any material respect.
SECTION 1.03. TITLE TO SHARES. (a) Such Stockholder is the record or
beneficial owner of such Stockholder's Shares free and clear of any proxy or
voting restriction. The Shares set forth opposite such Stockholder's name on
EXHIBIT A hereto constitute all of the shares of Target Stock owned of record or
beneficially by such Stockholder or are issuable upon the exercise of Target
Options held by such Stockholder.
(b) Such Stockholder has, and during the Proxy Term will have
(except as a result of transfers permitted by Section 2.01), the sole voting
power with respect to the matters set forth in Article II hereof with respect to
all of the Shares, with no restrictions on such rights, subject to applicable
laws and the terms of this Agreement.
2
<PAGE> 3
SECTION 1.04. NO ENCUMBRANCES. Such Stockholder's Shares and the
certificates representing such Shares are now and at all times during the Proxy
Term hereof (except as a result of transfers permitted by Section 2.01) will be
held by such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, (i) free and clear of all proxies, voting trusts and voting
agreements, understandings or arrangements providing for any right on the part
of any person other than such Stockholder to vote such Shares except any such
encumbrances or proxies arising under this Agreement.
SECTION 1.05. ACKNOWLEDGMENT OF RELIANCE. Such Stockholder understands
and acknowledges that MergerCo is entering into the Merger Agreement in reliance
upon such Stockholder's execution and delivery of this Agreement.
SECTION 1.06. BROKERS. Neither Target nor MergerCo shall be obligated
or otherwise liable for any broker's, finder's, financial adviser's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of any Stockholder
(excluding fees payable in connection with the Company's arrangements with
Premier HealthCare and The Robinson-Humphrey Company LLC).
ARTICLE II
CERTAIN COVENANTS OF STOCKHOLDERS
Each Stockholder hereby covenants and agrees with MergerCo as follows:
SECTION 2.01. TRANSFER OF SHARES. Other than pursuant to the terms of
the Roll-over and Stock Purchase Agreements and as otherwise provided herein,
during the Proxy Term each Stockholder shall not hereafter (a) sell, tender,
transfer, pledge, encumber, assign or otherwise dispose of any of such
Stockholder's Shares, (b) deposit such Stockholder's Shares into a voting trust
or enter into a voting agreement or arrangement with respect to such Shares or
grant any proxy or power of attorney with respect thereto, (c) enter into any
contract, option or other arrangement or undertaking with respect to the direct
or indirect sale, transfer, pledge, encumbrance, assignment or other disposition
of any Target Stock, or (d) take any action that would make any representation
or warranty of such Stockholder contained herein untrue or incorrect in any
material respect or have the effect of preventing or disabling such Stockholder
from performing such Stockholder's obligations under this Agreement.
SECTION 2.02. VOTING OF SHARES; FURTHER ASSURANCES. (a) Each
Stockholder, by this Agreement, with respect to those Shares that such
Stockholder owns of record, does hereby constitute and appoint MergerCo, or any
nominee of MergerCo, with full power of substitution, during and for the Proxy
Term, as such Stockholder's true and lawful attorney and irrevocable proxy, for
and in such Stockholder's name, place and stead, to vote each of such Shares as
such Stockholder's proxy, at every meeting of the stockholders of Target or any
adjournment thereof or in connection with any written consent of Target's
stockholders, (i) in favor of the adoption of the Merger Agreement and approval
of the Merger and the other transactions contemplated by the Merger Agreement,
(ii) against (x) any Acquisition Proposal, as that term is defined in the Merger
Agreement, and any proposal for any action or agreement that would result in a
breach of
3
<PAGE> 4
any covenant, representation or warranty or any other obligation or agreement of
Target under the Merger Agreement or which could result in any of the conditions
of Target's obligations under the Merger Agreement not being fulfilled and (y)
any change in the directors of Target, any change in the present capitalization
of Target or any amendment to Target's certificate of incorporation or bylaws,
any other material change in Target's corporate structure or business, or any
other action which in the case of each of the matters referred to in this clause
(y) could reasonably be expected to impede, interfere with, delay, postpone or
materially adversely affect the transactions contemplated by the Merger
Agreement or the Roll-over and Stock Purchase Agreements or the likelihood of
such transactions being consummated, and (iii) in favor of any other matter
necessary for consummation of the transactions contemplated by the Merger
Agreement which is considered at any such meeting of stockholders or in such
consent, and in connection therewith to execute any documents which are
necessary or appropriate in order to effectuate the foregoing or, at the request
of MergerCo, to permit MergerCo to vote such Shares directly. Each Stockholder
further agrees to cause the Shares owned by such Stockholder beneficially to be
voted in accordance with the foregoing. Each Stockholder intends this proxy to
be irrevocable and coupled with an interest during the Proxy Term and hereby
revokes any proxy previously granted by such Stockholder with respect to such
Stockholder's Shares.
(b) Each Stockholder hereby further agrees, with respect to
any Shares not voted pursuant to paragraph (a) above, that during the Proxy
Term, at any meeting of stockholders of Target, however called, or in connection
with any written consent of Target's stockholders, such Stockholder shall vote
(or cause to be voted) the Shares held of record or beneficially by such
Stockholder, except as specifically requested in writing by MergerCo in advance,
(i) in favor of the adoption of the Merger Agreement and approval of the Merger
and the other transactions contemplated by the Merger Agreement, (ii) against
(x) any Acquisition Proposal, as that term is defined in the Merger Agreement,
and any proposal for any action or agreement that would result in a breach of
any covenant, representation or warranty or any other obligation or agreement of
Target under the Merger Agreement or which could result in any of the conditions
of Target's obligations under the Merger Agreement not being fulfilled or (y)
any change in the directors of Target, any change in the present capitalization
of Target or any amendment to Target's certificate of incorporation or bylaws,
any other material change in Target's corporate structure or business, or any
other action which in the case of each of the matters referred to in this clause
(y) could reasonably be expected to, impede, interfere with, delay, postpone or
materially adversely affect the transactions contemplated by the Merger
Agreement or the Roll-over and Stock Purchase Agreements or the likelihood of
such transactions being consummated, and (iii) in favor of any other matter
necessary for consummation of the transactions contemplated by the Merger
Agreement which is considered at any such meeting of stockholders or in such
consent, and in connection therewith to execute any documents which are
necessary or appropriate in order to effectuate the foregoing.
(c) For the purposes of this Agreement, "PROXY TERM" shall
mean the period from the execution of this Agreement until the earlier of (i)
the date of any termination of the Merger Agreement or (ii) the Effective Time.
(d) Each Stockholder agrees that such Stockholder will not
enter into any agreement or understanding with any person or entity or take any
action during the Proxy Term
4
<PAGE> 5
which will permit any person or entity to vote or give instructions to vote the
Shares in any manner inconsistent with the terms of this Section 2.02. Each
Stockholder further agrees to take such further action and execute such other
instruments as may be reasonably necessary to effectuate the intent of this
Agreement, including without limitation, any number of proxies and other
documents permitting MergerCo to vote the Shares or to direct the record owners
thereof to vote the Shares in accordance with this Agreement.
SECTION 2.03. CERTAIN EVENTS. Each Stockholder agrees that, during the
Proxy Term, this Agreement and the obligations hereunder shall attach to such
Stockholder's Shares and shall be binding upon any person or entity to which
legal or beneficial ownership of such Shares shall pass, whether by operation of
law or otherwise, including without limitation, if applicable, such
Stockholder's heirs, guardians, administrators or successors.
SECTION 2.04. NO SOLICITATION. Except as explicitly permitted by
Section 7.5 of the Merger Agreement, during the Proxy Term no Stockholder shall,
nor, to the extent applicable to such Stockholder, shall it permit any of its
affiliates hereunder (other than Target to the extent permitted by Section 7.5
of the Merger Agreement) to, nor shall it authorize any partner, officer,
director, advisor or representative of, such Stockholder or any of its
affiliates (other than Target to the extent permitted by Section 7.5 of the
Merger Agreement) to, directly or indirectly, (i) solicit, initiate or encourage
(including by way of furnishing non-public information), or take any other
action to facilitate, any inquiries or the making of any proposal that
constitutes an Acquisition Proposal (as defined in the Merger Agreement), (ii)
participate in any discussions or negotiations regarding an Acquisition Proposal
or (iii) enter into any agreements, definitive or otherwise, regarding an
Acquisition Proposal.
SECTION 2.05. STOP TRANSFER. (a) Each Stockholder agrees with, and
covenants to, MergerCo that such Stockholder may not request that Target
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Shares, unless
such transfer is made in compliance with this Agreement. Each Stockholder
agrees, with respect to any Shares in certificated form, that such Stockholder
will tender to Suntrust, within fifteen business days after the date hereof, the
certificates representing such Shares, to be held in accordance with the terms
of a Custody Agreement among Suntrust, Target and MergerCo. Each Stockholder
agrees that, within ten business days after the date hereof, such Stockholder
will no longer hold any Shares, whether certificated or uncertificated, in
"street name" or in the name of any nominee. Target shall notify its transfer
agent of the provisions set forth in this Section and instruct its transfer
agent not to permit any transfer of Shares except in compliance with the terms
hereof and each Stockholder agrees to provide such documentation and to do such
other things as may be required to give effect to such provisions with respect
to such Shares.
5
<PAGE> 6
ARTICLE III
GENERAL PROVISIONS
SECTION 3.01. SEVERABILITY. If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 3.02. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
SECTION 3.03. AMENDMENTS. This Agreement may not be modified, amended,
waived, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto; provided, however, that
MergerCo may in writing waive or consent to a modification of any provision of
this Agreement with respect to any Stockholder without the agreement of any
other party hereto.
SECTION 3.04. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise, except in accordance with Section 2.01.
SECTION 3.05. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its heirs and assigns
and nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
SECTION 3.06. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof or was otherwise breached. It
is accordingly agreed that the parties shall be entitled to specific relief
hereunder, including, without limitation, an injunction or injunctions to
prevent and enjoin breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, in any state or federal court in
the State of Delaware, in addition to any other remedy to which they may be
entitled at law or in equity. Any requirements for the securing or posting of
any bond with respect to any such remedy are hereby waived.
SECTION 3.07. CHOICE OF LAW/CONSENT TO JURISDICTION. All disputes,
claims or controversies arising out of or relating to this Agreement, or the
negotiation, validity or performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its rules of conflict of laws. Each Stockholder and each of Target and MergerCo
hereby irrevocably and unconditionally consents to submit to the
6
<PAGE> 7
sole and exclusive jurisdiction of the courts of the State of Delaware and of
the United States located in the State of Delaware (the "DELAWARE COURTS") for
any litigation arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement (and agrees not to commence any
litigation relating thereto except in such courts), waives any objection to the
laying of venue of any such litigation in the Delaware Courts and agrees not to
plead or claim in any Delaware Court that such litigation brought therein has
been brought in any inconvenient forum. Each of the parties hereto agrees, (a)
to the extent such party is not otherwise subject to service of process in the
State of Delaware, to appoint and maintain an agent in the State of Delaware as
such party's agent for acceptance of legal process, and (b) that service of
process may also be made on such party by prepaid certified mail with a proof of
mailing receipt validated by the United States Postal Service constituting
evidence of valid service. Service made pursuant to (a) or (b) above shall have
the same legal force and effect as if served upon such party personally within
the State of Delaware. For purposes of implementing the parties' agreement to
appoint and maintain an agent for service of process in the State of Delaware,
each such party does hereby appoint CT Corporation, Corporation Trust Center,
1209 Orange Street, Wilmington, DE 19801, as such agent.
SECTION 3.08. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 3.09. DEFINITIONS. Terms used in this Agreement and not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement.
SECTION 3.10. NO AGREEMENT UNTIL EXECUTED. Irrespective of negotiations
among the parties or the exchanging of drafts of this Agreement, this Agreement
shall not constitute or be deemed to evidence a contract, agreement, arrangement
or understanding among the parties hereto unless and until this Agreement is
executed by the parties hereto.
SECTION 3.11. EXCULPATION. No Stockholder shall have any liability or
obligation whatsoever under or by reason of this Agreement because of a breach
by any other Stockholder of its obligations, representations or warranties
hereunder or thereunder.
SECTION 3.12. DIRECTORS AND OFFICERS. Notwithstanding anything herein
to the contrary, the covenants and agreements set forth herein shall not prevent
any of the Stockholders who are serving on Target's board of directors or who
are officers of Target from taking any action, subject to the applicable
provisions of the Merger Agreement, while acting in such capacity as a director
or officer of Target.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have duly executed this Voting
Agreement as of the date first written above.
TA MERGERCO, INC.
By: /s/ Richard Tadler
-----------------------------------
Name: Richard Tadler
Title: President and Chief Executive Officer
PHYSICIANS' SPECIALTY CORP.
By: /s/ E.R. Casas
-----------------------------------
Name: E. R. Casas
Title: Director
<PAGE> 9
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Ramie A. Tritt
------------------------------------
Ramie A. Tritt, M.D.
<PAGE> 10
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Daniel M. Adams
------------------------------------
Daniel M. Adams, M.D.
<PAGE> 11
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
ATLANTA HEAD & NECK, P.C.
By: /s/ Albert A. Clairmont
------------------------------------
Name: Albert A. Clairmont, M.D.
Title:
<PAGE> 12
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Michael A. Avidano
------------------------------------
Michael A. Avidano, M.D.
<PAGE> 13
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Sanjay Bhansali
------------------------------------
Sanjay Bhansali, M.D.
<PAGE> 14
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Deborah M. Burton
------------------------------------
Deborah M. Burton, M.D.
<PAGE> 15
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Willie J. Cornay
------------------------------------
Willie J. Cornay, M.D.
<PAGE> 16
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Andrew J. Diamond
------------------------------------
Andrew J. Diamond, M.D.
<PAGE> 17
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
EAR, NOSE & THROAT SPECIALISTS, P.C.
By: /s/ Ronald A. Van Tuyl
------------------------------------
Name: Ronald A. Van Tuyl, M.D.
Title:
<PAGE> 18
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Andrew R. Golde
------------------------------------
Andrew R. Golde, M.D.
<PAGE> 19
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ David A. Goodman
------------------------------------
David A. Goodman, M.D.
<PAGE> 20
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Nancy R. Griner
------------------------------------
Nancy R. Griner, M.D.
<PAGE> 21
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Christopher B. Holloway
------------------------------------
Christopher B. Holloway
<PAGE> 22
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Keith R. Jackson
------------------------------------
Keith R. Jackson, M.D.
<PAGE> 23
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Keith A. Kowal
------------------------------------
Keith A. Kowal, M.D.
<PAGE> 24
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Drew Locandro
------------------------------------
Drew Locandro, M.D.
<PAGE> 25
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Samuel A. Mickelson
------------------------------------
Samuel A. Mickelson, M.D.
<PAGE> 26
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Harold W. Moss
------------------------------------
Harold W. Moss, M.D.
<PAGE> 27
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Thomas U. Muller
------------------------------------
Thomas U. Muller, M.D.
<PAGE> 28
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Michael J. Pickford
------------------------------------
Michael J. Pickford, M.D.
<PAGE> 29
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Michael F. Pratt
------------------------------------
Michael F. Pratt, M.D.
<PAGE> 30
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Richard Rinehart
------------------------------------
Richard Rinehart, M.D.
<PAGE> 31
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Burke P. Robinson
------------------------------------
Burke P. Robinson, M.D.
<PAGE> 32
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Ted L. Rolander
------------------------------------
Ted L. Rolander, M.D.
<PAGE> 33
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Marc H. Routman
------------------------------------
Marc H. Routman, M.D.
<PAGE> 34
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ William S. Smith
------------------------------------
William S. Smith, M.D.
<PAGE> 35
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Arthur J. Torsiglieri
------------------------------------
Arthur J. Torsiglieri, M.D.
<PAGE> 36
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Ann K. White
------------------------------------
Ann K. White, M.D.
<PAGE> 37
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Gerald R. Benjamin
------------------------------------
Gerald R. Benjamin
<PAGE> 38
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Richard D. Ballard
------------------------------------
Richard D. Ballard
<PAGE> 39
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Lawrence P. Kraska
------------------------------------
Lawrence P. Kraska
<PAGE> 40
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Robert A. Diprova
------------------------------------
Robert A. Diprova
<PAGE> 41
[Voting Agreement]
STOCKHOLDER SIGNATURE PAGE
- --------------------------
BOCK, BENJAMIN & CO. PARTNERS, L.P.
By: Bock, Benjamin & Co., its General Partner
By: /s/ Gerald R. Benjamin
------------------------------------
Gerald R. Benjamin
Chief Executive Officer
<PAGE> 42
EXHIBIT A
---------
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Name & Address Target Stock Owned Target Stock Issuable
of Stockholder* by Stockholder upon Exercise of Options
- -------------- -------------- ------------------------
<S> <C> <C>
Daniel Adams, M.D. 139,766
Atlanta Head & Neck-Clairmont 21,250
Michael Avidano, M.D. 20,686
Sanjay Bhansali, M.D. 37, 702
Deborah Burton, M.D. 7,017
William Cornay, M.D. (A) 51,444
Andrew Diamond, M.D. 12,500
Ear, Nose & Throat Specialists- Van Tuyl 15,081
Andrew Golde, M.D. 22,555
David Goodman, M.D. (B) 40,888
Nancy Griner, M.D. 58,000
Christopher Holloway 2,962
Keith Jackson, M.D. 256,862
Keith Kowal, M.D. 122,222
Drew Locandro, M.D. 10,000
Sam Mickelson, M.D. 12,591
Harold Moss, M.D. 16,908
Thomas Muller, M.D. 47,695
Michael Pickford, M.D. 263,050
Michael Pratt, M.D. 7,573
Richard Rinehart, M.D. (B) 10,411
Burke Robinson, M.D. 12,693
Ted Rolander, M.D. (B) 72,234
Marc Routman, M.D. (A) 55,311
William Smith, M.D. 25,000
Arthur Torsiglieri, M.D. 91,825
Ramie Tritt, M.D. 1,761,257 37,619
Ann White, M.D. 135,320
Bock, Benjamin & Co. Partners, L.P. (C) 293,948
Richard Ballard 104,608
Gerald Benjamin 41,190
Robert Diprova 56,802
Larry Kraska 56,259
--------- -------
Subtotals 3,624,751 296,478
TOTAL 3,921,229
</TABLE>
* All c/o Atlanta Ear, Nose& Throat Associates, P.C., 555 Peachtree Dunwoody
Road, Suite 235, Atlanta, Georgia 30342, with the exception of the following:
(A) c/o ENT & Allergy Associates, P.C.
2018 Brookwood Medical Center Drive
Suite 100
Birmingham, Alabama 35209
(B) c/o Otolaryngology Medical & Surgical Associates, Ltd.
730 East Terra Cotta
Crystal Lake, Illinois 60014
(C) c/o Bock, Benjamin & Co.
3414 Peachtree Road, NE
238 Monarch Plaza
Atlanta, Georgia 30326
Attention: G.R. Benjamin
<PAGE> 1
EXHIBIT (c)(4)
EXECUTION COPY
ROLL-OVER AGREEMENT
THIS ROLL-OVER AGREEMENT (this "Agreement") is made as of June 14,
1999, by and among TA MERGERCO, INC., a Delaware corporation (the "Company") and
each of the persons and entities listed on the signature pages attached hereto
(collectively the "Stockholders").
WHEREAS, the Stockholders own, or will own as of the Closing Date (as
hereinafter defined), beneficially and of record, the shares of common stock,
par value $.01 per share set forth on Exhibit A attached hereto (the "Target
Shares"), of PHYSICIANS' SPECIALTY CORP., a Delaware corporation ("Target");
WHEREAS, Target and the Company have entered into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended from time to
time, the "Merger Agreement"), which provides, upon the terms and subject to the
conditions thereof, for the merger of the Company with and into Target (the
"Merger"), with Target being the surviving corporation (the "Surviving
Corporation");
WHEREAS, the Stockholders desire that in connection with the Merger the
Target Shares be converted into shares of the common stock, par value $.01 per
share, of the Surviving Corporation ("New Common"), as provided in the Merger
Agreement; and
WHEREAS, the Stockholders have entered into a Stock Purchase Agreement,
dated as of the date hereof, which provides, upon the terms and subject to the
conditions thereof, for the sale by the Stockholders and the purchase by
TA/Advent VIII, L.P., TA/Atlantic and Pacific IV, L.P., TA Executives Fund LLC
and TA Investors LLC of certain shares of common stock of Target that are not
set forth on Exhibit A hereto.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Conversion of the Target Shares. Each Stockholder acknowledges
and agrees that, pursuant to the Merger Agreement, upon the Closing (as defined
in the Merger Agreement) the Target Shares set forth opposite such Stockholder's
name on the Exhibit A attached hereto will be converted into shares of New
Common upon the terms set forth in the Merger Agreement. Each Stockholder
acknowledges and agrees that such Stockholder shall not receive cash in exchange
for such Stockholder's Target Shares in the Merger and such Stockholder agrees
not to elect, or assert a claim that such Stockholder has a right, to receive
any cash or any securities other than New Common with respect to the Target
Shares in the Merger.
<PAGE> 2
2. Representations and Warranties of the Stockholders. As a
material inducement to the Company to enter into this Agreement and the Merger
Agreement, each Stockholder hereby represents and warrants as to himself or
itself that, as of the date hereof and the Closing Date:
(a) Ownership. All of the Target Shares set forth
opposite such Stockholder's name on Exhibit A attached hereto are owned of
record and beneficially by such Stockholder as of the date hereof except as set
forth on Exhibit A, and will be owned of record and beneficially by such
Stockholder as of the Closing Date. Such Stockholder has, except as set forth on
Exhibit A, and such Stockholder will have as of the Closing Date, good and
marketable title to such Target Shares, free and clear of all security
interests, claims, liens, pledges, options, encumbrances, charges, agreements,
voting trusts, proxies and other arrangements or restrictions whatsoever
("Encumbrances").
(b) Enforceability. This Agreement has been duly
authorized, executed and delivered by such Stockholder and constitutes a valid
and legally binding obligation of such Stockholder, enforceable in accordance
with its terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization and other laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
(c) No Conflicts. The execution, delivery and performance
of this Agreement by such Stockholder does not conflict with, violate or result
in the breach of, or create any lien or encumbrance on his Shares of Target
Common Stock pursuant to, any agreement, instrument, order, judgment, decree,
law or governmental regulation to which such Stockholder is a party or is
subject or by which his Target Shares are bound.
(d) Accredited Investor. Such Stockholder is an
"Accredited Investor" as that term is defined in Rule 501 under the Securities
Act of 1933, as amended (the "Act") (see the attached Exhibit B), and has the
capacity to evaluate the merits and risks of an investment in the New Common and
is able to bear the economic risk of this investment. Such Stockholder
acknowledges that it has been provided access to all information requested by it
in order to evaluate the merits and risks of an investment in the New Common.
Such stockholder understands that the shares of New Common will not be
registered under the Act or any other applicable securities laws. Such
Stockholder has relied solely upon the advice of his, her or its own counsel,
accountant and other advisors, with regard to the legal, investment, tax and
other considerations regarding this investment.
3. Representations and Warranties of the Company. As a material
inducement to the Stockholders to enter into this Agreement and the Merger
Agreement, the Company hereby represents and warrant that, as of the date hereof
and the Closing Date:
2
<PAGE> 3
(a) Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization and other laws affecting the enforcement
of creditors' rights generally and by general principles of equity.
(b) No Conflicts. The execution, delivery and
performances of this Agreement by the Company does not conflict with, violate or
result in a breach of any agreement, instrument, order, judgement, decree, law
or governmental regulation to which the Company is a party or is subject.
4. General Provisions.
(a) Successors and Assigns. All covenants and agreements
in this Agreement by or on behalf of any of the parties hereto will bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not.
(b) Further Assurance. After the Closing, as and when
requested by the Company, the Stockholders shall, without further consideration,
execute and deliver all such documents and instruments and shall take such
further actions as the Company may deem reasonably necessary or desirable in
order to carry out fully the provisions and purposes of this Agreement.
(c) Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
(d) Severability. Whenever possible, each provision of
this Agreement shall 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 shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(e) 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.
(f) Counterparts. This Agreement may be executed in
separate counterparts each of which shall be an original and all of which taken
together shall constitute one and the same agreement.
3
<PAGE> 4
(g) Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof or was otherwise breached. It
is accordingly agreed that the parties shall be entitled to specific relief
hereunder, including, without limitation, an injunction or injunctions to
prevent and enjoin breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, in any state or federal court in
the State of Delaware, in addition to any other remedy to which they may be
entitled at law or in equity. Any requirements for the securing or posting of
any bond with respect to any such remedy are hereby waived.
(h) Governing Law. Choice of Law/Consent to Jurisdiction.
All disputes, claims or controversies arising out of or relating to this
Agreement, or the negotiation, validity or performance of this Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware without regard to its rules of conflict of laws. Each Stockholder and
the Company hereby irrevocably and unconditionally consents to submit to the
sole and exclusive jurisdiction of the courts of the State of Delaware and of
the United States located in the State of Delaware (the "Delaware Courts") for
any litigation arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement (and agrees not to commence any
litigation relating thereto except in such courts), waives any objection to the
laying of venue of any such litigation in the Delaware Courts and agrees not to
plead or claim in any Delaware Court that such litigation brought therein has
been brought in any inconvenient forum. Each of the parties hereto agrees, (a)
to the extent such party is not otherwise subject to service of process in the
State of Delaware, to appoint and maintain an agent in the State of Delaware as
such party's agent for acceptance of legal process, and (b) that service of
process may also be made on such party by prepaid certified mail with a proof of
mailing receipt validated by the United States Postal Service constituting
evidence of valid service. Service made pursuant to (a) or (b) above shall have
the same legal force and effect as if served upon such party personally within
the State of Delaware. For purposes of implementing the parties' agreement to
appoint and maintain an agent for service of process in the State of Delaware,
each such party does hereby appoint CT Corporation, Corporation Trust Center,
1209 Orange Street, Wilmington, DE 19801, as such agent.
(i) Construction. Whenever the context requires, each
term stated in either the singular or the plural shall include the singular and
the plural and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter. All references
to Sections and Paragraphs refer to sections and paragraphs of this Agreement.
The use of the word "including" in this Agreement shall be by way of example
rather than limitation.
(j) Amendment and Waiver. The provisions of this
Agreement may be amended and waived only with the prior written consent of each
of the parties hereto. This Agreement may not be amended in a manner that would
adversely affect the rights of Target hereunder without the prior written
consent of Target.
4
<PAGE> 5
(k) Third Party Beneficiary. Target is a third-party
beneficiary of this Agreement and shall be entitled to enforce this Agreement
against each of the Stockholders in the same manner as if it were a party
hereto.
(l) No Agreement Until Executed. Irrespective of
negotiations among the parties or the exchanging of drafts of this Agreement,
this Agreement shall not constitute or be deemed to evidence a contract,
agreement, arrangement or understanding among the parties hereto unless and
until (i) the Board of Directors of Target has approved, for purposes of Section
203 of the Delaware General Corporation Law and any applicable provision of
Target's Certificate of Incorporation, the terms of this Agreement, and (ii)
this Agreement is executed by the parties hereto.
(m) Exculpation. No Stockholder shall have any liability or
obligation whatsoever under or by reason of this Agreement because of a breach
by any other Stockholder of its obligations, representations or warranties
hereunder.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Roll-over
Agreement on the date first written above.
TA MERGERCO, INC.
By: /s/ Richard Tadler
---------------------------------------------
Name: Richard Tadler
Title: President and Chief Executive Officer
6
<PAGE> 7
[STOCKHOLDER SIGNATURE PAGES OMITTED]
7
<PAGE> 8
EXHIBIT A
<TABLE>
<CAPTION>
Target Shares
-------------
Name Beneficially Owned Owned of Record
- --------------------------- ------------------ ---------------
<S> <C> <C>
Daniel Adams, M.D. 33,278 33,278
Atlanta Head & Neck-Clairmont 5,060 5,060
Michael Avidano, M.D. 4,925 4,925
Sanjay Bhansali, M.D. 8,977 8,977
Deborah Burton, M.D. 2,017 2,017
William Cornay, M.D. 12,249 12,249
Andrew Diamond, M.D. 2,976 2,976
Ear, Nose & Throat Specialists- Van Tuyl 3,591 3,591
Andrew Golde, M.D. 5,370 5,370
David Goodman, M.D. 9,735 9,735
Nancy Griner, M.D. 13,810 13,810
Christopher Holloway 705 705
Keith Jackson, M.D. 128,431 128,431
Keith Kowal, M.D. 29,101 29,101
Drew Locandro, M.D. 10,000 10,000
Sam Mickelson, M.D. 7,000 7,000
Harold Moss, M.D. 4,026 4,026
Thomas Muller, M.D. 11,356 11,356
Michael Pickford, M.D. 62,632 62,632
Michael Pratt, M.D. 1,803 1,803
Richard Rinehart, M.D. 2,479 2,479
Burke Robinson, M.D. 3,022 3,022
Ted Rolander, M.D. 37,234 37,234
Marc Routman, M.D. 13,169 13,169
William Smith, M.D. 5,952 5,952
Arthur Torsiglieri, M.D. 21,863 21,863
Ramie Tritt, M.D. 1,402,875 1,380,304
Ann White, M.D. 32,219 32,219
Bock, Benjamin & Co. Partners, L.P. 27,500 27,500
Richard Ballard 62,765 0
Gerald Benjamin 24,714 0
Robert Diprova 22,721 0
Larry Kraska 33,755 0
----------- ----------------
TOTAL 2,047,310 1,880,784
</TABLE>
8
<PAGE> 9
EXHIBIT B
A Stockholder is an "accredited investor" as defined by Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended, if:
(a) the Stockholder, or the Stockholder and his or her spouse jointly, have
a net worth in excess of U.S. $1,000,000;
(b) the Stockholder's income for each of the past two years has been in
excess of U.S. $200,000 (or joint income with the Stockholder's spouse
has been in excess of U.S. $300,000) and the Stockholder has a
reasonable expectation (alone or with his or her spouse, as the case
may be) of reaching the same level of income this year;
(c) the Stockholder is a bank as defined in Section 3(a)(2) of the Act or a
savings and loan institution or other institution as defined in Section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; an insurance company as defined in
Section 2(13) of the Act; an investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a
plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the
meaning of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section
3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000, or,
if a self-directed plan, with investment decisions made solely by
persons that are accredited stockholders;
(d) the Stockholder is a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
(e) the Stockholder is an organization described in Section 501(c)(3) of
the Internal Revenue Code, a corporation, a Massachusetts or similar
business trust, or a partnership, not formed for the specific purpose
of acquiring the Securities, with total assets in excess of $5,000,000;
(f) the Stockholder is a director or an executive officer of the Company;
9
<PAGE> 10
(g) the Stockholder is a trust with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the Securities, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D; or
(h) the Stockholder is an entity in which all of the equity owners are
accredited investors.
10
<PAGE> 1
Exhibit (c)(5)
EXECUTION COPY
STOCK PURCHASE AGREEMENT
AGREEMENT entered into as of June 14, 1999 by and among TA/Advent VIII,
L.P., TA/Atlantic and Pacific IV, L.P., TA Executives Fund LLC and TA Investors
LLC (each a "TA Investor," and collectively, as the "Buyer"), and the holders of
the capital stock of Physicians' Specialty Corp., a Delaware corporation (the
"Company"), listed on EXHIBIT A (the "Stockholders" and individually a
"Stockholder").
W I T N E S S E T H
-------------------
WHEREAS, the Stockholders own of record and beneficially, or will own
as of the Closing (as hereinafter defined) the number of shares of common stock
of the Company, par value $.001 per share, set forth on EXHIBIT A (said shares
being referred to herein as the "Company Shares"); and
WHEREAS, the Company and TA MergerCo, Inc., a Delaware corporation
("MergerCo"), have entered into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended from time to time, the "Merger
Agreement"), which provides, upon the terms and subject to the conditions
thereof, for the merger of MergerCo with and into the Company (the "Merger"),
with the Company being the surviving corporation;
WHEREAS, the Stockholders have entered into a Roll-over Agreement,
dated as of the date hereof, which provides, upon the terms and subject to the
conditions thereof, for the Stockholders to receive shares of common stock of
the surviving corporation in the Merger in exchange for certain shares of
Company common stock held by the Stockholders that are not set forth on EXHIBIT
A hereto.
WHEREAS, the Stockholders desire to sell all of the Company Shares to
Buyer, and Buyer desires to acquire all of the Company Shares.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
- -----------------------------------------------
1.1 SALE AND TRANSFER OF COMPANY SHARES. In consideration of and in
reliance upon the representations and warranties contained herein and subject to
the terms and conditions of this Agreement, the Stockholders agree to sell, and
Buyer agrees to purchase, at the Closing, the Company Shares, which purchase
shall be allocated among the TA Investors as set forth in EXHIBIT
<PAGE> 2
B attached hereto, as amended from time to time by agreement of each TA
Investor. At the Closing, each Stockholder shall deliver or cause to be
delivered to Buyer certificates representing all of the Company Shares owned by
such Stockholder, as set forth in EXHIBIT A. Such stock certificates shall be
duly endorsed in blank for transfer or shall be presented with stock powers duly
executed in blank, with such signature guarantees and such other documents as
may be reasonably required by Buyer to effect a valid transfer of such Company
Shares by such Stockholder, free and clear of any and all liens, encumbrances,
charges or claims. Each Stockholder by execution of this Agreement hereby
appoints Buyer as his attorney-in-fact to effectuate transfer of the Company
Shares at the Closing (as hereinafter defined).
1.2 PURCHASE PRICE AND PAYMENT. In consideration of the sale by
Stockholders to Buyer of the Company Shares and in reliance upon the
representations and warranties of the Company and the Stockholders herein
contained and made at the Closing and subject to the satisfaction of all of the
conditions contained herein, Buyer agrees that at the Closing it will deliver to
each Stockholder the amount specified in EXHIBIT A hereto by bank cashier check
in Boston Clearing House Funds or by wire transfer of immediately available
funds in accordance with the instructions set forth on EXHIBIT C hereto.
1.3 THE CLOSING. Subject to the terms and conditions contained in this
Agreement, the sale and purchase of the Company Shares hereunder (the "Closing")
shall take place at the offices of Troutman Sanders LLP, NationsBank Plaza, 600
Peachtree Street, NE, Suite 5200, Atlanta, GA 30308-2216, at such time and on a
date (the "Closing Date") to be specified by Buyer, which shall be no later than
the second business day after satisfaction or waiver of all of the conditions
set forth in Section 3 hereof, or at such other place or on such other date as
is mutually agreeable to Buyer and the Stockholders.
1.4 TRANSFER TAXES. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the Company
Shares under this Agreement will be borne and paid by the Stockholders, and the
Stockholders shall promptly reimburse the Company and Buyer for any such tax,
fee or duty which any of them is required to pay under applicable law.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
- --------------------------------------------
2.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. As a material
inducement to Buyer to enter into this Agreement and acquire the Company Shares,
each Stockholder hereby represents and warrants as to himself or itself that, as
of the date hereof and the Closing Date:
(a) OWNERSHIP. All of the Company Shares set forth opposite
such Stockholder's name on EXHIBIT A attached hereto are owned of record and
beneficially by such Stockholder as of the date hereof except as set forth on
EXHIBIT A, or will be owned of record and beneficially by such Stockholder as of
the Closing Date. Such Stockholder has, except as set forth on EXHIBIT A, and
such Stockholder will have as of the Closing Date, good and marketable title to
such Company Shares, free and clear of all security interests, claims, liens,
pledges, options,
2
<PAGE> 3
encumbrances, charges, agreements, voting trusts, proxies and other arrangements
or restrictions whatsoever ("ENCUMBRANCES"). At the Closing, such Stockholder
shall transfer to Buyer good and marketable title to such Company Shares, free
and clear of all Encumbrances.
(b) ENFORCEABILITY. This Agreement has been duly authorized,
executed and delivered by such Stockholder and constitutes a valid and legally
binding obligation of such Stockholder, enforceable in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization and other laws affecting the enforcement
of creditors' rights generally and by general principles of equity.
(c) NO CONFLICTS. The execution, delivery and performance of
this Agreement by such Stockholder does not conflict with, violate or result in
the breach of, or create any lien or encumbrance on his Company Shares pursuant
to, any agreement, instrument, order, judgment, decree, law or governmental
regulation to which such Stockholder is a party or is subject or by which his
Company Shares are bound.
(d) INVESTMENT REPRESENTATION. Such Stockholder acknowledges
that it has been provided access to all information requested by it in order to
evaluate the merits and risks of the transactions contemplated by this
Agreement. Such Stockholder has relied solely upon the advice of his, her or its
own counsel, accountant and other advisors, with regard to the legal,
investment, tax and other considerations regarding this Agreement and the
transactions contemplated hereby.
2.2 REPRESENTATIONS AND WARRANTIES OF BUYER. As a material inducement
to the Stockholders to enter into this Agreement and contribute the Company
Shares, Buyer hereby represents and warrants that, as of the date hereof and the
Closing Date:
(a) ENFORCEABILITY. This Agreement has been duly authorized,
executed and delivered by Buyer and constitutes a valid and legally binding
obligation of Buyer, enforceable in accordance with its terms, except to the
extent that enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization and other laws affecting the enforcement of creditors' rights
generally and by general principles of equity.
(b) NO CONFLICTS. The execution, delivery and performances of
this Agreement by Buyer does not conflict with, violate or result in a breach of
any agreement, instrument, order, judgement, decree, law or governmental
regulation to which Buyer is a party or is subject.
(c) NO UNREGISTERED DISTRIBUTION. Buyer is purchasing the
Company Shares for investment for Buyer's own account, without any view to the
unregistered public distribution or public resale thereof, all without
prejudice, however, to the right of Buyer at any time lawfully to sell or
otherwise to dispose of all or any part of the Company Shares pursuant to
registration, or an exemption therefrom, under the Act and applicable state
securities laws.
(d) RESTRICTED SECURITIES. Buyer understands that the Company
Shares it is purchasing are characterized as "restricted securities" under the
federal securities laws and that
3
<PAGE> 4
under such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances.
(e) INVESTOR SUITABILITY. Buyer represents and warrants that
it is an accredited investor as defined in Rule 501 under the Securities Act of
1933, as amended, and has the capacity to evaluate the merits and risks of an
investment in the Company Shares and is able to bear the economic risk of this
investment. Buyer acknowledges that it has been provided access to all
information requested by it in order to evaluate the merits and risks of an
investment in the Company Shares.
(f) LEGENDS. It is understood that the certificates evidencing
the Company Shares may bear one or all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT."
(b) Any legend required by applicable state laws.
SECTION 3. CONDITIONS.
- ------------------------
3.1 CONDITIONS TO STOCKHOLDERS' OBLIGATIONS. The obligation of the
Stockholders to consummate the transactions contemplated hereby shall be subject
to fulfillment or waiver, at or prior to the Closing Date, of the following
conditions:
(a) the Stockholders shall have received from Buyer a
certificate of Buyer, dated as of the Closing Date, to the effect that each
condition to Buyer's obligation to consummate the Merger, as set forth in the
Merger Agreement, has been satisfied and Buyer knows of no reason why the Merger
will not be consummated immediately following the Closing; and
(b) the representations and warranties of Buyer herein shall
be true and correct in all material respects as of the Closing Date.
3.2 CONDITIONS TO BUYER'S OBLIGATIONS. The obligation of Buyer to
consummate the transactions contemplated hereby shall be subject to fulfillment
or waiver, at or prior to the Closing Date, of the following conditions:
(a) Buyer shall have received from Target a certificate of
Target, dated as of the Closing Date, to the effect that each condition to
Target's obligation to consummate the Merger, as set forth in the Merger
Agreement, has been satisfied and Target knows of no reason why the Merger will
not be consummated immediately following the Closing; and
4
<PAGE> 5
(b) the representations and warranties of the Stockholders
herein shall be true and correct in all material respects as of the Closing
Date.
SECTION 4. GENERAL PROVISIONS.
- --------------------------------
4.1 TRANSFEROR'S CERTIFICATE OF NON-FOREIGN STATUS. Prior to the
Closing Date each Stockholder shall deliver to Buyer a "transferor's certificate
of non-foreign status" as provided in the Treasury Regulations under Section
1445 of the Code in the form attached hereto as Exhibit D attached hereto.
4.2 SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
4.3 FURTHER ASSURANCE. After the Closing, as and when requested by
Buyer, the Stockholders shall, without further consideration, execute and
deliver all such instruments of conveyance and transfer and shall take such
further actions as Buyer may deem reasonably necessary or desirable in order to
transfer the Company Shares to Buyer and to carry out fully the provisions and
purposes of this Agreement.
4.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
4.5 SEVERABILITY. Whenever possible, each provision of this Agreement
shall 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 shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
4.6 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.
4.7 COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
5
<PAGE> 6
4.8 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to specific relief
hereunder, including, without limitation, an injunction or injunctions to
prevent and enjoin breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, in any state or federal court in
the State of Delaware, in addition to any other remedy to which they may be
entitled at law or in equity. Any requirements for the securing or posting of
any bond with respect to any such remedy are hereby waived.
4.9 CHOICE OF LAW/CONSENT TO JURISDICTION. All disputes, claims or
controversies arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws. Each Stockholder and Buyer hereby irrevocably and
unconditionally consents to submit to the sole and exclusive jurisdiction of the
courts of the State of Delaware and of the United States located in the State of
Delaware (the "DELAWARE COURTS") for any litigation arising out of or relating
to this Agreement, or the negotiation, validity or performance of this Agreement
(and agrees not to commence any litigation relating thereto except in such
courts), waives any objection to the laying of venue of any such litigation in
the Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum. Each
of the parties hereto agrees, (a) to the extent such party is not otherwise
subject to service of process in the State of Delaware, to appoint and maintain
an agent in the State of Delaware as such party's agent for acceptance of legal
process, and (b) that service of process may also be made on such party by
prepaid certified mail with a proof of mailing receipt validated by the United
States Postal Service constituting evidence of valid service. Service made
pursuant to (a) or (b) above shall have the same legal force and effect as if
served upon such party personally within the State of Delaware. For purposes of
implementing the parties' agreement to appoint and maintain an agent for service
of process in the State of Delaware, each such party does hereby appoint CT
Corporation, Corporation Trust Center, 1209 Orange Street, Wilmington, DE 19801,
as such agent.
4.10 CONSTRUCTION. Whenever the context requires, each term stated in
either the singular or the plural shall include the singular and the plural and
pronouns stated in either the masculine, the feminine or the neuter gender shall
include the masculine, feminine and neuter. All references to Sections and
Paragraphs refer to sections and paragraphs of this Agreement. The use of the
word "including" in this Agreement shall be by way of example rather than
limitation.
4.11 AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended and waived only with the prior written consent of each of the parties
hereto provided, however, that Buyer may in writing waive or consent to a
modification of any provision of this Agreement with respect to any Stockholder
without the agreement of any other party hereto, and provided, further, that
EXHIBIT B may be amended by agreement of each TA Investor. Notwithstanding the
foregoing sentence, the provisions of this Agreement may not be amended or
waived in a manner that would adversely affect the rights of the Company
hereunder without the prior written consent of the Company.
6
<PAGE> 7
4.12 THIRD PARTY BENEFICIARY. The Company is a third-party beneficiary
of this Agreement and shall be entitled to enforce this Agreement against each
of the Stockholders in the same manner as if it were a party hereto.
4.13 NO AGREEMENT UNTIL EXECUTED. Irrespective of negotiations among
the parties or the exchanging of drafts of this Agreement, this Agreement shall
not constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (i) the Board of
Directors of the Company has approved, for purposes of Section 203 of the
Delaware General Corporation Law and any applicable provision of the Company's
Certificate of Incorporation, the terms of the Merger, and (ii) this Agreement
is executed by the parties hereto.
4.14 EXCULPATION. No Stockholder shall have any liability or obligation
whatsoever under or by reason of this Agreement because of a breach by any other
Stockholder of its obligations, representations or warranties hereunder.
4.15 TERMINATION. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall terminate upon the termination of the Merger
Agreement pursuant to Section 9.1 thereof.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement on the date first written above.
BUYER:
-----
TA/ADVENT VIII, L.P.
By: TA Associates VIII LLC, its General Partner
By: TA Associates, Inc., its General Partner
By: /s/ Richard Tadler
-----------------------------------
Richard Tadler
Managing Director
TA/ATLANTIC AND PACIFIC IV, L.P.
By: TA Associates AP IV, L.P., its General Partner
By: TA Associates, Inc., its General Partner
By: /s/ Richard Tadler
-----------------------------------
Richard Tadler
Managing Director
TA INVESTORS, LLC
By: TA Associates, Inc., its Manager
By: /s/ Richard Tadler
-----------------------------------
Richard Tadler
Managing Director
TA EXECUTIVES FUND, LLC
By: TA Associates, Inc., its Manager
By: /s/ Richard Tadler
-----------------------------------
Richard Tadler
Managing Director
<PAGE> 9
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Ramie A. Tritt
-----------------------------------
Ramie A. Tritt, M.D.
<PAGE> 10
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Daniel M. Adams
-----------------------------------
Daniel M. Adams, M.D.
<PAGE> 11
STOCKHOLDER SIGNATURE PAGE
- --------------------------
ATLANTA HEAD & NECK, P.C.
By: /s/ Albert A. Clairmont
-----------------------------------
Name: Albert A. Clairmont, M.D
Title:
<PAGE> 12
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Michael A. Avidano
-----------------------------------
Michael A. Avidano, M.D.
<PAGE> 13
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Sanjay Bhansali
-----------------------------------
Sanjay Bhansali, M.D.
<PAGE> 14
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Deborah M. Burton
-----------------------------------
Deborah M. Burton, M.D.
<PAGE> 15
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Willie J. Cornay
-----------------------------------
Willie J. Cornay, M.D.
<PAGE> 16
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Andrew J. Diamond
-----------------------------------
Andrew J. Diamond, M.D.
<PAGE> 17
STOCKHOLDER SIGNATURE PAGE
- --------------------------
EAR, NOSE & THROAT SPECIALISTS, P.C.
By: /s/ Ronald A. Van Tuyl
-----------------------------------
Name: Ronald A. Van Tuyl, M.D.
Title:
<PAGE> 18
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Andrew R. Golde
-----------------------------------
Andrew R. Golde, M.D.
<PAGE> 19
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ David A. Goodman
-----------------------------------
David A. Goodman, M.D.
<PAGE> 20
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Nancy R. Griner
-----------------------------------
Nancy R. Griner, M.D.
<PAGE> 21
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Christopher B. Holloway
-----------------------------------
Christopher B. Holloway
<PAGE> 22
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Keith R. Jackson
-----------------------------------
Keith R. Jackson, M.D.
<PAGE> 23
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Keith A. Kowal
-----------------------------------
Keith A. Kowal, M.D.
<PAGE> 24
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Samuel A. Mickelson
-----------------------------------
Samuel A. Mickelson, M.D.
<PAGE> 25
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Harold W. Moss
-----------------------------------
Harold W. Moss, M.D.
<PAGE> 26
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Thomas U. Muller
-----------------------------------
Thomas U. Muller, M.D.
<PAGE> 27
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Michael J. Pickford
-----------------------------------
Michael J. Pickford, M.D.
<PAGE> 28
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Michael F. Pratt
-----------------------------------
Michael F. Pratt, M.D.
<PAGE> 29
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Richard Rinehart
-----------------------------------
Richard Rinehart, M.D.
<PAGE> 30
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Burke P. Robinson
-----------------------------------
Burke P. Robinson, M.D.
<PAGE> 31
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Ted L. Rolander
-----------------------------------
Ted L. Rolander, M.D.
<PAGE> 32
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Marc H. Routman
-----------------------------------
Marc H. Routman, M.D.
<PAGE> 33
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ William S. Smith
-----------------------------------
William S. Smith, M.D.
<PAGE> 34
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Arthur J. Torsiglieri
-----------------------------------
Arthur J. Torsiglieri, M.D.
<PAGE> 35
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Ann K. White
-----------------------------------
Ann K. White, M.D.
<PAGE> 36
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Gerald R. Benjamin
-----------------------------------
Gerald R. Benjamin
<PAGE> 37
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Richard D. Ballard
-----------------------------------
Richard D. Ballard
<PAGE> 38
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Lawrence P. Kraska
-----------------------------------
Lawrence P. Kraska
<PAGE> 39
STOCKHOLDER SIGNATURE PAGE
- --------------------------
/s/ Robert A. Diprova
-----------------------------------
Robert A. Diprova
<PAGE> 40
STOCKHOLDER SIGNATURE PAGE
- --------------------------
BOCK, BENJAMIN & CO. PARTNERS, L.P.
By: Bock, Benjamin & Co., its General Partner
By: /s/ Gerald R. Benjamin
-----------------------------------
Gerald R. Benjamin
Chief Executive Officer
<PAGE> 41
EXHIBIT A
<TABLE>
<CAPTION>
Company Shares
--------------
Stockholder Beneficially Owned/purchased Owned of Record Purchase Price
- ----------- ---------------------------- --------------- --------------
<S> <C> <C> <C>
Daniel Adams, M.D 106,488 106,488 $ 1,118,124.00
Atlanta Head & Neck-Clairmont 16,190 16,190 $ 169,995.00
Michael Avidano, M.D 15,761 15,761 $ 165,490.50
Sanjay Bhansali, M.D 28,725 28,725 $ 301,612.50
Deborah Burton, M.D 5,000 5,000 $ 52,500.00
William Cornay, M.D 39,195 39,195 $ 411,547.50
Andrew Diamond, M.D 9,524 9,524 $ 100,002.00
ENT Specialists- Van Tuyl 11,490 11,490 $ 120,645.00
Andrew Golde, M.D 17,185 17,185 $ 180,442.50
David Goodman, M.D 31,153 31,153 $ 327,106.50
Nancy Griner, M.D 44,190 44,190 $ 463,995.00
Christopher Holloway 2,257 2,257 $ 23,698.50
Keith Jackson, M.D 128,431 128,431 $ 1,348,525.50
Keith Kowal, M.D 93,121 93,121 $ 977,770.50
Sam Mickelson, M.D 5,591 5,591 $ 58,705.50
Harold Moss, M.D 12,882 12,882 $ 135,261.00
Thomas Muller, M.D 36,339 36,339 $ 381,559.50
Michael Pickford, M.D 200,418 200,418 $ 2,104,389.00
Michael Pratt, M.D 5,770 5,770 $ 60,585.00
Richard Rinehart, M.D 7,932 7,932 $ 83,286.00
Burke Robinson, M.D 9,671 9,671 $ 101,545.50
Ted Rolander, M.D 35,000 35,000 $ 367,500.00
Marc Routman, M.D 42,142 42,142 $ 442,491.00
William Smith, M.D 19,048 19,048 $ 200,004.00
Arthur Torsiglieri, M.D 69,962 69,962 $ 734,601.00
Ramie Tritt, M.D 396,001 380,953 $ 4,158,010.50
Ann White, M.D 103,101 103,101 $ 1,082,560.50
Bock, Benjamin & Co. Partners, L.P. 266,448 266,448 $ 2,797,704.00
Richard Ballard 41,843 0 $ 439,351.50
Gerald Benjamin 16,476 0 $ 172,998.00
Robert Diprova 34,081 0 $ 357,850.50
Larry Kraska 22,504 0 $ 236,292.00
--------- --------- --------------
TOTALS 1,873,919 1,743,967 $19,676,149.50
</TABLE>
<PAGE> 42
EXHIBIT B
<TABLE>
<CAPTION>
TA Investor Percentage of Total Company Shares Purchased
- ----------- --------------------------------------------
<S> <C>
TA/Advent VIII, L.P. 60%
TA/Atlantic and Pacific IV, L.P. 38%
TA Executives Fund LLC 1%
TA Investors LLC 1%
</TABLE>
<PAGE> 43
EXHIBIT C
_________
WIRE INSTRUCTIONS
NAME:_________________________________________________________________________
BANK:_________________________________________________________________________
ACCOUNT NO.:__________________________________________________________________
ABA NO.:______________________________________________________________________
DDA NO.:______________________________________________________________________
REFERENCE:____________________________________________________________________
<PAGE> 44
EXHIBIT D
_______________________
TRANSFEROR'S CERTIFICATE OF NON-FOREIGN STATUS
Individual Transferor
_______________________
Section 1445 of the Internal Revenue Code provides that a transferee (Buyer)
of a U.S. real property interest must withhold tax if the transferor (seller)
is a foreign person. To inform the TA Investors that withholding of tax is not
required upon my disposition of a U.S. real property interest, the undersigned
hereby certifies the following:
1. I am not a nonresident alien for purposes of U.S. income taxation;
2. My U.S. taxpayer identifying number (Social Security number) is:
__________________________; and
3. My home address is:
_______________________________________
_______________________________________
I understand that this certification may be disclosed to the Internal
Revenue Service by the TA Investors and that any false statement I have made
here could be punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct,
and complete.
Date:________________ Signed: ______________________________________
Print Name: ______________________________________
<PAGE> 1
EXHIBIT (c)(6)
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of this 14th day of June,
1999 by and among TA MergerCo, Inc., a Delaware corporation ("MergerCo" or the
"Company"), each of the Persons listed on the signature pages attached hereto,
and each of the other Persons who hereafter agree to become party to and bound
by this Agreement (collectively the "Stockholders").
WHEREAS, MergerCo has been formed for the purpose of merging (the
"Merger") with and into Physicians' Specialty Corp., a Delaware corporation
("Target") pursuant to the terms and subject to the conditions set forth in the
Agreement and Plan of Merger, dated as of the date hereof, by and among MergerCo
and Target, as amended from time to time (the "Merger Agreement").
WHEREAS, by virtue of the Merger, Target will become the successor to
all of the rights, interests, duties and obligations of MergerCo, including,
without limitation, those arising under this Agreement, and after the Merger,
Target shall be deemed to be a party to this Agreement and all references in
this Agreement to MergerCo or the "Company" shall be deemed to be references to
Target.
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of establishing the registration rights of the Stockholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act and the Exchange Act.
"COMMON STOCK" shall mean the Company's Common Stock, par
value $.001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
<PAGE> 2
"COMMON STOCKHOLDER SHARES" shall mean Stockholder Shares
which are (i) Common Stock, (ii) warrants, options or other rights to subscribe
for or to acquire, directly or indirectly, Common Stock, whether or not then
exercisable or convertible, and (iii) stock or other securities which are
convertible into or exchangeable for, directly or indirectly, Common Stock,
whether or not then convertible or exchangeable (including, without limitation,
the Convertible Preferred Stock). As to any particular Common Stockholder
Shares, such shares shall cease to be Common Stockholder Shares when they have
been disposed of in a Public Sale or repurchased by the Company or any
Subsidiary. References in this Agreement to a majority of, or a certain
percentage of, the Common Stockholder Shares, shall be deemed to be references
to a majority of the Common Stock represented by the Common Stockholder Shares
or a certain percentage of the Common Stock represented by the Common
Stockholder Shares, calculated on a fully-diluted basis, as applicable.
"CONVERTIBLE PREFERRED STOCK" shall mean the Company's
Convertible Participating Preferred Stock, par value $.001 per share.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"INITIAL PUBLIC OFFERING" means the consummation of the
Company's first underwritten, firm commitment public offering pursuant to an
effective registration statement under the Securities Act, other than on Forms
S-4 or S-8 of their then equivalents, covering the offer and sale by the Company
of its equity securities, or such other event as a result of or following which
the Common Stock shall be publicly held.
"PERSON" shall mean an individual, a corporation, a
partnership, a joint venture, a trust, an unincorporated organization, a limited
liability company or partnership, a government and any agency or political
subdivision thereof.
"PRINCIPAL MANAGEMENT STOCKHOLDERS" shall mean all
Stockholders who are not TA Investors and who beneficially own at least 2.5% of
the outstanding Stockholder Shares (as reflected in the stock record books of
the Company) after the effective date of the Merger.
"PUBLIC SALE" shall mean any sale of Stockholder Shares to the
public pursuant to an offering registered under the Securities Act or to the
public through a broker, dealer or market maker pursuant to the provisions of
Rule 144 adopted under the Securities Act.
"QUALIFIED PUBLIC OFFERING" shall have the meaning set forth
in the Company's Amended and Restated Certificate of Incorporation (the
"Charter").
"REGISTRABLE SECURITIES" shall mean any shares of Common Stock
held by a Stockholder or subject to acquisition by a Stockholder upon conversion
of Common Stockholder Shares, as applicable, including any shares issued by way
of a stock dividend or stock split or in
2
<PAGE> 3
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization; provided, however, that if a TA Investor owns
Convertible Preferred Stock, the TA Investor may exercise its registration
rights hereunder by converting the shares to be sold publicly into Common Stock
as of the closing of the relevant offering and shall not be required to cause
such Convertible Preferred Stock to be converted to Common Stock until and
unless such closing occurs, it being understood that the Company shall at the
request of the relevant TA Investor effect the reconversion of Common Stock to
Convertible Preferred Stock if such a conversion occurs notwithstanding the
foregoing and a public offering does not close; and provided, further, that any
Common Stock that is sold in a registered sale pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144
thereunder, or that may be sold without restriction as to volume or otherwise
pursuant to Rule 144 under the Securities Act (as confirmed by an opinion of
counsel to the Company), shall not be deemed Registrable Securities.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"STOCKHOLDER SHARES" shall mean (i) any capital stock of the
Company purchased or otherwise acquired by any Stockholder, (ii) any warrants,
options or other rights to subscribe for or to acquire, directly or indirectly,
any capital stock of the Company, purchased or otherwise acquired by any
Stockholder, whether or not then exercisable or convertible, and (iii) any stock
or other securities which are convertible into or exchangeable for, directly or
indirectly, any capital stock of the Company, purchased or otherwise acquired by
any Stockholder, whether or not then convertible or exchangeable, (iv) any
securities or rights issued or issuable directly or indirectly with respect to
the securities and rights referred to in clauses (i), (ii) and (iii) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Stockholder Shares, such shares shall cease to be Stockholder
Shares when they have been disposed of in a Public Sale or repurchased by the
Company or any Subsidiary.
"SUBSIDIARY" OR "SUBSIDIARIES" means, with respect to any
Person, any corporation, limited liability company, partnership, association, or
other business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers, or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a combination
thereof, or (ii) if a limited liability company, partnership, association, or
other business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of such Person or entity or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association, or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association, or
other business entity gains or losses or shall be or control any managing
director or general partner of such limited liability company, partnership,
association, or other business entity.
3
<PAGE> 4
"TA INVESTORS" means the Stockholders identified as such on
the signature pages hereto and their Affiliates.
2. OPTIONAL REGISTRATIONS. If at any time or times after an
Initial Public Offering and for a period of six (6) years thereafter, the
Company shall seek to register any shares of its capital stock or securities
convertible into capital stock under the Securities Act (whether in connection
with a public offering of securities by the Company (a "primary offering"), a
public offering of securities by stockholders of the Company (a "secondary
offering"), or both (together an "underwritten public offering"), the Company
will promptly give written notice thereof to each Stockholder (including any
Permitted Transferee thereof as defined in that certain Stockholders Agreement,
dated as of the date hereof, by and among the parties hereto) holding
Registrable Securities (individually, a "Holder" and collectively, the
"Holders"). If within ten (10) days after receipt of such notice one or more
Holders request the inclusion of some or all of the Registrable Securities owned
by them in such registration, the Company will use its commercially reasonable
efforts to effect the registration under the Securities Act of all Registrable
Securities which such Holders may request in a writing delivered to the Company
within ten (10) days after their receipt of the notice given by the Company;
provided, however, that if the Company determines at any time not to pursue an
underwritten public offering of its securities, then it shall give prompt
written notice of such determination to each Holder requesting registration
hereunder, and the Company shall thereafter be relieved of its obligation to
register any Registrable Securities pursuant to this Section 2 until such time
as it shall again decide to pursue an underwritten public offering. In the case
of the registration of shares of capital stock by the Company in connection with
any underwritten public offering, if the underwriter(s) determines that
marketing factors require a limitation on the number of Registrable Securities
to be offered, the Company shall not be required to register Registrable
Securities of the Holders in excess of the amount, if any, of shares of which
the principal underwriter of such underwritten offering shall reasonably and in
good faith agree to include in such offering in excess of any amount to be
registered for the Company. If any limitation of the number of shares of
Registrable Securities to be registered by the Holders is required pursuant to
this Section 2, the number of shares that may be included in the registration on
behalf of the Holders shall be allocated among the Holders or the holders of any
other registration rights in proportion, as nearly as practicable, to the
respective holdings of Registrable Securities of all Holders requesting
registration. The provisions of this Section 2 will not apply to a registration
statement on Form S-8 or Form S-4 (or any successor forms) or a registration
effected solely to implement (i) an employee benefit plan, or (ii) a transaction
to which Rule 145 or any other similar rule of the Commission under the
Securities Act is applicable.
3. REQUIRED REGISTRATIONS.
(A) DEMAND REGISTRATION. On one occasion beginning at any time
after the Company's Initial Public Offering, or in the case of a Principal
Management Stockholder beginning after (i) a Qualified Public Offering; (ii) the
redemption for cash of all of the Redeemable Preferred Stock (as defined in the
Charter) then outstanding in accordance with the terms of the Charter and (iii)
the sale, transfer or other disposition of at least 50% of the Convertible
Preferred Stock held by the TA Investors as of the effective date of the Merger
4
<PAGE> 5
(clauses (i), (ii) and (iii) collectively, the "Management Stockholders Demand
Right Trigger"), and within a period of six (6) years thereafter, a TA Investor
or the TA Investors, or a Principal Management Stockholder or the Principal
Management Stockholders (such TA Investors and Principal Management Stockholders
shall hereafter be sometimes referred to individually as a "Demand Holder," and
collectively as the "Demand Holders"), holding at least 50% of the Registrable
Securities held by the TA Investors or Principal Management Stockholders,
respectively, may require the Company to register under the Securities Act all
or a portion of the Registrable Securities held by such requesting Demand
Holder; provided, however, that the Company shall have no obligation to effect a
registration of its securities pursuant to this Section 3(a) unless the shares
to be included therein shall in the aggregate consist of at least 150,000
Registrable Securities (as adjusted for stock splits, stock dividends or other
similar events).
(B) FORM S-3. Commencing one (1) year after an Initial Public
Offering (or such shorter period as Form S-3 may otherwise permit), or in the
case of a Principal Management Stockholder one (1) year after the Management
Stockholders Demand Right Trigger, and for a period of six (6) years thereafter,
the Company shall use its commercially reasonable efforts to qualify and remain
qualified to register securities on Form S-3 (or any successor form) under the
Securities Act. Subject to the conditions set forth in Section 3(a) above, a TA
Investor or the TA Investors or a Principal Management Stockholder or the
Principal Management Stockholders holding at least 50% of the Registrable
Securities held by the TA Investors or Principal Management Stockholders,
respectively, may request not more than three (3) registrations on Form S-3 (or
any successor form) per year for the Registrable Securities held by such
requesting Demand Holder, including registrations for the sale of such
Registrable Securities on a delayed or continuous basis pursuant to Rule 415
under the Securities Act. Such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such Demand Holder.
(C) REGISTRATION REQUIREMENTS. Following a request pursuant to
Sections 3(a) or 3(b) above, the Company will notify all of the Holders who
would be entitled to notice of a proposed registration under Section 2 above and
any other holder of piggyback registration rights of its receipt of such request
from such Demand Holder. Upon the written request of any such Holder or other
holder of the Company's securities delivered to the Company within twenty (20)
days after receipt from the Company of such notification, the Company will
either (i) elect to make a primary offering, in which case the rights of such
Holders shall be as set forth in Section 2 above, or (ii) use its commercially
reasonable efforts to cause such of the Registrable Securities as may be
requested by any Holders and any other holders of piggyback registration rights
to be registered under the Securities Act in accordance with the terms of this
Section 3.
(D) LIMITATIONS ON REGISTRATION OBLIGATIONS. The Company shall
not be obligated to effect more than one (1) registration statement pursuant to
Section 3(a) or more than three (3) registration statements per year pursuant to
Section 3(b) for each of the TA Investors and Principal Management Stockholders
as a group. The Company shall not be obligated to effect any registration on
Form S-3 pursuant to Section 3(b) if Form S-3 is not available for such offering
by the Holders; provided, however, that in this event the Company shall be
obligated to effect
5
<PAGE> 6
such registration on either Form S-1 or S-2, and such registration shall not be
counted as a registration pursuant to Section 3(a) for purposes of the
limitations set forth in Section 3(a) or in the first sentence of this Section
3(d). The Company may postpone the filing or the effectiveness of any
registration statement pursuant to Sections 3(a) or 3(b) for a reasonable period
of time, provided that such postponements shall not exceed one hundred twenty
(120) days in the aggregate during any twelve (12) month period, if (i) the
Company has been advised by legal counsel that such filing or effectiveness
would require disclosure of a material financing, acquisition or other corporate
transaction, and the Board of Directors of the Company determines in good faith
that such disclosure is not in the best interests of the Company and its
stockholders or the Company would be required to include in such registration
statement financial statements and/or other information concerning the business
of any other party to such financing, acquisition or other corporate transaction
that is not yet then available or (ii) the Board of Directors determines in good
faith that there is a valid business purpose or reason for delaying filing or
effectiveness.
4. FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is
required hereunder to register any Registrable Securities, it agrees that it
shall also do the following:
(A) Pay all expenses of such registrations and offerings
(exclusive of underwriting discounts and commissions) and the reasonable fees
and expenses of not more than one independent counsel for the Holders reasonably
satisfactory to the TA Investors in connection with any registrations pursuant
to Section 2 or reasonably satisfactory to the requesting Demand Holder in
connection with any registration pursuant to Section 3;
(B) Use its commercially reasonable efforts (with due regard
to management of the ongoing business of the Company and the allocation of
managerial resources) diligently to prepare and file with the SEC a registration
statement and such amendments and supplements to said registration statement and
the prospectus used in connection therewith as may be necessary to keep said
registration statement effective for at least 120 days or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, or until there are no longer any Registrable Securities issued
and outstanding, whichever first occurs, and to comply in all material respects
with the provisions of the Securities Act with respect to the sale of securities
covered by said registration statement for the period necessary to complete the
proposed public offering;
(C) Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of its Registrable
Securities;
(D) Enter into any reasonable underwriting agreement required
by the proposed underwriter (which underwriter shall be selected by the Company
and shall be reasonably satisfactory to the selling Demand Holders in connection
with any registration requested pursuant to Section 3), if any, in such form and
containing such terms as are customary; provided, however, that no Holder shall
be required to make any representations or warranties other than (i) with
respect to its title to the Registrable Securities; (ii) with respect to any
written information
6
<PAGE> 7
provided by such Holder to the Company and (iii) representations and warranties
of selling stockholders customarily contained in agreements of this type, and if
the underwriter requires that representations or warranties be made and that
indemnification be provided, the Company shall make all such representations and
warranties and provide all such indemnities, including, without limitation, in
respect of the Company's business, operations and financial information and the
disclosures relating thereto in the prospectus, customarily contained in
agreements of this type;
(E) Use its commercially reasonable efforts (with due regard
to management of the ongoing business of the Company and the allocation of
managerial resources) to register or qualify the securities covered by said
registration statement under the securities or "blue sky" laws of such
jurisdictions as any selling Holder may reasonably request, provided that the
Company shall not be required to register or qualify the securities in any
jurisdictions which require it to qualify to do business therein;
(F) Immediately notify each selling Holder, at any time when a
prospectus relating to his Registrable Securities is required to be delivered
under the Securities Act, of the happening of any event as a result of which
such prospectus contains an untrue statement of a material fact or omits any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, at the request of
any such selling Holder, prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(G) Use its commercially reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange or quotation
system on which similar securities issued by the Company are then listed or
quoted;
(H) Use its commercially reasonable efforts to comply with the
securities laws of the United States and other applicable jurisdictions and all
applicable rules and regulations of the SEC and comparable governmental agencies
in other applicable jurisdictions and make generally available to its Holders,
in each case as soon as practicable, an earnings statement of the Company which
will satisfy the provisions of Section 11(a) of the Securities Act;
(I) In the event of an underwritten public offering, use its
commercially reasonable efforts to obtain and furnish to each selling Holder,
immediately prior to the effectiveness of the registration statement and at the
time of delivery of any Registrable Securities sold pursuant thereto, a cold
comfort letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by cold comfort
letters delivered in connection with underwritten public offerings; and
(J) Otherwise cooperate with the underwriter or underwriters,
the Commission and other regulatory agencies and take all actions and execute
and deliver or cause to be executed
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and delivered all documents reasonably necessary to effect the registration of
any Registrable Securities under this Agreement.
5. INDEMNIFICATION; CONTRIBUTION.
(A) Incident to any registration statement referred to in this
Agreement, the Company will indemnify and hold harmless each underwriter, each
Holder who offers or sells any such Registrable Securities in connection with
such registration statement (including its partners (including partners of
partners and stockholders of any such partners), and directors, officers,
employees and agents of any of them (a "Selling Holder"), and each person who
controls any of them within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (a "Controlling Person")), from and against any
and all losses, claims, damages, expenses and liabilities, joint or several
(including any investigation, reasonable attorney's fees and other expenses
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, as the same are incurred), to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based on (x) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement (including any related
preliminary or definitive prospectus, or any amendment or supplement to such
registration statement or prospectus), (y) any omission or alleged omission to
state in such document a material fact required to be stated in it, in light of
the circumstances under which it was made, or necessary to make the statements
in it not misleading, or (z) any violation by the Company of the Securities Act,
any state securities or "blue sky" laws or any rule or regulation thereunder in
connection with such registration; provided, however, that the Company will not
be liable to the extent that such loss, claim, damage, expense or liability
arises from and is based on an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
furnished in writing to the Company by such underwriter, Selling Holder or
Controlling Person expressly for use in such registration statement. With
respect to an untrue statement or omission or alleged untrue statement or
omission made in reliance upon the information furnished in writing to the
Company by such Selling Holder expressly for use in such registration statement,
such Selling Holder will indemnify and hold harmless each underwriter, the
Company (including its directors, officers, employees and agents), each other
Holder (including its partners (including partners of partners and stockholders
of such partners) and directors, officers, employees and agents of any of them,
and each person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), from and against any and all
losses, claims, damages, expenses and liabilities, joint or several, to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise to the same extent provided in the immediately preceding sentence. The
Company shall not be obligated hereunder to indemnify any Holder for any amount
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld). In no event, however, shall the liability of a
Selling Holder for indemnification under this Section 5 exceed the lesser of (x)
that proportion of the total of such
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<PAGE> 9
losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by such Selling Holder or (y) the proceeds received by such
Selling Holder from its sale of Registrable Securities under such registration
statement.
(B) If the indemnification provided for in Section 5(a) above
for any reason is held by a court of competent jurisdiction to be unavailable to
an indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
5, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (x) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the other
Selling Holders and the underwriters from the offering of the Registrable
Securities or (y) if the allocation provided by clause (x) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (x) above but also the relative
fault of the Company, the other Selling Holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Holders and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the Selling Holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Holders, and the underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 5(b)
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account the equitable considerations referred to
in the immediately preceding paragraph. In no event, however, shall a Selling
Holder be required to contribute any amount under this Section 5(b) in excess of
the lesser of (x) that proportion of the total of such losses, claims, damages
or liabilities indemnified against equal to the proportion of the total
Registrable Securities sold under such registration statement which are being
sold by such Selling Holder or (y) the proceeds received by such Selling Holder
from its sale of Registrable Securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
(C) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 5 shall be
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<PAGE> 10
deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim, payable as
the same are incurred. The indemnification and contribution provided for in this
Section 5 will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified parties or any officer, director,
employee, agent or controlling person of the indemnified parties.
(D) NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by an
indemnified party of notice of any claim, liability or expense to which the
indemnification obligations set forth in this Section 5 would apply, the
indemnified party shall give notice thereof in writing to the indemnifying
party, but the omission to so notify the indemnifying party promptly will not
relieve the indemnifying party from any liability except to the extent that the
indemnifying party shall have been prejudiced as a result of the failure or
delay in giving such notice. Such notice shall state the information then
available regarding the amount and nature of such claim, liability or expense
and shall specify the provision or provisions of this Agreement under which the
liability or obligation is asserted. If within twenty (20) days after receiving
such notice the indemnifying party gives written notice to the indemnified party
stating that (x) it would be liable under the provisions hereof for indemnity in
the amount of such claim if such claim were successful and (y) that it disputes
and intends to defend against such claim, liability or expense at its own cost
and expense, then counsel for the defense shall be selected by the indemnifying
party (subject to the consent of the indemnified party, which consent shall not
be unreasonably withheld) and the indemnified party shall not be required to
make any payment with respect to such claim, liability or expense as long as the
indemnifying party is conducting a good faith and diligent defense at its own
expense; provided, however, that the assumption of defense of any such matters
by the indemnifying party shall relate solely to the claim, liability or expense
that is subject or potentially subject to indemnification. The indemnifying
party shall have the right, with the consent of the indemnified party, which
consent shall not be unreasonably withheld, to settle all indemnifiable matters
related to claims by third parties which are susceptible to being settled
provided its obligation to indemnify the indemnifying party therefor will be
fully satisfied. The indemnifying party shall keep the indemnified party
apprised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish the indemnified party with
all documents and information that the indemnified party shall reasonably
request and shall consult with the indemnified party prior to acting on major
matters, including settlement discussions. Notwithstanding anything herein
stated to the contrary, the indemnified party shall at all times have the right
to fully participate in such defense at its own expense directly or through
counsel; provided, however, if the named parties to the action or proceeding
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate under applicable
standards of professional conduct, the reasonable expense of one (1) separate
counsel for the indemnified party shall be paid by the indemnifying party. If no
such notice of intent to dispute and defend is given by the indemnifying party,
or if such diligent good faith defense is not being or ceases to be conducted,
the indemnified party shall, at the expense of the indemnifying party, undertake
the defense of (with counsel selected by the indemnified party), and shall have
the right to compromise or settle (exercising reasonable business judgment),
such claim, liability or expense. If such claim, liability or expense is one
that by its nature cannot
10
<PAGE> 11
be defended solely by the indemnifying party, then the indemnified party shall
make available all information and assistance that the indemnifying party may
reasonably request and shall cooperate with the indemnifying party in such
defense.
(E) PROSPECTUS DELIVERY. The foregoing indemnity agreements of
the Company and Selling Holders are subject to the condition that, insofar as
they relate to any misstatement or omission in a preliminary prospectus that was
eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to Rule 424(b) (the "Final Prospectus"),
such indemnity agreement shall not inure to the benefit of any person if a copy
of the Final Prospectus was furnished to the indemnified party and was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
6. RULE 144 AND RULE 144A REQUIREMENTS. In the event that the
Company becomes subject to Section 13 or Section 15(d) of the Exchange Act, the
Company shall use its best efforts to take all action as may be required as a
condition to the availability of Rule 144 or Rule 144A under the Securities Act
(or any successor or similar exemptive rules hereafter in effect). The Company
shall furnish to any Holder, within 15 days of a written request, a written
statement executed by the Company as to the steps it has taken to comply with
the current public information requirement of Rule 144 or Rule 144A or such
successor rules.
7. "MARKET STAND-OFF" AGREEMENT. In connection with any
underwritten public offering by the Company, the Stockholders, if requested in
good faith by the Company and the managing underwriter of the Company's
securities, shall agree not to sell or otherwise transfer or dispose of any
securities of the Company held by them (except for any securities sold pursuant
to such registration statement) for a period following the effective date of the
applicable registration statement; provided, however that in no event shall such
period exceed 180 days; and provided further that such agreement shall not be
required unless all officers and directors and two percent (2%) or greater
stockholders of the Company and all other persons with registration rights enter
into similar agreements. In order to enforce the foregoing, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Stockholder (and the shares of securities of every other person subject to
the foregoing restriction) until the end of such period.
8. WAIVER; AMENDMENTS. For purposes of this Agreement and all
agreements executed pursuant hereto, no course of dealing between or among any
of the parties hereto and no delay on the part of any party hereto in exercising
any rights hereunder or thereunder shall operate as a waiver of the rights
hereof and thereof. This Agreement may not be amended or modified or any
provision hereof waived without the written consent of the Company and the
holders of not less than a majority of the outstanding Common Stockholder
Shares; provided, however, that any party may waive any provision hereof
intended for its benefit by written consent; and provided further, however, that
any amendment that would adversely effect any Stockholder that is not a TA
Investor shall require the consent of Principal Management
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<PAGE> 12
Stockholders holding a majority of the Stockholder Shares held by the Principal
Management Stockholders.
9. MISCELLANEOUS.
(A) SEVERABILITY. Whenever possible, each provision of this
Agreement shall 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 shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(B) ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts 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.
(C) SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the Stockholders
and any subsequent holders of Stockholder Shares and the respective successors
and assigns of each of them.
(D) COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
(E) REMEDIES. The parties hereto shall be entitled to enforce
their rights under this Agreement specifically to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance and/or
injunctive relief (without posting a bond or other security) in order to enforce
or prevent any violation of the provisions of this Agreement.
(F) NOTICES. Any notice provided for in this Agreement shall
be in writing and shall be either (i) personally delivered, (ii) sent by
registered or certified mail (return receipt requested and postage prepaid),
(iii) sent by reputable overnight courier service (charges prepaid), or (iv)
sent by facsimile, in each case, to the Company at the address set forth below
and to any other recipient at the address indicated on the Notices Schedule
attached hereto, or if such recipient is not listed on the Notices Schedule
attached hereto, at the address indicated by the Company's records. Any Person
may change its address for purposes of this Agreement by
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<PAGE> 13
providing prior notice of such change to the other parties hereto in accordance
with this Section. Notices will be deemed to have been given hereunder (i) when
delivered personally, (ii) three days after being mailed, (iii) one day after
deposit with a reputable overnight courier service, or (iv) in the cases of
notices sent by facsimile, when receipt is acknowledged. The Company's address
is:
Physicians' Specialty Group
The Pavilion at Lake Hearn
1150 Lake Horn Drive, Suite 640
Suite 64D
Atlanta, GA 30342
Attention: Ramie A. Tritt
President and Chairman
Facsimile: (404) 250-0162
The TA Investors' address is:
c/o TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Attention: Richard Tadler
David S.B. Lang
Facsimile: (617) 574-6728
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Kevin M. Dennis, Esq.
Joseph L. Johnson III, P.C.
Facsimile: (617) 523-1231
(G) GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement 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 other 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.
(H) DISPUTE RESOLUTION. All disputes, claims, or controversies
arising out of or relating to this Agreement or the negotiation, validity or
performance hereof that are not resolved by mutual agreement shall be resolved
solely and exclusively by binding arbitration to be conducted before
JAMS/Endispute, Inc. or its successor. The arbitration shall be held in
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<PAGE> 14
Boston, Massachusetts before a single arbitrator, acceptable to the holders of a
majority of the Common Stockholder Shares, and shall be conducted in accordance
with the rules and regulations promulgated by JAMS/Endispute, Inc. unless
specifically modified herein.
Whenever a party shall decide to initiate arbitration proceedings it
shall first give written notice of its intent to do so to all other parties
hereto. The parties covenant and agree that during the sixty (60) day period
following such notice, they shall make good faith efforts to resolve the dispute
without arbitration; provided, that if such dispute cannot be resolved within
such sixty (60) day period, then the arbitration shall commence upon termination
of such sixty (60) day period.
(I) BUSINESS DAYS. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the state in which the Company's chief executive office is located,
the time period shall automatically be extended to the business day immediately
following such Saturday, Sunday or legal holiday.
(J) CONSTRUCTION. Whenever the context requires, each term
stated in either the singular or the plural shall include the singular and the
plural, and pronouns stated in either the masculine, the feminine or the neuter
gender shall include the masculine, feminine and neuter. All references to
Sections and Paragraphs refer to sections and paragraphs of this Agreement. The
use of the word "including" in this Agreement shall be by way of example rather
than limitation.
(K) DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(L) TERMINATION. This Agreement becomes effective upon the
Effective Time of the Merger (as defined in the Merger Agreement) and shall
terminate and be of no further force and effect upon the termination of the
Merger Agreement pursuant to Section 9.1 thereof.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first set forth above.
COMPANY:
TA MERGERCO, INC.
By: /s/ Richard Tadler
--------------------------------------------
Name: Richard Tadler
Title: President and Chief Executive Officer
TA INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII LLC, its General Partner
By: TA Associates, Inc., its General Partner
By: /s/ Richard Tadler
----------------------------------------
Richard Tadler
Managing Director
TA/ATLANTIC AND PACIFIC IV, L.P.
By: TA Associates AP IV, L.P. its General
Partner
By: TA Associates, Inc., its General Partner
By: /s/ Richard Tadler
------------------------------------
Richard Tadler
Managing Director
<PAGE> 16
TA INVESTORS, LLC
By: TA Associates, Inc., its Manager
By: /s/ Richard Tadler
-----------------------------------------
Richard Tadler
Managing Director
TA EXECUTIVES FUND, LLC
By: TA Associates, Inc., its Manager
By: /s/ Richard Tadler
-----------------------------------------
Richard Tadler
Managing Director
<PAGE> 17
[STOCKHOLDER SIGNATURE PAGES OMITTED]
<PAGE> 18
NOTICE SCHEDULE
<PAGE> 1
EXHIBIT (C)(7)
EXECUTION COPY
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made as of June 14,
1999 by and among TA MergerCo, Inc., a Delaware corporation ("MergerCo"), each
of the Persons listed on the signature pages attached hereto, and each of the
other Persons who hereafter agree to become party to and bound by this Agreement
(collectively, the "Stockholders"). Capitalized terms used but not otherwise
defined herein are defined in Section 9 hereof or, in the case of Section
1(a)(vi) herein, in the form of Amended and Restated Certificate of
Incorporation of the Company (the "Charter") attached to the Merger Agreement
(as defined below).
WHEREAS, MergerCo has been formed for the purpose of merging (the
"Merger") with and into Physicians' Specialty Corp., a Delaware corporation
("Target") pursuant to the terms, and subject to the conditions, set forth in
the Agreement and Plan of Merger, dated as of the date hereof, by and among
MergerCo and Target, as amended from time to time (the "Merger Agreement").
WHEREAS, by virtue of the Merger, Target will become the successor to
all of the rights, interests, duties and obligations of MergerCo, including,
without limitation, those arising under this Agreement, and after the Merger,
Target shall be deemed to be a party to this Agreement and all references in
this Agreement to MergerCo or the "Company" shall be deemed to be references to
Target.
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purposes, among others, of (i) establishing the composition of
the Company's board of directors (the "Board"), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which certain securities of the Company may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
(a) From and after the date hereof and until the provisions of
this Section 1 cease to be effective, each Stockholder shall vote all of his or
its Stockholder Shares and any other voting securities of the Company over which
such Stockholder has voting control and shall take all other necessary or
desirable actions within his or its control (whether in his or its capacity as a
stockholder, director, member of a board committee or officer of the Company or
otherwise, and including, without limitation, attendance at meetings in person
or by proxy for purposes of obtaining a quorum and execution of written consents
in lieu of meetings), and the Company shall take all necessary and desirable
actions within its control (including, without limitation, calling special board
and stockholder meetings), in order to cause:
<PAGE> 2
(i) the authorized number of directors on the
Board to be the amount necessary to allow for the designations provided
for pursuant to Section 1(a)(ii) below;
(ii) the following persons to be elected to the
Board (each a "Director"):
(A) up to two representatives to be
designated by the holders of a majority of the TA Shares from
time to time (the "TA Directors"), with Richard Tadler and
David Lang serving as the initial TA Directors;
(B) Subject to the proviso set forth in
Section 1(a)(viii), up to two representatives who are to be
initially jointly designated by, and mutually acceptable to,
the holders of a majority of each of the TA Shares and the
Management Shares (the "Independent Directors"), with the
initial Independent Directors to be determined prior to the
Effective Time of the Merger (as defined in the Merger
Agreement) by agreement of the persons who will serve as the
initial TA Directors and the initial Management Directors (as
hereinafter defined); and
(C) up to three representatives designated
by the holders of a majority of the Management Shares from
time to time (the "Management Stock Directors"), with Ramie A.
Tritt, M.D., Gerald R. Benjamin, and Richard D. Ballard
serving as the initial Management Directors;
(iii) the Chairman of the Board of Directors (the
"Chairman") to be one of the Directors designated pursuant to Section
1(a)(ii) above and who is designated by a majority of the Board of
Directors to serve in such capacity, with Ramie A. Tritt, M.D., serving
as the initial Chairman;
(iv) the establishment of a compensation
committee (the "Compensation Committee") comprised of one TA Director
(to be selected by unanimous vote of the TA Directors), one Management
Director (to be selected by majority vote of the Management Directors)
and one Independent Director (to be selected by unanimous vote of the
TA Directors); with the Compensation Committee being empowered with, to
the fullest extent permitted by law, but subject to any specific
limitations imposed by the Charter or the By-laws of the Company or a
resolution of the Board, all of the authority granted to the Board in
determining policies, practices and procedures relating to the
compensation of executive officers and other managerial and key
employees of the Company and its Subsidiaries and the establishment and
administration of employee benefit plans and stock option plans;
(v) the removal from the Board (with or without
cause) of any TA Director(s) upon the written request of the holders of
a majority of the TA Shares (it being explicitly understood by the
parties hereto that the TA Directors constitute the "Convertible Stock
Director Designees" (as defined in the Charter));
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<PAGE> 3
(vi) the removal from the Board (with or without
cause) of any Independent Director(s) upon the written request of the
holders of a majority of each of the TA Shares and Management Shares;
provided, however, that in the event the Company: (A) breaches in any
material respect a covenant under Section A.8 or Section B.6 of its
Charter, which breach shall not have been cured within 30 days after
receipt of notice in writing by the Company specifying such breach; (B)
fails, for any reason other than (i) due to any action or inaction of a
holder or representative of a holder of Convertible Preferred Stock or
Redeemable Preferred Stock or (ii) as a result of restrictions on
redemption set forth in the Charter, to effect a redemption of the
Convertible Preferred Stock or Redeemable Preferred Stock on a
Convertible Redemption Date or Redeemable Redemption Date, as the case
may be; or (C) any "material event of default" (which term shall be
defined prior to the closing of the Merger in a schedule to be attached
hereto based upon the mutual agreement of the TA Investors and
Management Stockholders holding a majority of the Management Shares)
under the Company's loan agreements governing the Senior and
Subordinated Debt to be issued in connection with the Merger
(collectively, an "Event of Default"), then in each such case the
removal from the Board (with or without cause) of any Independent
Director(s) shall then and thereafter occur upon the written request of
the holders of a majority of the TA Shares (and shall not require the
request or consent of any holders of Management Shares);
(vii) the removal from the Board (with or without
cause) of any Management Director upon the written request of the
holders of a majority of the Management Shares; and
(viii) in the event that any representative
designated hereunder resigns or for any other reason ceases to serve as
a member of the Board during his term of office, the filling of the
resulting vacancy by a representative designated by the Person or
Persons originally entitled to designate such director pursuant to
Section l(a)(ii) above; provided, however, that if an Event of Default
has occurred and an Independent Director is removed from the Board
following a written request of the holders of a majority of the TA
Shares pursuant to Section 1(a)(vi) above, the resulting vacancy shall
instead be filled by a representative designated by holders of a
majority of the TA Shares, after which time the holders of a majority
of the TA Shares shall have the sole right to designate the Independent
Directors pursuant to Section 1(a)(ii)(B) above.
(b) There shall be at least four meetings of the Board
during every fiscal year, at least one of which shall be held in each 120-day
period during the Company's fiscal year. The Company shall pay all reasonable
out-of-pocket expenses incurred by each Director in connection with attending
regular and special meetings of the Board, the board of directors of any
Subsidiary of the Company and any committee thereof upon submission of
appropriate documentation of such expenses. So long as any Director designated
hereunder serves on the Board and for at least three years thereafter, the
Company shall use commercially reasonable efforts to maintain directors and
officers indemnity insurance coverage satisfactory to the holders of a majority
of the TA Shares,
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<PAGE> 4
and the Company's certificate of incorporation and bylaws shall provide for
indemnification and exculpation of Directors to the fullest extent permitted
under applicable law.
2. Representations and Warranties of Stockholders. Each
Stockholder represents and warrants that (i) this Agreement has been duly
authorized, executed and delivered by such Stockholder and constitutes the valid
and binding obligation of such Stockholder, enforceable in accordance with its
terms, except to the extent that enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization, and other laws affecting the enforcement
of creditor's rights generally and by general principles of equity, (ii) such
Stockholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with, conflicts with or violates any
provision of this Agreement, (iii) all Stockholder Shares have been acquired by
such Stockholder for investment and not with a view to the sale or distribution
thereof within the meaning of the Securities Act, (iv) such Stockholder has no
present intention of selling or otherwise disposing of any of the Stockholder
Shares for his or its own account, and (v) such Stockholder has been advised
that the Stockholder Shares have not been registered with the Securities and
Exchange Commission and may not be offered, sold or otherwise transferred except
in compliance with the Securities Act. No holder of Stockholder Shares shall
grant any proxy or become party to any voting trust or other agreement which is
inconsistent with, conflicts with or violates any provision of this Agreement.
3. Restrictions on Transfer of Stockholder Shares.
(a) First Refusal Rights. At least 20 days prior to any
sale, transfer, assignment, pledge or other disposal (a "Transfer") of
Stockholder Shares by any Management Stockholder other than (i) pursuant to a
Public Sale, (ii) a Transfer to the Company or (iii) a Transfer pursuant to
Section 3(c) or Section 4, the Management Stockholder desiring such Transfer
(the "Transferor") shall deliver a written notice (the "Transfer Notice") to the
Company of its desire to Transfer Stockholder Shares of such class, specifying
in reasonable detail the identity of the prospective transferee(s), the number
of shares to be transferred and the terms and conditions of the Transfer,
including the proposed price per Stockholder Share of such class (which price
shall be payable solely in cash at the closing of the transaction or in
installments over time). The Transferor's Transfer Notice shall constitute an
irrevocable offer to sell all, but not less than all, of the Stockholder Shares
subject to such Transfer Notice (the "Offered Shares") to the Company or its
assigns on the basis described below, at a purchase price equal to the price
contained in the Transfer Notice. The Company or its assigns may elect to
purchase all, but not less than all, of the Offered Shares, upon the same terms
and conditions as those set forth in the Transfer Notice (the "Right of First
Refusal"), by delivering a written notice (the "Acceptance Notice") of such
election to the Transferor within 10 days (the "Right of First Refusal Election
Period") after the Transfer Notice has been received by the Company. The closing
of the purchase of any Offered Shares pursuant to this Section 3(a) shall take
place within 30 days after the date on which the Transferor receives the
Acceptance Notice. Subject to the provisions of Section 3(b) below, if the
Company or its assigns does not elect to purchase all of the Offered Shares,
then the Transferor may transfer all, but not less than all, of the Offered
Shares to the
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transferee(s) identified in the Transfer Notice for (i) a price no less than the
price specified in the Transfer Notice and (ii) other terms no more favorable to
the transferee(s) thereof than as specified in the Transfer Notice; provided,
however, that such Transfer must be completed within the 120-day period
immediately following the date on which the Transfer Notice has been received by
the Company. Any Offered Shares not transferred within such 120-day period will
be again subject to the provisions of this Section 3(a) upon subsequent
transfer.
(b) Participation Rights.
(i) In the event that a Management Stockholder
desires to Transfer any Stockholder Shares (other than (i) pursuant to a Public
Sale or (ii) a Transfer pursuant to Section 3(c) or Section 4), and the Right of
First Refusal is not exercised by the Company or its assigns with respect to all
of the Offered Shares, then such Management Stockholder (hereinafter, the
"Transferor") may Transfer such Stockholder Shares only pursuant to and in
accordance with the terms of this Section 3(b)(i). Within 5 days of the
expiration of the Right of First Refusal Election Period, the Transferor shall
deliver a written notice (the "Sale Notice") to the Company, the TA Investors
and such other Management Stockholders who at the time of receipt of such Sale
Notice beneficially own at least 2.5% of the outstanding Stockholder Shares (as
reflected in the stock record books of the Company) (the "Principal Management
Stockholders"), with such Sale Notice specifying in reasonable detail the
identity of the prospective transferee(s), the Stockholder Shares to be sold and
the terms and conditions of the Transfer. In the event that either a TA Investor
or Principal Management Stockholder holds (x) the class of Stockholder Shares
which are to be transferred, (y) securities convertible, exchangeable or
exercisable for the class of Stockholder Shares which are to be transferred, or
(z) securities into which the class of Stockholder Shares which are to be
transferred are convertible, exchangeable or exercisable, then such TA
Investor(s) and/or Principal Management Stockholder(s), as the case may be, may
elect to participate in the contemplated Transfer by delivering written notice
of such election to the Transferor within 15 days after its receipt of the Sale
Notice. If any TA Investor or Principal Management Stockholder has elected to
participate in such Transfer (a "Participating Stockholder"), the Transferor and
each Participating Stockholder will be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of Stockholder
Shares of such class, or securities convertible, exchangeable or exercisable for
Stockholder Shares of such class (or securities into which such class of
Stockholder Shares are convertible, exchangeable or exercisable), equal to the
product of (i) the quotient determined by dividing the number of Stockholder
Shares of such class and securities convertible, exchangeable or exercisable for
Stockholder Shares of such class held by such Transferor or Participating
Stockholder by the aggregate number of Stockholder Shares of such class and
securities convertible, exchangeable or exercisable for Stockholder Shares of
such class owned by the Transferor and all Participating Stockholders and (ii)
the number of Stockholder Shares of such class and securities convertible,
exchangeable or exercisable for Stockholder Shares of such class to be sold in
the contemplated Transfer; provided, that Stockholder Shares which have not
vested (and will not vest as a result of such transaction) or are subject to
repurchase by the Company for less than fair market value shall not be counted
as Stockholder Shares for purposes of the above calculation. The Transferor
shall use its best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Participating
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Stockholder(s) in any contemplated Transfer, and the Transferor shall not
Transfer any of its Stockholder Shares to the prospective transferee(s) unless
(1) the prospective transferee(s) agrees to allow the participation of the
Participating Stockholder(s) or (2) the Transferor agrees to purchase the number
of such class of Stockholder Shares from any Participating Stockholder which the
Participating Stockholder would have been entitled to sell pursuant to this
Section 3(b)(i). If any securities convertible, exchangeable or exercisable for
Stockholder Shares are included in any Transfer under this Section 3(b)(i), the
purchase price for such securities shall be equal to the full purchase price
determined hereunder for the Stockholder Shares covered by the portion of such
securities to be transferred, adjusted by the aggregate exercise price for such
shares. Each Stockholder transferring Stockholder Shares pursuant to this
Section 3(b)(i) shall be obligated to join on a pro rata basis (based on the
number of Stockholder Shares to be sold) in any indemnification or other
obligations that are part of the terms and conditions of the Transfer (other
than any such obligations that relate specifically to a particular Stockholder,
such as indemnification with respect to representations and warranties regarding
a Stockholder's title to and ownership of Stockholder Shares); provided, that no
Stockholder shall be obligated in connection with any Transfer to agree to any
indemnification in an amount in excess of the net proceeds received by such
Stockholder in such Transfer.
(ii) In the event that a TA Investor or TA
Investors desire to Transfer in excess of 50% of the Stockholder Shares held by
such TA Investor or TA Investors (other than (i) pursuant to a Public Sale or
(ii) a Transfer pursuant to Section 3(d) or Section 4), then such TA Investor or
TA Investors (hereinafter, the "TA Transferor") may Transfer such Stockholder
Shares only pursuant to and in accordance with the terms of this Section
3(b)(ii). The TA Transferor shall deliver a written notice (the "TA Sale
Notice") to the Company and each Principal Management Stockholder, with such TA
Sale Notice specifying in reasonable detail the identity of the prospective
transferee(s), the Stockholder Shares to be sold and the terms and conditions of
the Transfer. In the event that a Principal Management Stockholder holds (x) the
class of Stockholder Shares which are to be transferred, (y) securities
convertible, exchangeable or exercisable for the class of Stockholder Shares
which are to be transferred, or (z) securities into which the class of
Stockholder Shares which are to be transferred are convertible, exchangeable or
exercisable, then such Principal Management Stockholder may elect to participate
in the contemplated Transfer by delivering written notice of such election to
the TA Transferor within 15 days after its receipt of the TA Sale Notice. If any
Principal Management Stockholder has elected to participate in such Transfer (a
"Management Participating Stockholder"), the TA Transferor and each Management
Participating Stockholder will be entitled to sell in the contemplated Transfer,
at the same price and on the same terms, a number of Stockholder Shares of such
class, or securities convertible, exchangeable or exercisable for Stockholder
Shares of such class (or securities into which such class of Stockholder Shares
are convertible, exchangeable or exercisable), equal to the product of (i) the
quotient determined by dividing the number of Stockholder Shares of such class
and securities convertible, exchangeable or exercisable for Stockholder Shares
of such class held by such TA Transferor or Management Participating Stockholder
by the aggregate number of Stockholder Shares of such class and securities
convertible, exchangeable or exercisable for Stockholder Shares of such class
owned by the TA Transferor and all Management Participating Stockholders and
(ii) the number of Stockholder
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Shares of such class and securities convertible, exchangeable or exercisable for
Stockholder Shares of such class to be sold in the contemplated Transfer;
provided, that Stockholder Shares which have not vested (and will not vest as a
result of such transaction) or are subject to repurchase by the Company for less
than fair market value shall not be counted as Stockholder Shares for purposes
of the above calculation. The TA Transferor shall use its best efforts to obtain
the agreement of the prospective transferee(s) to the participation of the
Management Participating Stockholder(s) in any contemplated Transfer, and the TA
Transferor shall not Transfer any of its Stockholder Shares to the prospective
transferee(s) unless (1) the prospective transferee(s) agrees to allow the
participation of the Management Participating Stockholder(s) or (2) the TA
Transferor agrees to purchase the number of such class of Stockholder Shares
from any Management Participating Stockholder which the Management Participating
Stockholder would have been entitled to sell pursuant to this Section 3(b)(ii).
If any securities convertible, exchangeable or exercisable for Stockholder
Shares are included in any Transfer under this Section 3(b)(ii), the purchase
price for such securities shall be equal to the full purchase price determined
hereunder for the Stockholder Shares covered by the portion of such securities
to be transferred, adjusted by the aggregate exercise price for such shares.
Each Stockholder transferring Stockholder Shares pursuant to this Section
3(b)(ii) shall pay his or its pro rata share (based on the number of Common
Stockholder Shares to be sold) of the expenses incurred by the Stockholders in
connection with such transfer. Each Management Participating Stockholder
transferring Stockholder Shares pursuant to this Section 3(b)(ii) shall be
obligated to join on a pro rata basis (based on the number of Stockholder Shares
to be sold) in any indemnification or other obligations that are part of the
terms and conditions of the Transfer (other than any such obligations that
relate specifically to a particular Stockholder, such as indemnification with
respect to representations and warranties given by a Stockholder regarding such
Stockholder's title to and ownership of Stockholder Shares); provided, that no
Stockholder shall be obligated in connection with any Transfer to agree to
indemnification in an amount in excess of the net proceeds received by such
Stockholder in such Transfer.
(c) Permitted Management Transfers. The restrictions
contained in this Section 3 shall not apply with respect to (i) any Transfer of
Stockholder Shares by any Management Stockholder pursuant to applicable laws of
descent and distribution or (ii) any Transfer of Stockholder Shares by any
Management Stockholder of up to 50% of the Stockholder Shares held by such
Management Stockholder (as of the effective date of the Merger) made to either
the members of such Management Stockholder's Family Group or to other Management
Stockholders; provided, that the restrictions contained in this Section 3 shall
continue to be applicable to the Stockholder Shares after any of the foregoing
Transfers; and provided, further, that the transferees of such Stockholder
Shares shall have agreed in writing to be bound by the provisions of this
Agreement, to the extent that they are not already bound, which affect the
Stockholder Shares so transferred. All transferees permitted under this Section
3(c) are collectively referred to herein as "Permitted Management Transferees."
Each Permitted Management Transferee shall be deemed a Management Stockholder
for purposes of this Agreement.
(d) Permitted TA Transfers. The restrictions contained in
this Section 3 shall not apply with respect to any Transfer of Stockholder
Shares by any TA Investor to any other TA Investor; provided,
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that the restrictions contained in this Section 3 shall continue to be
applicable to the Stockholder Shares after any of the foregoing Transfers; and
provided, further, that the transferees of such Stockholder Shares shall have
agreed in writing to be bound by the provisions of this Agreement, to the extent
that they are not already bound, which affect the Stockholder Shares so
transferred. All transferees permitted under this Section 3(d) are collectively
referred to herein as "Permitted TA Transferees." Each Permitted TA Transferee
shall be deemed a TA Investor for purposes of this Agreement.
(e) Other Agreements. Notwithstanding anything herein to
the contrary, the rights of any Management Stockholder or TA Investor to
Transfer any Stockholder Shares pursuant to the terms of this Agreement shall be
subject to all such other limitations and restrictions, if any, to which such
Stockholder or such Stockholder Shares are subject.
(f) Transfers in Violation of Agreement; Termination of
Restrictions. Any transfer or attempted transfer of any Stockholder Shares in
violation of any provision of this Section 3 shall be void, and the Company
shall not record such transfer on its books or treat any purported transferee of
such Stockholder Shares as the owner of such shares for any purpose. The
restrictions set forth in this Section 3 shall continue with respect to each
Stockholder Share until the earlier of (i) the transfer of such Stockholder
Share in a Public Sale, or (ii) the consummation of a Sale of the Company or a
Qualified Public Offering.
4. Sale of the Company.
(a) Subject to Section 4(b) below, if the Board and the
holders of a majority of the TA Shares approve a Sale of the Company to any
non-Affiliates of the Company or the TA Investors (an "Approved Sale"), each
holder of Stockholder Shares shall vote for, consent to and raise no objections
against such Approved Sale. If the Approved Sale is structured as a (i) merger
or consolidation, each holder of Stockholder Shares shall waive any dissenters'
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Stockholder Shares shall
agree to sell all of his Stockholder Shares and rights to acquire Stockholder
Shares on the terms and conditions approved by the Board and the holders of a
majority of the TA Shares. Each holder of Stockholder Shares shall take all
necessary or desirable actions in connection with the consummation of the
Approved Sale as reasonably requested by the Company and the TA Investors.
(b) The obligations of the holders of Stockholder Shares
set forth in Section 4(a) above with respect to an Approved Sale of the Company
are subject to the satisfaction of the following conditions: (i) upon the
consummation of the Approved Sale, all of the holders of each class of
Stockholder Shares shall receive the same form and amount of consideration per
share of Stockholder Shares as the other holders of such class, or if any
holders of a class of Stockholder Shares are given an option as to the form and
amount of consideration to be received, all holders of such class shall be given
the same option; and (ii) all holders of then currently exercisable rights to
acquire Stockholder Shares shall be given an opportunity to either (A) exercise
such rights prior to the consummation of the Approved Sale and participate in
such sale as holders of
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Stockholder Shares or (B) upon the consummation of the Approved Sale, receive in
exchange for such rights consideration equal to the amount determined by
multiplying (1) the same amount of consideration per share of a class of
Stockholder Shares received by holders of such class of Stockholder Shares in
connection with the Approved Sale less the exercise price per share of such
class of Stockholder Shares of such rights to acquire such class of Stockholder
Shares by (2) the number of shares of such class of Stockholder Shares
represented by such rights.
(c) If the Company or the holders of the Company's
securities enter into any negotiation or transaction for which Rule 506 (or any
similar rule then in effect) promulgated by the Securities and Exchange
Commission may be available with respect to such negotiation or transaction
(including a merger, consolidation or other reorganization), the holders of
Stockholder Shares shall, at the request of the Company, appoint a "purchaser
representative" (as such term is defined in Rule 501) reasonably acceptable to
the Company and the Company shall pay the fees of such purchaser representative.
(d) Each Stockholder transferring Stockholder Shares
pursuant to this Section 4 will bear his or its pro rata share (based upon the
number of Common Stockholder Shares to be sold) of the costs of any sale of
Stockholder Shares pursuant to an Approved Sale to the extent such costs are
incurred for the benefit of all such holders of Stockholder Shares and are not
otherwise paid by the Company or the acquiring party. Each Stockholder
transferring Stockholder Shares pursuant to this Section 4 shall be obligated to
join on a pro rata basis (based on the number of Common Stockholder Shares to be
sold) in any indemnification or other obligations that are part of the terms and
conditions of the Approved Sale (other than any such obligations that relate
specifically to a particular Stockholder, such as indemnification with respect
to representations and warranties given by a Stockholder regarding such
Stockholder's title to and ownership of Stockholder Shares); provided, that no
Stockholders shall be obligated in connection with any Approved Sale to agree to
indemnification in an amount in excess of the net proceeds received by such
Stockholder in such Approved Sale.
5. Right to Participate in Certain Sales of Additional
Securities.
(a) The Company agrees that it will not sell or issue (i)
any shares of capital stock of the Company, (ii) securities convertible into or
exchangeable for capital stock of the Company or (iii) options, warrants or
rights carrying any rights to purchase capital stock of the Company, unless the
Company first submits a written offer to each TA Investor and Principal
Management Stockholder who holds any shares of capital stock of the Company
(collectively, the "Offerees") identifying the terms of the proposed sale
(including price, number or aggregate principal amount of securities and all
other material terms), and offers to each Offeree the opportunity to purchase
its Pro Rata Allotment (as hereinafter defined) of the securities (subject to
increase for over-allotment if some Offerees do not fully exercise their rights)
on terms and conditions, including price, not less favorable than those on which
the Company proposes to sell such securities to a third party or parties. Each
Offeree's "Pro Rata Allotment" of such securities shall be based on the ratio
which the Common Stockholder Shares then owned by it bears, on an as-converted
basis, to all of the then issued and outstanding Common Stockholder Shares as of
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the date of such written offer. The Company's offer pursuant to this Section
5(a) shall remain open and irrevocable for a period of 15 days, and the
recipients of such offer shall elect to purchase by giving written notice
thereof to the Company within such 15-day period, including therein the maximum
number of securities which the Offeree would purchase if other Offerees do not
elect to purchase, with the rights of electing Offerees to purchase such
additional securities to be based upon the relative holdings of Common
Stockholder Shares of the electing Offerees in the case of over-subscription.
Any securities so offered which are not purchased pursuant to such offer may be
sold by the Company, but only on the terms and conditions set forth in the
initial offer, at any time within 120 days following the termination of the
above-referenced 15-day period but may not be sold to any other person or on
terms and conditions, including price, that are more favorable to the purchaser
than those set forth in such offer or after such 120-day period without renewed
compliance with this Section 5(a).
(b) Notwithstanding the foregoing, the right to purchase
granted under this Section 5 shall be inapplicable with respect to the sale or
issuance of (i) options to purchase shares of Common Stock granted or to be
granted pursuant to any employee or physician compensation plan approved by both
the Board and the Stockholders, (ii) securities issued as a result of any stock
split, stock dividend, reclassification or reorganization or similar event with
respect to the Common Stock, (iii) shares of Common Stock issued upon conversion
of the Convertible Preferred Stock or upon the exercise of the warrants to
purchase Common Stock issued to the underwriters of Target's initial Public
Offering or warrants issued to the Company's lenders at the time of the closing
of the Merger, (iv) shares of Common Stock, or securities convertible into or
exchangeable for Common Stock, issued in connection with acquisitions or other
business ventures that are approved by the Board, or (v) a maximum of 10,000
shares of Common Stock per year (as adjusted appropriately for stock splits,
stock dividends and other similar events).
6. Public Disclosures. The Company shall not, nor shall it permit
any Subsidiary to, disclose any TA Investor's name or identity as an investor in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of such TA Investor, unless such disclosure is required (or reasonably
believed to be required) by applicable law or governmental regulations or by
order of a court of competent jurisdiction, and in the event such disclosure is
required by applicable law or government regulations, then prior to making such
disclosure the Company shall give written notice to such TA Investor describing
in reasonable detail the proposed content of such disclosure and shall permit
such TA Investor to reasonably review and comment in a timely manner upon the
form and substance of such disclosure.
7. Securities Law Restrictions on Transfer of Stockholder Shares.
(a) General Provisions. Subject to the other limitations
contained in this Agreement, Stockholder Shares are transferable only pursuant
to (i) public offerings registered under the Securities Act, (ii) Rule 144 or
Rule 144A of the Securities and Exchange Commission ("SEC") (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in Section 7(b) below, any other legally available means of
transfer.
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(b) Opinion Delivery. In connection with the transfer of
any Stockholder Shares (other than a transfer described in clauses (i) or (ii)
of Section 7(a) above or a transfer to the Company pursuant to Section 3(a)
above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of counsel which (to the Company's reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such transfer of
Stockholder Shares may be effected without registration of such Stockholder
Shares under the Securities Act. In addition, if the holder of the Stockholder
Shares delivers to the Company an opinion of such counsel that no subsequent
transfer of such Stockholder Shares shall require registration under the
Securities Act, the Company shall promptly upon such contemplated transfer
deliver new certificates for such Stockholder Shares which do not bear the
Securities Act portion of the legend set forth in Section 7(d). If the Company
is not required to deliver new certificates for such Stockholder Shares not
bearing such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing its agreement to
be bound by the conditions contained in this Section.
(c) Rule 144A. Upon the request of any Stockholder, the
Company shall promptly supply to such Person or its prospective transferees all
information regarding the Company required to be delivered in connection with a
transfer pursuant to Rule 144A of the SEC.
(d) Legend. Each certificate or instrument representing
Stockholder Shares shall be imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON ____________, 1999, AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE STOCKHOLDERS AGREEMENT,
DATED AS OF JUNE 10, 1999, AND AS AMENDED AND MODIFIED FROM TIME TO
TIME, BETWEEN THE ISSUER (THE "COMPANY") AND CERTAIN INVESTORS, AND THE
COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY THE COMPANY
TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE."
(e) Legend Removal. If any Stockholder Shares become
eligible for sale pursuant to Rule 144(k), as confirmed by an opinion of
counsel, the Company shall, upon the request of the holder of such Stockholder
Shares, remove the Securities Act portion of the legend set forth in Section
7(d) from the certificates for such Stockholder Shares.
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8. Definitions.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise, and if such Person is a partnership,
"Affiliate" shall also mean each general partner and limited partner of such
Person. Without limiting the generality of the foregoing, each investment fund
managed by TA Associates, Inc. or any successor thereto shall be deemed to be an
Affiliate of each of the initial holders of the TA Shares.
"Common Stock" means the Company's Common Stock, par value $.001 per
share, and any capital stock of any class of the Company hereafter authorized
which is not limited to a fixed sum or percentage of par or stated value in
respect to the rights of the holders thereof to participate in dividends or in
the distribution of assets upon any liquidation, dissolution or winding up of
the Company.
"Common Stockholder Shares" means Stockholder Shares which are (i)
Common Stock, (ii) warrants, options or other rights to subscribe for or to
acquire, directly or indirectly, Common Stock, whether or not then exercisable
or convertible, and (iii) stock or other securities which are convertible into
or exchangeable for, directly or indirectly, Common Stock, whether or not then
convertible or exchangeable (including, without limitation, the Convertible
Preferred Stock). As to any particular Common Stockholder Shares, such shares
shall cease to be Common Stockholder Shares when they have been disposed of in a
Public Sale or repurchased by the Company or any Subsidiary. References in this
Agreement to a majority of, or a certain percentage of, the Common Stockholder
Shares, shall be deemed to be references to a majority of the Common Stock
represented by the Common Stockholder Shares or a certain percentage of the
Common Stock represented by the Common Stockholder Shares, calculated on a
fully-diluted basis, as applicable.
"Convertible Preferred Stock" means the Company's Convertible
Participating Preferred Stock, par value $.001 per share.
"Family Group" means, in the case of any individual, his spouse and/or
descendants, and any trust, family limited partnership or other entity solely
for the benefit of such person and/or his spouse and/or descendants.
"Management Shares" means any capital stock, warrants, options or other
rights which constitute Stockholder Shares hereunder and which were initially
issued to Management Stockholders. References in this Agreement to "a majority
of the Management Shares" shall be deemed to be references to a majority of the
Management Shares that are Common Stockholder Shares, calculated on a
fully-diluted basis.
"Management Stockholders" means all Stockholders who are not TA
Investors.
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"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means the sale, in an underwritten public offering
registered under the Securities Act, of shares of the Company's Common Stock.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Qualified Public Offering" has the meaning set forth in the Charter.
"Sale of the Company" means (i) any sale, transfer or issuance or
series of sales, transfers and/or issuances of capital stock of the Company by
the Company or any holders thereof which results in any Person or group of
Persons (as the term "group" is used under the Exchange Act of 1934, as
amended), other than Persons who are holders of Stockholder Shares as of
immediately after the Merger, owning capital stock of the Company possessing the
voting power (under ordinary circumstances) to elect a majority of the Board,
and (ii) any sale or transfer of all or substantially all of the assets of the
Company and its Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Stockholder Shares" means (i) any capital stock of the Company
purchased or otherwise acquired by any Stockholder, (ii) any warrants, options
or other rights to subscribe for or to acquire, directly or indirectly, any
capital stock of the Company, purchased or otherwise acquired by any
Stockholder, whether or not then exercisable or convertible, and (iii) any stock
or other securities which are convertible into or exchangeable for, directly or
indirectly, any capital stock of the Company, purchased or otherwise acquired by
any Stockholder, whether or not then convertible or exchangeable, (iv) any
securities or rights issued or issuable directly or indirectly with respect to
the securities and rights referred to in clauses (i), (ii) and (iii) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Stockholder Shares, such shares shall cease to be Stockholder
Shares when they have been disposed of in a Public Sale or repurchased by the
Company or any Subsidiary.
"Subsidiary" or "Subsidiaries" means, with respect to any Person, any
corporation, limited liability company, partnership, association, or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of such Person or a combination thereof,
or (ii) if a limited liability company, partnership, association, or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person
13
<PAGE> 14
or one or more Subsidiaries of such Person or entity or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association, or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association, or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association, or other business
entity.
"TA Investors" means TA/Advent VIII, L.P., TA/Atlantic and Pacific IV,
L.P., TA Investors LLC and TA Executives Fund, LLC, and their Affiliates.
"TA Shares" means any capital stock, warrants, options or other rights
which constitute Stockholder Shares hereunder and which were initially issued to
any TA Investor. References in this Agreement to "a majority of the TA Shares"
shall be deemed to be references to a majority of the TA Shares that are Common
Stockholder Shares, calculated on a fully-diluted basis.
9. Additional Stockholders. In connection with the issuance of
any additional equity securities of the Company to any Person, the Company may
permit such Person to become a party to this Agreement and succeed to all of the
rights and obligations of a "Stockholder" under this Agreement by obtaining the
consent of the holders of a majority of the Common Stockholder Shares and an
executed counterpart signature page to this Agreement, and, upon such execution,
such Person shall for all purposes be a "Stockholder" party to this Agreement.
10. Miscellaneous Provisions.
(a) Termination. This Agreement shall terminate and be of
no further force and effect upon the closing of a Qualified Public Offering or a
Sale of the Company. Notwithstanding anything herein to the contrary, this
Agreement shall become effective upon the Effective Time of the Merger and shall
terminate and be of no further force and effect upon the termination of the
Merger Agreement pursuant to Section 9.1 thereof.
(b) Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment, or waiver of any provision of this Agreement
will be effective against the Company or the holders of Stockholder Shares,
unless such modification, amendment, or waiver is approved in writing by the
Company and the holders of at least a majority of each of the TA Shares and the
Management Shares; provided, however, that in the event that such amendment or
waiver (i) is with respect to any provision of this Agreement which contains
rights which are unique to a single holder or group of holders of Stockholder
Shares or (ii) would materially and adversely affect a single holder or group of
holders of Stockholder Shares in a manner substantially different than any other
holders of Stockholder Shares, then such amendment or waiver will require the
consent of such holder of Stockholder Shares or a majority of the Common
Stockholder Shares held by such group of holders materially and adversely
affected. Notwithstanding the foregoing, if an amendment or modification of this
Agreement serves merely to add a party hereto, then such amendment or
modification will be effective against the Company and the holders of
Stockholder Shares if such amendment or modification is approved in writing
14
<PAGE> 15
by the Company, the holders of a majority of the Common Stockholder Shares and
such new party hereto. The failure of any party to enforce any of the provisions
of this Agreement will in no way be construed as a waiver of such provisions and
will not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
(c) Severability. Whenever possible, each provision of
this Agreement shall 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 shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
(d) Entire Agreement. Except as otherwise expressly set
forth herein, this document embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes and preempts 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.
(e) Successors and Assigns. Except as expressly otherwise
provided herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the Stockholders
and any subsequent holders of Stockholder Shares and the respective successors
and assigns of each of them.
(f) Counterparts. This Agreement may be executed in
separate counterparts each of which shall be an original and all of which taken
together shall constitute one and the same agreement.
(g) Remedies. The parties hereto shall be entitled to
enforce their rights under this Agreement specifically to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party hereto may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief (without posting a bond or other
security) in order to enforce or prevent any violation of the provisions of this
Agreement.
(h) Notices. Any notice provided for in this Agreement
shall be in writing and shall be either (i) personally delivered, (ii) sent by
registered or certified mail (return receipt requested and postage prepaid),
(iii) sent by reputable overnight courier service (charges prepaid), or (iv)
sent by facsimile, in each case, to the Company at the address set forth below
and to any other recipient at the address indicated on the Notices Schedule
attached hereto, or if such recipient is not listed on the Notices Schedule
attached hereto, at the address indicated by the Company's records. Any Person
may change its address for purposes of this Agreement by
15
<PAGE> 16
providing prior notice of such change to the other parties hereto in accordance
with this Section. Notices will be deemed to have been given hereunder (i) when
delivered personally, (ii) three days after being mailed, (iii) one day after
deposit with a reputable overnight courier service, or (iv) in the cases of
notices sent by facsimile, when receipt is acknowledged. The Company's address
is:
Physicians Specialty Corp
The Pavilion at Lake Hearn
1150 Lake Hearn Drive
Atlanta, GA 30342
Attention: Ramie A. Tritt, M.D.
President and Chairman
Facsimile: (404) 250-0162
The TA Investors' address is:
c/o TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Attention: Richard Tadler
David S.B. Lang
Facsimile: (617) 574-6728
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Kevin M. Dennis, Esq.
Joseph L. Johnson III, P.C.
Facsimile: (617) 523-1231
(i) Governing Law. All questions concerning the
construction, validity and interpretation of this Agreement 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 other 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.
(j) Dispute Resolution. All disputes, claims, or
controversies arising out of or relating to this Agreement or the negotiation,
validity or performance hereof that are not resolved by mutual agreement shall
be resolved solely and exclusively by binding arbitration to be conducted before
JAMS/Endispute, Inc. or its successor. The arbitration shall be held in Boston,
Massachusetts before a single arbitrator, acceptable to the holders of a
majority of the
16
<PAGE> 17
Common Stockholder Shares, and shall be conducted in accordance with the rules
and regulations promulgated by JAMS/Endispute, Inc. unless specifically modified
herein.
Whenever a party shall decide to initiate arbitration proceedings it
shall first give written notice of its intent to do so to all other parties
hereto. The parties covenant and agree that during the sixty (60) day period
following such notice, they shall make good faith efforts to resolve the dispute
without arbitration; provided, that if such dispute cannot be resolved within
such sixty (60) day period, then the arbitration shall commence upon termination
of such sixty (60) day period.
(k) Business Days. If any time period for giving notice
or taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the state in which the Company's chief executive office is located,
the time period shall automatically be extended to the business day immediately
following such Saturday, Sunday or legal holiday.
(l) Construction. Whenever the context requires, each
term stated in either the singular or the plural shall include the singular and
the plural, and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter. All references
to Sections and Paragraphs refer to sections and paragraphs of this Agreement.
The use of the word "including" in this Agreement shall be by way of example
rather than limitation.
(m) Board Approval. Whenever this Agreement calls for or
refers to the consent or approval of any matter by any holder or holders of TA
Shares or Management Shares, such consent or approval shall be deemed given by
such holder if each of such holder's designees on the Board has, in his capacity
as a director of the Company, given his consent or approval with respect to such
matter at a duly convened meeting of the Board or pursuant to an effective
unanimous written consent of the Board, unless, with respect to any given
matter, such holder notifies the Company in writing that the consent or approval
at the Board level by such holder's designees on the Board does not constitute
the consent or approval by such holder itself.
(n) Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
TA MERGERCO, INC
By: /s/ Richard Tadler
-------------------------------------
Richard Tadler
President and Chief Executive Officer
<PAGE> 19
[Stockholders Agreement]
[STOCKHOLDER SIGNATURE PAGES OMITTED]
<PAGE> 1
EXHIBIT (C)(8)
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENTS
This Amendment dated as of June 14, 1999 supplements and amends the
Executive Employment Agreement dated as of November 26, 1996 (the "Employment
Agreement") by and between RICHARD D. BALLARD (the "Executive") and PHYSICIANS'
SPECIALTY CORP., a Delaware corporation (the "Company").
WITNESSETH
WHEREAS, the Company and TA MergerCo, Inc., a Delaware corporation
("MergerCo") are entering into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended from time to time, the "Merger
Agreement"), which provides, upon the terms and subject to the conditions
thereof, for the merger of MergerCo with and into the Company (the "Merger");
and
WHEREAS, as a condition to the willingness of MergerCo to enter into the
Merger Agreement, MergerCo and the Company have requested that the Executive
agree, and, in order to induce MergerCo and the Company to enter into the Merger
Agreement, the Executive is willing to agree, effective upon the closing of the
Merger, to amend the Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements and covenants set forth herein, in the Merger Agreement and in the
other documents related thereto, the parties hereto agree as follows:
1. The second paragraph (the first recital) of the Employment Agreement is
hereby deleted in its entirety and the following shall be inserted in lieu
thereof:
WHEREAS, Company is engaged in the business of providing management
and business services to, and acquiring assets of, ear, nose and throat
physician practices (the "Business");
2. Section 2.1 of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
2.1 Term. The initial term of Executive's employment under this
Agreement (the "Initial Term") shall continue until March 26, 2002. After
the Initial Term, Executive's employment under this Agreement shall
automatically renew for successive additional one (1) year terms ("Renewal
Terms") (the Initial Term and any Renewal Terms being collectively referred
to as the "Term"). The Term shall be subject to termination in accordance
with Section 2.2.
3. Section 2.2(d)(ii) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(ii) The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon notice to
Executive. In such event, Executive shall be entitled to the severance
benefit provided in Section 6(b).
4. Section 2.2(e) of the Employment Agreement is hereby deleted in its
entirety, and Section 2.2(f) of the Employment Agreement shall hereby be
redesignated Section 2.2(e).
5. The first sentence of Section 3.1 of the Employment Agreement is hereby
deleted in its entirety and the following shall be inserted in lieu thereof:
Executive shall be paid a base salary (the "Base Salary") from the
effective date of the Merger through the remainder of the Term at an
initial rate of Two Hundred Thousand Dollars ($200,000) per twelve (12)
month period. The Base Salary shall be (a) payable in equal installments on
the schedule that the Company may implement from time to time for general
payroll purposes, and (b) subject to any withholdings and deductions
required by applicable law.
<PAGE> 2
6. Section 6(b) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(b) If Company terminates the Term pursuant to Section 2.2(d)(ii)
Executive shall be entitled to: (a) all salary and bonus amounts accrued
through the Termination Date, and (b) payment, for a period of twelve (12)
months following the Termination Date (the "Continuation Period"), of an
amount equal to: (i) Executive's base salary as of the Termination Date
(with such payments to be made at such times as they would be made if
executive's employment continued for an additional year) less (ii) any
salary or other amounts that Executive is paid by any other person during
that twelve month period (and Executive hereby agrees to take reasonably
diligent action to secure employment as soon as practicable after any such
termination from Company and to otherwise mitigate his losses resulting
from the loss of salary from Company). Notwithstanding the foregoing, in
the event the Company terminates the Term pursuant to Section 2.2(d)(ii)
within ninety (90) days following a Change of Control (as defined below),
the Continuation Period shall be eighteen (18) months instead of twelve
(12) months. For purposes of this Agreement, "Change of Control" shall mean
the acquisition by any single person or entity or related persons or
entities of more than fifty percent (50%) of the outstanding and issued
common stock of the Company after the date of the Merger. Executive's
rights to any of the compensation or benefits identified in the preceding
sentence shall be subject to Executive's compliance in all respects with
each of Executive's obligations under this Agreement.
7. Section 6(c) of the Employment Agreement is hereby deleted in its
entirety.
This Amendment shall be effective only upon the closing of the Merger, and
if the Merger Agreement is terminated pursuant to Section 9.1 thereof then this
Amendment shall terminate and be of no further force and effect. Except as
specifically set forth herein, the Employment Agreement shall not be amended by
this Amendment and shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the
date first set forth above, and such Amendment shall be effective as of the
effective date of the Merger.
PHYSICIANS' SPECIALTY CORP.
/s/ Gerald R. Benjamin
--------------------------------------
Name: Gerald R. Benjamin
Title: Vice Chairman and Secretary
EXECUTIVE:
/s/ Richard D. Ballard
--------------------------------------
Name: Richard D. Ballard
<PAGE> 1
EXHIBIT (C)(9)
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENTS
This Amendment dated as of June 14, 1999 supplements and amends the
Executive Employment Agreement dated as of November 26, 1996, as amended March
25, 1998 (the "Employment Agreement") by and between GERALD R. BENJAMIN (the
"Executive") and PHYSICIANS' SPECIALTY CORP., a Delaware corporation (the
"Company").
WITNESSETH
WHEREAS, the Company and TA MergerCo, Inc., a Delaware corporation
("MergerCo") are entering into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended from time to time, the "Merger
Agreement"), which provides, upon the terms and subject to the conditions
thereof, for the merger of MergerCo with and into the Company (the "Merger");
and
WHEREAS, as a condition to the willingness of MergerCo to enter into the
Merger Agreement, MergerCo and the Company have requested that the Executive
agree, and, in order to induce MergerCo and the Company to enter into the Merger
Agreement, the Executive is willing to agree, effective upon the closing of the
Merger, to amend the Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements and covenants set forth herein, in the Merger Agreement and in the
other documents related thereto, the parties hereto agree as follows:
1. Section 2.1 of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
2.1 Term. The initial term of Executive's employment under this
Agreement (the "Initial Term") shall continue until March 26, 2002. After
the Initial Term, Executive's employment under this Agreement shall
automatically renew for successive additional one (1) year terms ("Renewal
Terms") (the Initial Term and any Renewal Terms being collectively referred
to as the "Term"). The Term shall be subject to termination in accordance
with Section 2.2.
2. Section 2.2(d)(ii) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(ii) The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon notice to
Executive. In such event, Executive shall be entitled to the severance
benefit provided in Section 6(b).
3. Section 2.2(e) of the Employment Agreement is hereby deleted in its
entirety, and Section 2.2(f) of the Employment Agreement shall hereby be
redesignated Section 2.2(e).
4. The first sentence of Section 3.1 of the Employment Agreement is hereby
deleted in its entirety and the following shall be inserted in lieu thereof:
Executive shall be paid a base salary (the "Base Salary") from the
effective date of the Merger through the remainder of the Term at an
initial rate of One Hundred Fifty Thousand Dollars ($150,000) per twelve
(12) month period. The Base Salary shall be (a) payable in equal
installments on the schedule that the Company may implement from time to
time for general payroll purposes, and (b) subject to any withholdings and
deductions required by applicable law.
5. Section 6(b) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(b) If Company terminates the Term pursuant to Section 2.2(d)(ii)
Executive shall be entitled to: (a) all salary and bonus amounts accrued
through the Termination Date, and (b) payment, for a period of twelve (12)
months following the Termination Date (the "Continuation Period"), of an
amount equal to: (i) Executive's base salary as of the Termination Date
(with such payments to be made at such times as they would be made if
executive's employment continued for an additional year) less (ii) any
salary or other amounts that Executive is paid by any other person during
that twelve month period other than salary or amounts paid to Executive by
Bock, Benjamin & Co. (and in the event Executive does not
<PAGE> 2
increase his work time at Bock, Benjamin & Co., Executive hereby agrees to
take reasonably diligent action to secure employment as soon as practicable
after any such termination from Company and to otherwise mitigate his
losses resulting from the loss of salary from Company). Notwithstanding the
foregoing, in the event the Company terminates the Term pursuant to Section
2.2(d)(ii) within ninety (90) days following a Change of Control (as
defined below), the Continuation Period shall be eighteen (18) months
instead of twelve (12) months. For purposes of this Agreement, "Change of
Control" shall mean the acquisition by any single person or entity or
related persons or entities of more than fifty percent (50%) of the
outstanding and issued common stock of the Company after the date of the
Merger. Executive's rights to any of the compensation or benefits
identified in the preceding sentence shall be subject to Executive's
compliance in all respects with each of Executive's obligations under this
Agreement.
6. Section 6(c) of the Employment Agreement is hereby deleted in its
entirety.
This Amendment shall be effective only upon the closing of the Merger, and
if the Merger Agreement is terminated pursuant to Section 9.1 thereof then this
Amendment shall terminate and be of no further force and effect. Except as
specifically set forth herein, the Employment Agreement shall not be amended by
this Amendment and shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the
date first set forth above, and such Amendment shall be effective as of the
effective date of the Merger.
PHYSICIANS' SPECIALTY CORP.
/s/ Ramie A. Tritt, M.D.
--------------------------------------
Name: Ramie A. Tritt, M.D.
Title: Chairman and President
EXECUTIVE:
/s/ Gerald R. Benjamin
--------------------------------------
Name: Gerald R. Benjamin
<PAGE> 1
EXHIBIT (C)(10)
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENTS
This Amendment dated as of June 14, 1999 supplements and amends the
Executive Employment Agreement dated as of February 11, 1997 (the "Employment
Agreement") by and between LAWRENCE P. KRASKA (the "Executive") and PHYSICIANS'
SPECIALTY CORP., a Delaware corporation (the "Company").
WITNESSETH
WHEREAS, the Company and TA MergerCo, Inc., a Delaware corporation
("MergerCo") are entering into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended from time to time, the "Merger
Agreement"), which provides, upon the terms and subject to the conditions
thereof, for the merger of MergerCo with and into the Company (the "Merger");
and
WHEREAS, as a condition to the willingness of MergerCo to enter into the
Merger Agreement, MergerCo and the Company have requested that the Executive
agree, and, in order to induce MergerCo and the Company to enter into the Merger
Agreement, the Executive is willing to agree, effective upon the closing of the
Merger, to amend the Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements and covenants set forth herein, in the Merger Agreement and in the
other documents related thereto, the parties hereto agree as follows:
1. Section 2.1 of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
2.1 Term. The initial term of Executive's employment under this
Agreement (the "Initial Term") shall continue until March 26, 2002. After
the Initial Term, Executive's employment under this Agreement shall
automatically renew for successive additional one (1) year terms ("Renewal
Terms") (the Initial Term and any Renewal Terms being collectively referred
to as the "Term"). The Term shall be subject to termination in accordance
with Section 2.2.
2. Section 2.2(d)(ii) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(ii) The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon notice to
Executive. In such event, Executive shall be entitled to the severance
benefit provided in Section 6(b).
3. Section 2.2(e) of the Employment Agreement is hereby deleted in its
entirety, and Section 2.2(f) of the Employment Agreement shall hereby be
redesignated Section 2.2(e).
4. The first sentence of Section 3.1 of the Employment Agreement is hereby
deleted in its entirety and the following shall be inserted in lieu thereof:
Executive shall be paid a base salary (the "Base Salary") from the
effective date of the Merger through the remainder of the Term at an
initial rate of One Hundred Sixty Thousand Dollars ($160,000) per twelve
(12) month period. The Base Salary shall be (a) payable in equal
installments on the schedule that the Company may implement from time to
time for general payroll purposes, and (b) subject to withholdings and
deductions required by applicable law.
5. Section 6(b) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(b) If Company terminates the Term pursuant to Section 2.2(d)(ii)
Executive shall be entitled to: (a) all salary and bonus amounts accrued
through the Termination Date, and (b) payment, for a
<PAGE> 2
period of twelve (12) months following the Termination Date (the
"Continuation Period"), of an amount equal to: (i) Executive's base salary
as of the Termination Date (with such payments to be made at such times as
they would be made if executive's employment continued for an additional
year) less (ii) any salary or other amounts that Executive is paid by any
other person during that twelve month period (and Executive hereby agrees
to take reasonably diligent action to secure employment as soon as
practicable after any such termination from Company and to otherwise
mitigate his losses resulting from the loss of salary from Company).
Notwithstanding the foregoing, in the event the Company terminates the Term
pursuant to Section 2.2(d)(ii) within ninety (90) days following a Change
of Control (as defined below), the Continuation Period shall be eighteen
(18) months instead of twelve (12) months. For purposes of this Agreement,
"Change of Control" shall mean the acquisition by any single person or
entity or related persons or entities of more than fifty percent (50%) of
the outstanding and issued common stock of the Company after the date of
the Merger. Executive's rights to any of the compensation or benefits
identified in the preceding sentence shall be subject to Executive's
compliance in all respects with each of Executive's obligations under this
Agreement.
6. Section 6(c) of the Employment Agreement is hereby deleted in its
entirety.
This Amendment shall be effective only upon the closing of the Merger, and
if the Merger Agreement is terminated pursuant to Section 9.1 thereof then this
Amendment shall terminate and be of no further force and effect. Except as
specifically set forth herein, the Employment Agreement shall not be amended by
this Amendment and shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the
date first set forth above, and such Amendment shall be effective as of the
effective date of the Merger.
PHYSICIANS' SPECIALTY CORP.
/s/ Gerald R. Benjamin
--------------------------------------
Name: Gerald R. Benjamin
Title: Vice Chairman and Secretary
EXECUTIVE:
/s/ Lawrence P. Kraska
--------------------------------------
Name: Lawrence P. Kraska
<PAGE> 1
EXHIBIT (C)(11)
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment dated as of June 14, 1999 supplements and amends the Amended
and Restated Executive Employment Agreement dated as of November 26, 1996 (the
"Employment Agreement") by and between RAMIE A. TRITT, M.D. (the "Executive")
and PHYSICIANS' SPECIALTY CORP., a Delaware corporation (the "Company").
WITNESSETH
WHEREAS, the Company and TA MergerCo, Inc., a Delaware corporation
("MergerCo") are entering into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended from time to time, the "Merger
Agreement"), which provides, upon the terms and subject to the conditions
thereof, for the merger of MergerCo with and into the Company (the "Merger");
and
WHEREAS, as a condition to the willingness of MergerCo to enter into the
Merger Agreement, MergerCo and the Company have requested that the Executive
agree, and, in order to induce MergerCo and the Company to enter into the Merger
Agreement, the Executive is willing to agree, effective only upon the closing of
the Merger, to amend the Employment Agreement as set forth herein.
NOW, THEREFORE, in consideration of the promises and of the mutual
agreements and covenants set forth herein, in the Merger Agreement and in the
other documents related thereto, the parties hereto agree as follows:
1. Section 2.1 of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
2.1 Term. The initial term of Executive's employment under this
Agreement (the "Initial Term") shall continue until March 26, 2002. After
the Initial Term, Executive's employment under this Agreement shall
automatically renew for successive additional one (1) year terms ("Renewal
Terms") (the Initial Term and any Renewal Terms being collectively referred
to as the "Term"). The Term shall be subject to termination in accordance
with Section 2.2.
2. Section 2.2(c) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(c) Cause. In addition to any other rights or remedies available to
Company at law, in equity or pursuant hereto, Company may, in its sole
discretion, terminate Executive's employment for "Cause" (as hereinafter
defined) effective immediately upon delivery of written notice to
Executive. For purposes of this Agreement, "Cause" shall mean any of:
(i) the imposition by any governmental authority of any material
restriction or limitation on Executive's ability to perform his services
hereunder;
(ii) (A) Executive has committed an act of deceit or intentional
material misrepresentation with respect to Company or an act
constituting fraud; or (B) Executive has embezzled funds or assets from
Company or any client or customer of Company;
(iii) Executive's breach or default in the performance of any
material provision of this Agreement which Executive has not cured or
corrected to Company's reasonable satisfaction within thirty (30) days
after receiving notice of such breach or default (provided that any
breach by Executive of any obligation under Section 5.4 shall be grounds
for immediate termination "For Cause" without any notice or right to
cure or correct); or
(iv) (A) Executive has engaged in willful misconduct or gross
negligence; or (B) Executive's conduct is materially detrimental to the
reputation, character or standing of Company;
provided, however, that any termination for Cause pursuant to Sections
2.2(c)(iii) or 2.2(c)(iv) shall require prior action by unanimous consent of the
Board of Directors (excluding the Executive).
<PAGE> 2
3. Section 2.2(d)(ii) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(ii) The Company shall have the right to terminate the Term and
Executive's employment hereunder without cause at any time upon prior
action by unanimous consent of the Board of Directors (excluding the
Executive) and after notice to Executive. In such event, Executive shall
be entitled to the severance benefit provided in Section 6(b).
4. Section 2.2(e) of the Employment Agreement is hereby deleted in its
entirety, and Section 2.2(f) of the Employment Agreement shall hereby be
redesignated Section 2.2(e).
5. Section 6(b) of the Employment Agreement is hereby deleted in its
entirety and the following shall be inserted in lieu thereof:
(b) If Company terminates the Term pursuant to Section 2.2(d)(ii)
Executive shall be entitled to: (a) all salary and bonus amounts accrued
through the Termination Date, and (b) payment, for a period of twelve (12)
months following the Termination Date (the "Continuation Period"), of an
amount equal to: (i) Executive's base salary as of the Termination Date
(with such payments to be made at such times as they would be made if
executive's employment continued for an additional year) less (ii) any
salary or other amounts that Executive is paid by any other person during
that twelve month period other than salary or amounts paid to Executive by
NAENT (and in the event Executive does not increase his work time at NAENT,
Executive hereby agrees to take reasonably diligent action to secure
employment as soon as practicable after any such termination from Company
and to otherwise mitigate his losses resulting from the loss of salary from
Company). Notwithstanding the foregoing, in the event the Company
terminates the Term pursuant to Section 2.2(d)(ii) within ninety (90) days
following a Change of Control (as defined below), the Continuation Period
shall be eighteen (18) months instead of twelve (12) months. For purposes
of this Agreement, "Change of Control" shall mean the acquisition by any
single person or entity or related persons or entities of more than fifty
percent (50%) of the outstanding and issued common stock of the Company
after the date of the Merger. Executive's rights to any of the compensation
or benefits identified in the preceding sentence shall be subject to
Executive's compliance in all respects with each of Executive's obligations
under this Agreement.
6. Section 6(c) of the Employment Agreement is hereby deleted in its
entirety.
This Amendment shall be effective only upon the closing of the Merger, and
if the Merger Agreement is terminated pursuant to Section 9.1 thereof then this
Amendment shall terminate and be of no further force and effect. Except as
specifically set forth herein, the Employment Agreement shall not be amended by
this Amendment and shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment as of the
date first set forth above, and such Amendment shall be effective as of the
effective date of the Merger.
PHYSICIANS' SPECIALTY CORP.
/s/ Gerald R. Benjamin
--------------------------------------
Name: Gerald R. Benjamin
Title: Vice Chairman and Secretary
EXECUTIVE:
/s/ Ramie A. Tritt, M.D.
--------------------------------------
Name: Ramie A. Tritt, M.D.
<PAGE> 1
EXHIBIT (C)(12)
EXECUTION COPY
RIGHT OF FIRST OFFER AGREEMENT
THIS RIGHT OF FIRST OFFER AGREEMENT (this "Agreement") is made as of
June 14, 1999 by and among Physicians' Specialty Corp., a Delaware corporation
(the "Company"), each of the entities identified as TA Investors in Section 2
below and Ramie A. Tritt, M.D. ("Tritt"). Capitalized terms used but not
otherwise defined herein are defined in Section 2 hereof.
WHEREAS, TA MergerCo, Inc., a Delaware corporation ("MergerCo"), has
been formed for the purpose of merging (the "Merger") with and into the Company
pursuant to the terms, and subject to the conditions, set forth in the Agreement
and Plan of Merger, dated as of the date hereof, by and among MergerCo and the
Company, as amended from time to time (the "Merger Agreement").
WHEREAS, following the Merger, each of the TA Investors and Tritt will
be stockholders of the Company.
WHEREAS, each of the parties hereto desire to enter into this Agreement
for the purpose of limiting the manner and terms by which the securities of the
Company held by the TA Investors may be transferred.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Restrictions on Transfer of Stockholder Shares.
(a) First Offer Rights. At least 20 days prior to any sale,
transfer, assignment, pledge or other disposal (a "Transfer") of all or
substantially all of the Stockholder Shares by the TA Investors (other than a
Transfer pursuant to Section 1(b) below), the TA Investors shall deliver a
written notice (the "Transfer Notice") to Tritt of their desire to Transfer
Stockholder Shares of such class, specifying in reasonable detail the number of
shares to be transferred and the terms and conditions of the proposed transfer,
including the proposed price per Stockholder Share of such class. The Transfer
Notice shall constitute an irrevocable offer to sell all, but not less than all,
of the Stockholder Shares subject to such Transfer Notice (the "Offered Shares")
to Tritt on the basis described below, at a purchase price equal to the price
contained in the Transfer Notice. Tritt may elect to purchase all, but not less
than all, of the Offered Shares, upon the same terms and conditions as those set
forth in the Transfer Notice (the "Right of First Offer"), by delivering a
written notice (the "Acceptance Notice") of such election to the TA Investors
within 20 days after the Transfer Notice has been received by Tritt. The closing
of the purchase of any
<PAGE> 2
Offered Shares pursuant to this Section 1(a) shall take place within 60 days
after the date on which the TA Investors receive the Acceptance Notice. If Tritt
does not elect to purchase all of the Offered Shares, then the TA Investors may
transfer the Offered Shares to any Person for (i) a price no less than the price
specified in the Transfer Notice and (ii) other terms no more favorable to the
transferee(s) thereof than as specified in the Transfer Notice; provided,
however, that such Transfer must be completed within the 120-day period
immediately following the date on which the Transfer Notice has been received by
Tritt. Any Offered Shares not transferred within such 120-day period will be
again subject to the provisions of this Section 1(a) upon subsequent transfer.
(b) Permitted TA Transfers. The restrictions contained in this
Section 1 shall not apply with respect to any Transfer of Stockholder Shares (i)
in a Public Sale, (ii) in a Sale of the Company or a Transfer of Stockholder
Shares that has been approved by the Board of Directors of the Company or (iii)
by any TA Investor to any other TA Investor; provided, that the restrictions
contained in this Section 1 shall continue to be applicable to the Stockholder
Shares after the foregoing Transfer described in clause (iii); and provided,
further, that the transferees of such Stockholder Shares described in clause
(iii) shall agree in writing to be bound by the provisions of this Agreement, to
the extent that they are not already bound, which affect the Stockholder Shares
so transferred. All transferees permitted under Section 1(b)(iii) shall be
deemed a TA Investor for purposes of this Agreement.
(c) Transfers in Violation of Agreement; Termination of
Restrictions. Any transfer or attempted transfer of any Stockholder Shares by
the TA Investors in violation of any provision of this Section 1 shall be void,
and the Company shall not record such transfer on its books or treat any
purported transferee of such Stockholder Shares as the owner of such shares for
any purpose. The restrictions set forth in this Section 1 shall continue with
respect to each Stockholder Share of the TA Investors until the earlier of (i)
the transfer of such Stockholder Share in a Public Sale, (ii) the consummation
of a Sale of the Company that has been approved by the Board of Directors of the
Company, (iii) the consummation of a Qualified Public Offering or (iv) 365 days
from the effective date of the Merger.
2. Definitions.
"Affiliate" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise, and if such Person is a partnership,
"Affiliate" shall also mean each general partner and limited partner of such
Person. Without limiting the generality of the foregoing, each investment fund
managed by TA Associates, Inc. or any successor thereto shall be deemed to be an
Affiliate of each of the initial holders of the TA Shares.
"Common Stock" means the Company's Common Stock, par value $.001 per
share, and any capital stock of any class of the Company hereafter authorized
which is not limited to a fixed
2
<PAGE> 3
sum or percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Company.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means the sale, in an underwritten public offering
registered under the Securities Act, of shares of the Company's Common Stock.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Qualified Public Offering" has the meaning set forth in the Company's
Amended and Restated Charter to be adopted in connection with the Merger.
"Sale of the Company" means (i) any sale, transfer or issuance or series
of sales, transfers and/or issuances of capital stock of the Company by the
Company or any holders thereof which results in any Person or group of Persons
(as the term "group" is used under the Exchange Act of 1934, as amended), other
than Persons who are holders of Stockholder Shares as of immediately after the
Merger, owning capital stock of the Company possessing the voting power (under
ordinary circumstances) to elect a majority of the Board, and (ii) any sale or
transfer of all or substantially all of the assets of the Company and its
Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Stockholder" means any TA Investor.
"Stockholder Shares" means (i) any capital stock of the Company
purchased or otherwise acquired by any Stockholder, (ii) any warrants, options
or other rights to subscribe for or to acquire, directly or indirectly, any
capital stock of the Company, purchased or otherwise acquired by any
Stockholder, whether or not then exercisable or convertible, and (iii) any stock
or other securities which are convertible into or exchangeable for, directly or
indirectly, any capital stock of the Company, purchased or otherwise acquired by
any Stockholder, whether or not then convertible or exchangeable, (iv) any
securities or rights issued or issuable directly or indirectly with respect to
the securities and rights referred to in clauses (i), (ii) and (iii) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"TA Investors" means TA/Advent VIII, L.P., TA/Advent Atlantic and
Pacific IV, L.P., TA Investors LLC, and TA Executives Fund, LLC and their
Affiliates.
3
<PAGE> 4
"TA Shares" means any capital stock, warrants, options or other rights
which constitute Stockholder Shares hereunder and which were initially issued to
any TA Investor.
3. Miscellaneous Provisions.
(a) Amendment and Waiver. No modification, amendment, or waiver
of any provision of this Agreement will be effective against any party hereto
unless such modification, amendment or waiver is approved in writing by each
party hereto; provided, however, that Section 1 above may be modified, amended
or waived solely by the action of Tritt and each of the TA Investors. The
failure of any party to enforce any of the provisions of this Agreement will in
no way be construed as a waiver of such provisions and will not affect the right
of such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
(b) Severability. Whenever possible, each provision of this
Agreement shall 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 shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Entire Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts 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) Successors and Assigns. Except as expressly otherwise
provided herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the TA Investors
and Tritt and the respective successors and assigns of each of them.
(e) Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
(f) Remedies. The parties hereto shall be entitled to enforce
their rights under this Agreement specifically to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in their favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party hereto may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance and/or
injunctive relief (without posting a bond or other security) in order to enforce
or prevent any violation of the provisions of this Agreement.
4
<PAGE> 5
(g) Notices. Any notice provided for in this Agreement shall be
in writing and shall be either (i) personally delivered, (ii) sent by registered
or certified mail (return receipt requested and postage prepaid), (iii) sent by
reputable overnight courier service (charges prepaid), or (iv) sent by
facsimile, in each case, to the Company at the address set forth below and to
any other recipient at the address indicated on the Notices Schedule attached
hereto, or if such recipient is not listed on the Notices Schedule attached
hereto, at the address indicated by the Company's records. Any Person may change
its address for purposes of this Agreement by providing prior notice of such
change to the other parties hereto in accordance with this Section. Notices will
be deemed to have been given hereunder (i) when delivered personally, (ii) three
days after being mailed, (iii) one day after deposit with a reputable overnight
courier service, or (iv) in the cases of notices sent by facsimile, when receipt
is acknowledged. The Company's address and Tritt's address is:
Physicians Specialty Corp
The Pavilion at Lake Hearn
1150 Lake Hearn Drive
Atlanta, GA 30342
Attention: Ramie A. Tritt, M.D.
President and Chairman
Facsimile: (404) 250-0162
The TA Investors' address is:
c/o TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Attention: Richard Tadler
David S.B. Lang
Facsimile: (617) 574-6728
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Kevin M. Dennis, Esq.
Joseph L. Johnson III, P.C.
Facsimile: (617) 523-1231
(h) Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement 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 other conflict
5
<PAGE> 6
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.
(i) Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or legal holiday
in the state in which the Company's chief executive office is located, the time
period shall automatically be extended to the business day immediately following
such Saturday, Sunday or legal holiday.
(j) Construction. Whenever the context requires, each term stated
in either the singular or the plural shall include the singular and the plural,
and pronouns stated in either the masculine, the feminine or the neuter gender
shall include the masculine, feminine and neuter. All references to Sections and
Paragraphs refer to sections and paragraphs of this Agreement. The use of the
word "including" in this Agreement shall be by way of example rather than
limitation.
(k) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
[Remainder of Page Intentionally Left Blank]
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this RIGHT OF FIRST
OFFER AGREEMENT on the day and year first above written.
COMPANY:
PHYSICIANS' SPECIALTY CORP.
By:
-------------------------------------
Ramie A. Tritt, M.D.
President and Chairman
TA INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII LLC, its General
Partner
By: TA Associates, Inc., its General
Partner
By: /s/ Richard Tadler
----------------------------------
Richard Tadler
Managing Director
TA/ATLANTIC AND PACIFIC IV, L.P.
By: TA Associates AP Partners IV, L.P.,
its General Partner
By: TA Associates, Inc., its General
Partner
By: /s/ Richard Tadler
----------------------------------
Richard Tadler
Managing Director
<PAGE> 8
[Right of First Offer Agreement]
TA INVESTORS, LLC
By: TA Associates, Inc., its Manager
By: /s/ Richard Tadler
------------------------------
Richard Tadler
Managing Director
TA EXECUTIVES FUND, LLC
By: TA Associates, Inc., its Manager
By: /s/ Richard Tadler
------------------------------
Richard Tadler
Managing Director
INDIVIDUAL:
By: /s/ Ramie A. Tritt, M.D.
----------------------------------
Ramie A. Tritt, M.D.
<PAGE> 1
SCHEDULE 14A
(RULE 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
PHYSICIANS' SPECIALTY CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per share ("Common Stock"), of
Physicians' Speciality Corp.
(2) Aggregate number of securities to which transaction applies:
9,472,688 shares of Common Stock (includes 307,978 shares of Common
Stock issuable upon exercise of options)
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$10.50 per share in cash-out merger plus the difference between $10.50
and the exercise price of each option subject to exercise.
(4) Proposed maximum aggregate value of transaction:
$99,463,224
(5) Total fee paid:
$19,893
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PHYSICIANS' SPECIALTY CORP.
1150 LAKE HEARN DRIVE
SUITE 640
ATLANTA, GEORGIA 30342
, 1999
Dear Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Physicians' Specialty Corp. ("Physicians' Specialty" or the "Company") to be
held on , 1999, at 10:00 a.m., local time, at the offices of King &
Spalding, located at 191 Peachtree Street, Atlanta, Georgia. The purpose of the
Special Meeting is to consider and vote upon a merger that, if approved and
subsequently consummated, will result (i) in the public stockholders of
Physicians' Specialty (other than stockholders who have perfected their
appraisal rights and certain members of management and their affiliates,
affiliated physicians and employees) receiving $10.50 in cash per share for
their shares of Physicians' Specialty common stock, $.001 par value ("Common
Stock"), and (ii) in certain members of management and their affiliates,
affiliated physicians and employees receiving $10.50 in cash per share for a
portion of the shares of Physicians' Specialty Common Stock held by them and
shares of common stock of the surviving corporation on a share-for-share basis
for their remaining shares. The acquiror of Physicians' Specialty, TA MergerCo,
Inc., a newly formed Delaware corporation, was organized at the direction of TA
Associates, Inc. on behalf of certain of its affiliates for the purpose of
acquiring all of the Physicians' Specialty Common Stock held by the public
stockholders.
A Special Committee of the Board of Directors of Physicians' Specialty,
consisting of three independent directors, was formed to consider and evaluate
the merger. The Special Committee has unanimously recommended to the Board of
Directors of Physicians' Specialty that the merger, the merger agreement and
related transactions be approved. In connection with its evaluation of the
merger, the Special Committee engaged The Robinson-Humphrey Company, LLC to act
as its financial advisor. Robinson-Humphrey has rendered its opinion dated June
12, 1999 that, based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the cash merger consideration of
$10.50 per share to be received in the merger is fair from a financial point of
view to the public stockholders of Physicians' Specialty. The written opinion of
Robinson-Humphrey, dated June 12, 1999, is attached as Appendix B to the
enclosed Proxy Statement and should be read carefully and in its entirety by the
stockholders.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS BELIEVE THAT THE TERMS OF
THE MERGER AGREEMENT ARE ADVISABLE, FAIR AND IN THE BEST INTERESTS OF
PHYSICIANS' SPECIALTY AND THE COMPANY'S PUBLIC STOCKHOLDERS AND UNANIMOUSLY
RECOMMEND THAT THE STOCKHOLDERS APPROVE AND ADOPT THE MERGER AGREEMENT.
Approval of the merger at the Special Meeting will require the affirmative
vote of holders of a majority of the outstanding shares of Common Stock entitled
to vote at the Special Meeting. Certain members of management and certain
affiliated physicians, who, as of the record date, beneficially owned
approximately 40% of the outstanding shares of Physicians' Specialty Common
Stock, have agreed to vote their shares for approval of the merger.
The accompanying Proxy Statement provides you with a summary of the proposed
merger agreement and additional information about the parties involved and their
interests. If the merger agreement is approved by the holders of the Common
Stock, the closing of the merger will occur after the Special Meeting as soon as
all of the other conditions to closing the merger are satisfied.
PLEASE GIVE ALL THIS INFORMATION YOUR CAREFUL ATTENTION. WHETHER OR NOT YOU
PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL
MEETING. A FAILURE TO VOTE WILL COUNT AS A VOTE AGAINST THE MERGER. ACCORDINGLY,
YOU ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND. THIS
WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU SUBSEQUENTLY
CHOOSE TO ATTEND.
Sincerely,
Ramie A. Tritt, M.D.
Chairman of the Board and President
<PAGE> 3
PHYSICIANS' SPECIALTY CORP.
1150 LAKE HEARN DRIVE
SUITE 640
ATLANTA, GEORGIA 30342
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1999
---------------------
Notice is hereby given that a Special Meeting of Stockholders of
Physicians' Specialty Corp., a Delaware corporation (the "Company"), will be
held on , 1999 at 10:00 a.m., local time, at the offices of King &
Spalding, located at 191 Peachtree Street, Atlanta, Georgia, for the following
purposes:
(1) To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated June 14, 1999 (the "Merger Agreement"),
pursuant to which TA MergerCo, Inc., a newly formed Delaware corporation
("MergerCo"), will be merged with and into the Company and each stockholder
of the Company (other than stockholders who are entitled to and have
perfected their appraisal rights, MergerCo and certain members of
management and their affiliates, affiliated physicians and employees) will
become entitled to receive $10.50 in cash for each outstanding share of
common stock, $.001 par value, of the Company (the "Common Stock") owned
immediately prior to the effective time of the Merger. A copy of the Merger
Agreement is attached as Appendix A to and is described in the accompanying
Proxy Statement.
(2) To consider and act upon such other matters as may properly come
before the Special Meeting or any adjournment or adjournments thereof.
The Board of Directors has determined that only holders of Common Stock of
record at the close of business on , 1999, will be entitled to notice
of, and to vote at, the Special Meeting or any adjournment or adjournments
thereof. A form of proxy and a Proxy Statement containing more detailed
information with respect to the matters to be considered at the Special Meeting
accompany and form a part of this notice.
By order of the Board of Directors,
Ramie A. Tritt, M. D.
Chairman of the Board and President
Atlanta, Georgia
, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. PLEASE DO NOT
SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THE MERGER NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
Any stockholder shall have the right to seek appraisal of his or her shares
upon compliance with the procedures set forth in Section 262 of the Delaware
General Corporation Law. See "RIGHTS OF DISSENTING STOCKHOLDERS" in the Proxy
Statement that accompanies this notice and the full text of Section 262 of the
Delaware General Corporation Law, which is attached as Appendix C and is
described in the accompanying Proxy Statement.
<PAGE> 4
PHYSICIANS' SPECIALTY CORP.
1150 LAKE HEARN DRIVE
SUITE 640
ATLANTA, GEORGIA 30342
---------------------
PROXY STATEMENT
---------------------
THE PROXY STATEMENT IS DATED , 1999 AND WAS
FIRST MAILED TO STOCKHOLDERS ON , 1999.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: Upon consummation of the Merger, TA MergerCo, Inc. ("MergerCo") will be
merged with and into Physicians' Specialty with Physicians' Specialty being
the surviving corporation. All stockholders (the "Public Stockholders") of
Physicians' Specialty, other than Physicians' Specialty, its subsidiaries,
MergerCo, certain members of management, Bock, Benjamin & Co. Partners,
L.P., an affiliate of Gerald R. Benjamin, certain employees and affiliated
physicians and those stockholders who exercise their appraisal rights, will
receive a cash payment for their outstanding shares of Common Stock. Certain
members of management, Bock, Benjamin & Co. Partners, L.P., affiliated
physicians and employees will receive a cash payment for certain of their
shares and certain of their shares will be converted into shares in the
surviving corporation on a share-for-share basis. Physicians' Specialty
Common Stock held by Physicians' Specialty, its subsidiaries and MergerCo
will be canceled. Each share of Common Stock of MergerCo will be converted
into one share of Common Stock of the Surviving Corporation, and each share
of convertible participating preferred stock and redeemable preferred stock
of MergerCo will be converted into one share of convertible participating
preferred stock and redeemable preferred stock, respectively, in the
Surviving Corporation. After the Merger, Physicians' Specialty will become a
privately held company principally owned by the following individuals
(including certain of their affiliates) and entities or their assigns
(collectively with MergerCo, the "Investor Group") as set forth below:
<TABLE>
<CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP OF
OWNERSHIP OF REDEEMABLE
COMMON PERCENTAGE PREFERRED PERCENTAGE
STOCK (%)(1) STOCK (%)(1)
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
THE TA INVESTORS
TA/Advent VIII, L.P............................. 1,951,413(2) 34.0% 16,705 60.1%
TA/Atlantic and Pacific IV, L.P................. 1,219,755(2) 21.2 10,442 37.6
TA Executives LLC............................... 37,021(2) 0.6 317 1.1
TA Investors LLC................................ 39,295(2) 0.7 336 1.2
THE MANAGEMENT SPONSORS
Richard D. Ballard.............................. 62,765 1.1%
Gerald R. Benjamin(3)........................... 52,214 0.9
Robert A. DiProva............................... 22,721 0.4
Lawrence P. Kraska.............................. 33,755 0.6
Ramie A. Tritt, M.D............................. 1,402,875 24.4
THE PHYSICIAN INVESTORS
27 affiliated physicians........................ 472,980 8.2%
</TABLE>
(1) The table above assumes that the Management Sponsors, their affiliates and
the Physician Investors exchange 2,047,310 shares of Physicians' Specialty
Common Stock for Surviving Corporation common stock and that employees
exchange approximately 11,500 shares of Physicians' Specialty Common Stock
for Surviving Corporation common stock.
(2) The number of shares of common stock beneficially owned by the TA Investors
includes the number of shares of common stock into which convertible
participating preferred stock of the Surviving Corporation will be
convertible.
(3) Includes 27,500 shares of common stock of the Surviving Corporation to be
held by Bock, Benjamin & Co. Partners, L.P. Gerald R. Benjamin is a
principal of the general partner of Bock, Benjamin & Co. Partners, L.P.
<PAGE> 5
In addition, employees of Physicians' Specialty holding stock options will
be permitted to exchange shares received by them upon exercise of such options
for common stock in the surviving corporation.
Q: WHY IS PHYSICIANS' SPECIALTY BEING ACQUIRED?
A: The Board of Directors and the Special Committee each believes that the
acquisition of Physicians' Specialty is in the best interests of Physicians'
Specialty and the Public Stockholders and that as a private company,
Physicians' Specialty will have greater operating flexibility and an
improved ability to attract and retain management and to consummate
acquisitions. To review the background and reasons for the Merger in greater
detail, see pages 15 through 24.
Q: WHY WAS THE SPECIAL COMMITTEE FORMED?
A: Because it appeared that certain directors of Physicians' Specialty would
have actual or potential conflicts of interest in evaluating the Merger, the
Physicians' Specialty Board of Directors appointed a Special Committee of
disinterested directors to review and evaluate the proposed transaction. The
Special Committee has determined that the Merger Agreement is advisable,
fair and in the best interests of the Public Stockholders and recommended to
the full Board of Physicians' Specialty that it approve, adopt and declare
advisable the Merger Agreement and the transactions contemplated thereby.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will receive $10.50 in cash, without interest, for each share of
Physicians' Specialty Common Stock held by you. This is the "Cash Merger
Consideration." For example: If you own 100 shares of Physicians' Specialty
Common Stock, upon completion of the Merger you will receive $1,050 in cash.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the Merger during the fourth quarter of 1999.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The receipt of the Cash Merger Consideration by you will be a taxable
transaction for federal income tax purposes. To review the tax consequences
to you in greater detail, see pages through .
YOUR TAX CONSEQUENCES WILL DEPEND ON YOUR PERSONAL SITUATION. YOU SHOULD
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF
THE MERGER TO YOU.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to vote to approve and adopt the Merger Agreement, which
provides for the acquisition of Physicians' Specialty by MergerCo. After the
Merger, Physicians' Specialty will become a privately held company and you
will no longer own an equity interest in Physicians' Specialty.
THE PHYSICIANS' SPECIALTY BOARD AND SPECIAL COMMITTEE HAVE UNANIMOUSLY
DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT ARE ADVISABLE, FAIR AND IN THE
BEST INTERESTS OF PHYSICIANS' SPECIALTY AND THE PUBLIC STOCKHOLDERS AND
RECOMMEND VOTING FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed envelope as soon as possible, so that your shares will be
represented at the meeting.
ii
<PAGE> 6
Approval of the proposal requires the affirmative vote of a majority of the
outstanding shares of Physicians' Specialty Common Stock. Therefore, a failure
to vote or a vote to abstain will have the same legal effect as a vote against
the Merger Agreement.
The Special Meeting will take place on , 1999, at 10:00 a.m.,
local time, at the offices of King & Spalding, located at 191 Peachtree Street,
Atlanta, Georgia. You may attend the Special Meeting and vote your shares in
person, rather than voting by proxy. In addition, you may withdraw your proxy up
to and including the time it is voted at the Special Meeting and either change
your vote or attend the Special Meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares of Common Stock only if you provide
instructions on how to vote. You should instruct your broker how to vote
your shares, following the directions your broker provides. If you do not
provide instructions to your broker, your shares will not be voted. This
will have the same effect as voting your shares against the proposal to
approve and adopt the Merger Agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the Merger is completed, we will send you written instructions for
exchanging your Common Stock certificates for the Cash Merger Consideration.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this document, or if you would like
to ask any additional questions about the Merger, you should contact:
Richard D. Ballard, Chief Executive Officer
Physicians' Specialty Corp.
1150 Lake Hearn Drive
Suite 640
Atlanta, Georgia 30342
Telephone: (404) 256-7535
You should note that Mr. Ballard, as well as the other executive officers
of Physicians' Specialty, are participants in the Merger as Management Sponsors
and have interests in the Merger that are different from, or in addition to,
yours as a Physicians' Specialty stockholder.
iii
<PAGE> 7
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT AND OTHER STATEMENTS MADE FROM TIME TO TIME BY
PHYSICIANS' SPECIALTY, MERGERCO OR THEIR AFFILIATES OR REPRESENTATIVES CONTAIN
FORWARD-LOOKING STATEMENTS. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE
INTENT, BELIEF, OR CURRENT EXPECTATIONS OF PHYSICIANS' SPECIALTY AND MERGERCO
AND MEMBERS OF THEIR RESPECTIVE MANAGEMENT TEAMS, AS WELL AS THE ASSUMPTIONS ON
WHICH SUCH STATEMENTS ARE BASED. SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING
STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT OF PHYSICIANS'
SPECIALTY AND MERGERCO THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS
DETAILED HEREIN AND: (I) THE INABILITY OF THE COMPANY TO PREDICT THE OUTCOME OF
THE LITIGATION DESCRIBED HEREIN OR ITS IMPACT ON THE MERGER; (II) THE COMPANY'S
LIMITED OPERATING HISTORY; (III) THE COMPANY'S ACQUISITION STRATEGY; (IV) THE
COMPANY'S DEPENDANCE ON AFFILIATED PHYSICIANS; (V) THE ADVERSE AFFECT ON THE
COMPANY'S ABILITY TO OBTAIN ADDITIONAL FUNDS AND THE INCREASE IN THE COMPANY'S
VULNERABILITY TO ECONOMIC OR BUSINESS DOWNTURNS AS A RESULT OF SUBSTANTIAL
INDEBTEDNESS AND REDUCED CASH AVAILABILITY; (VI) REDUCTIONS IN REIMBURSEMENT BY
THIRD PARTY PAYORS; (VII) INTENSE COMPETITION IN THE PHYSICIAN PRACTICE
MANAGEMENT INDUSTRY; AND (VIII) VARIOUS GOVERNMENT REGULATIONS.
iv
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... i
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... iii
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... iv
SUMMARY..................................................... 1
Effects of the Merger..................................... 1
The Companies............................................. 1
The Special Meeting....................................... 1
Record Date; Voting Power................................. 2
Vote Required............................................. 2
Recommendations........................................... 2
Opinion of Financial Advisor.............................. 2
Terms of the Merger Agreement............................. 3
Share Ownership of Physicians' Specialty following the
Merger................................................. 4
Accounting Treatment...................................... 5
Financing of the Merger................................... 5
Conflicts of Interest..................................... 5
Litigation Relating to the Merger......................... 6
Appraisal Rights.......................................... 6
Market Information........................................ 7
Selected Consolidated Financial Data...................... 8
Unaudited Pro Forma Consolidated Financial Statements..... 9
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1998................... 10
Unaudited Pro Forma Consolidated Statement of Operations
for the Quarter Ended March 31, 1999................... 11
Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1999............................................... 12
Consolidated Ratios of Earnings to Fixed Charges and Book
Value Per Share........................................ 14
SPECIAL FACTORS............................................. 15
Background of the Merger.................................. 15
The Special Committee's and the Board's Recommendation.... 20
Projections............................................... 24
Consolidated Projected Recapitalization Model
(Unaudited)............................................ 25
Opinion of Financial Advisor.............................. 25
Purpose and Reasons of the Management Sponsors, the TA
Investors and TA Associates for the Merger............. 30
Position of the Management Sponsors, the TA Investors and
TA Associates as to Fairness of the Merger............. 31
Conflicts of Interest..................................... 31
Litigation Relating to the Merger......................... 37
Certain Effects of the Merger............................. 37
Financing of the Merger................................... 38
Conduct of Physicians' Specialty Business After the
Merger................................................. 39
Risk that the Merger will not be Consummated.............. 39
THE SPECIAL MEETING......................................... 40
Date, Time, and Place of the Special Meeting.............. 40
Proxy Solicitation........................................ 40
Record Date and Quorum Requirement........................ 40
Voting Procedures......................................... 40
Voting and Revocation of Proxies.......................... 41
</TABLE>
v
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Effective Time of the Merger and Payment for Shares....... 41
Other Matters to Be Considered............................ 41
THE MERGER.................................................. 42
Terms of the Merger Agreement............................. 42
Estimated Fees and Expenses of the Merger................. 50
RIGHTS OF DISSENTING STOCKHOLDERS........................... 50
ACCOUNTING TREATMENT........................................ 53
FEDERAL INCOME TAX CONSEQUENCES............................. 53
BUSINESS OF THE COMPANY..................................... 55
General Development of Business........................... 55
Industry Segments......................................... 55
Description of Business................................... 55
Health Care Industry Overview............................. 56
Affiliated Practices...................................... 58
Ambulatory Surgery Centers, Sleep Diagnostic Laboratories,
and Diagnostic Imaging Centers......................... 59
Company Operations........................................ 60
Information Systems....................................... 60
Competition............................................... 61
Medical Advisory Board.................................... 62
Affiliation Agreements.................................... 63
Acquisition of ENT Practices since January 1, 1998........ 65
Capitated Managed Care Contracts; Network Development and
Management............................................. 67
Capitated Agreements with Third Party Payors.............. 68
Government Regulation..................................... 69
Liability and Insurance................................... 73
Employees................................................. 73
Properties................................................ 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 74
General................................................... 74
Management Services Agreements............................ 74
Capitated Management Contracts............................ 75
Results of Operations..................................... 78
Liquidity and Capital Resources........................... 79
Year 2000................................................. 80
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 83
CERTAIN INFORMATION CONCERNING MERGERCO AND THE INVESTOR
GROUP..................................................... 84
Mergerco.................................................. 84
TA Investors.............................................. 84
Management Sponsors....................................... 85
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS................ 86
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 86
STOCKHOLDER PROPOSALS....................................... 87
OTHER MATTERS............................................... 87
WHERE YOU CAN FIND MORE INFORMATION......................... 87
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 88
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- Agreement and Plan of Merger.................. A-1
APPENDIX B -- Opinion of The Robinson-Humphrey Company,
LLC....................................................... B-1
APPENDIX C -- Section 262 of the Delaware General
Corporation Law........................................... C-1
</TABLE>
vi
<PAGE> 10
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the Merger and for a more complete description of the legal
terms of the Merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the Merger Agreement.
See "Where You Can Find More Information" (page 87).
EFFECTS OF THE MERGER
Pursuant to the Merger Agreement, MergerCo will be merged with and into
Physicians' Specialty with Physicians' Specialty being the surviving corporation
(the "Surviving Corporation"). As a result of the Merger, the Company will be
owned principally by the Investor Group, and Physicians' Specialty Common Stock
will no longer be publicly traded. The Public Stockholders will no longer be
stockholders of Physicians' Specialty and they will not participate in the
future earnings and potential growth of Physicians' Specialty or bear the risk
of any decreases in the value of Physicians' Specialty Common Stock. Instead,
the Public Stockholders will have the right to receive $10.50 in cash, without
interest, for each share of Common Stock held (other than shares in respect of
which appraisal rights have been perfected under Delaware law). The Investor
Group will have the opportunity to benefit from any future earnings and growth
of Physicians' Specialty and will bear the risk of any decrease in the value. In
addition, the Management Sponsors have interests in the Merger as employees
and/or directors which are different from, or in addition to, yours as a
Physicians' Specialty stockholder. To review these interests, see "-- Conflicts
of Interest" and "Special Factors -- Conflicts of Interest."
THE COMPANIES
PHYSICIANS' SPECIALTY CORP.
1150 Lake Hearn Drive
Suite 640
Atlanta, Georgia 30342
(404) 256-7535
Physicians' Specialty provides comprehensive practice management services
to physician practices and health care providers specializing in the treatment
and management of diseases and disorders of the ear, nose, throat and head and
neck, known as ENT, including specialists practicing in the fields of allergy,
audiology, oral surgery, plastic surgery and sleep medicine.
TA MERGERCO, INC.
c/o TA Associates, Inc.
125 High Street, Suite 2500
Boston, Massachusetts 02110
(617) 574-6700
MergerCo was organized at the direction of TA Associates on behalf of
certain private investment funds managed by TA Associates for the sole purpose
of effecting the Merger. The private investment funds include TA/Advent VIII
L.P., TA/Atlantic and Pacific IV, L.P., TA Executives Fund LLC, and TA Investors
LLC and their assignees. MergerCo is not expected to have significant assets or
liabilities (other than those arising in connection with the Merger) or to
engage in any activities (other than those incident to its formation and the
Merger).
THE SPECIAL MEETING (PAGE 40)
The Special Meeting will be held on , 1999, at 10:00 a.m., local
time, at the offices of King & Spalding, located at 191 Peachtree Street,
Atlanta, Georgia. At the Special Meeting, Physicians' Specialty stockholders
will be asked to consider and vote upon a proposal to approve and adopt the
Merger Agreement.
1
<PAGE> 11
RECORD DATE; VOTING POWER (PAGE 40)
Holders of record of Physicians' Specialty Common Stock at the close of
business on , 1999 (the "Record Date") are entitled to notice of and
to vote at the Special Meeting and any adjournment or adjournments of the
Special Meeting. As of such date, there were shares of Common
Stock issued and outstanding held by approximately holders of
record. Each holder of record of Common Stock on the Record Date is entitled to
one vote for each share then held on any matter that may properly come before
the Special Meeting.
VOTE REQUIRED (PAGE 40)
Approval and adoption of the Merger Agreement by the Physicians' Specialty
stockholders will require the affirmative vote of the holders of a majority of
the outstanding shares of Physicians' Specialty Common Stock entitled to vote at
the Special Meeting. Accordingly, a failure to vote or a vote to abstain will
have the same legal effect as a vote against the Merger Agreement. The
Management Sponsors, their affiliates and the Physician Investors, who as of the
record date for the Special Meeting, beneficially owned approximately 40% of the
outstanding shares of Physicians' Specialty Common Stock, have agreed to vote
their shares for approval and adoption of the Merger Agreement.
A "no" vote on the enclosed proxy card will be a vote against approval and
adoption of the Merger Agreement. If Physicians' Specialty does not receive
"yes" votes from a majority of the outstanding shares of Common Stock, the
Merger Agreement will not be approved and you will continue to own shares in a
publicly traded company.
A stockholder who gives a proxy with respect to voting on the Merger
Agreement may revoke it at any time before it is voted at the Special Meeting by
(i) filing with the Secretary of Physicians' Specialty an instrument revoking
it, (ii) submitting a duly executed proxy bearing a later date or (iii) voting
in person at the Special Meeting.
RECOMMENDATIONS (PAGE 20)
The full Physicians' Specialty Board of Directors formed the Special
Committee to review and evaluate the proposed transaction because it appeared
that certain of the directors would have actual or potential conflicts of
interest in evaluating the transaction. The Special Committee unanimously
recommended that the Physicians' Specialty Board approve, adopt and declare
advisable the Merger, the Merger Agreement and the transactions contemplated
thereby (together with the Merger, the "Transactions"). Following the unanimous
recommendation of the Special Committee, the Physicians' Specialty Board
unanimously determined that the Merger, the Merger Agreement and the
transactions contemplated thereby were advisable, fair and in the best interests
of Physicians' Specialty and the Public Stockholders and recommended that the
stockholders approve the Merger, the Merger Agreement and the transactions
contemplated thereby. The Special Committee and the Physicians' Specialty Board
recommend that the Physicians' Specialty stockholders vote "For" the approval
and adoption of the Merger Agreement. You also should refer to the reasons that
the Special Committee and the Physicians' Specialty Board considered in
determining whether to approve and adopt the Merger Agreement on pages
.
OPINION OF FINANCIAL ADVISOR (PAGE 25)
The Robinson-Humphrey Company, LLC ("Robinson-Humphrey"), a nationally
recognized investment banking firm, which served as financial advisor to the
Special Committee, has rendered an opinion dated June 12, 1999 to the Special
Committee that the Cash Merger Consideration is fair from a financial point of
view to the Public Stockholders of Physicians' Specialty. A copy of the fairness
opinion, setting forth the information reviewed, assumptions, limitations and
qualifications made, and matters considered, is attached to this Proxy Statement
as Appendix B. You should read the fairness opinion of Robinson-Humphrey in its
entirety.
2
<PAGE> 12
TERMS OF THE MERGER AGREEMENT (PAGE 42)
The Merger Agreement is attached to this Proxy Statement as Appendix A. You
are encouraged to read the Merger Agreement in its entirety. It is the legal
document that governs the Merger.
General. The Merger Agreement provides that MergerCo will be merged with
and into Physicians' Specialty, with Physicians' Specialty being the Surviving
Corporation. As a result of the Merger, the Public Stockholders of Physicians'
Specialty will be entitled to receive $10.50 in cash, without interest, for each
share of Physicians' Specialty Common Stock they own.
Conditions to the Merger. The completion of the Merger depends upon the
satisfaction of a number of conditions, including:
- approval of the Merger Agreement by the holders of a majority of the
outstanding shares of Physicians' Specialty Common Stock;
- debt financing from senior and subordinated lenders having been obtained
in amounts and on substantially the same terms as set forth in two
financing commitment letters received in connection with the Merger;
- there not having occurred any change or changes concerning the Company
and its subsidiaries, taken as a whole, which would, individually or in
the aggregate, reasonably be expected to have a material adverse effect
on the business, results of operation or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole (a
"Company Material Adverse Effect"); and
- the holders of no more than 5% of the outstanding shares of Physicians'
Specialty Common Stock having taken all required actions to assert
appraisal rights under Section 262 of the DGCL and not having withdrawn
or otherwise permitted to lapse such appraisal rights or demands
therefor.
Each party may, at its option, waive the satisfaction of any condition to
such party's obligations under the Merger Agreement. EVEN IF THE STOCKHOLDERS
APPROVE THE MERGER AGREEMENT, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL BE
CONSUMMATED.
Solicitation. The Merger Agreement provides that neither Physicians'
Specialty nor its subsidiaries nor any of their respective officers, directors,
employees or representatives shall be permitted, directly or indirectly, to
initiate, solicit or encourage (including by way of furnishing non-public
information) or take any action to facilitate, any inquiries or the making of
any proposal that constitutes an Acquisition Proposal (as defined in the Merger
Agreement); to participate in discussions or negotiations regarding an
Acquisition Proposal; or to enter into any agreements, definitive or otherwise,
regarding an Acquisition Proposal. Physicians' Specialty may, however, upon
receipt of a non-solicited Acquisition Proposal at any time prior to the
approval of the Merger Agreement by the Physicians' Specialty stockholders,
furnish non-public information with respect to Physicians' Specialty and its
subsidiaries to the person making such proposal and may participate in
discussions with such party if the Board of Directors of Physicians' Specialty
determines based on the advice of independent legal counsel that failure to do
so would be inconsistent with its fiduciary duties and determines based on
advice of its financial advisors such Acquisition Proposal is likely to lead to
a transaction (a "Superior Acquisition Proposal") more favorable to the
stockholders from a financial point of view than the Merger. Physicians'
Specialty will advise MergerCo promptly after it receives an indication of
interest, inquiry or proposal from a third party regarding an Acquisition
Proposal and of the status of material developments in the negotiations with
respect to the Acquisition Proposal or the taking of actions not otherwise
permitted under the Merger Agreement with respect to such Acquisition Proposal.
Termination. Either Physicians' Specialty or MergerCo may terminate the
Merger Agreement under certain circumstances, including if:
- both parties consent in writing;
- the Merger is not completed before November 30, 1999;
3
<PAGE> 13
- legal restraints or prohibitions prevent the consummation of the Merger;
- the Physicians' Specialty stockholders do not approve the Merger
Agreement; or
- the other party breaches in a material manner any of its representations,
warranties or covenants under the Merger Agreement and such breach is not
cured within 15 days following notice.
In addition, Physicians' Specialty may terminate the Merger Agreement in
connection with entering into a definitive agreement to effect a Superior
Acquisition Proposal in accordance with the terms of the Merger Agreement, and
MergerCo may terminate the Merger Agreement if the Physicians' Specialty Board
withdraws, or adversely modifies, its approval or recommendation of the Merger
Agreement or the Merger or if Physicians' Specialty enters into any agreement
concerning an Acquisition Proposal.
Fees and Expenses. Physicians' Specialty and MergerCo will pay their own
fees, costs and expenses incurred in connection with the Merger Agreement.
Physicians' Specialty will pay MergerCo a termination fee equal to $3.5 million
plus up to $750,000 of MergerCo's out-of-pocket fees and expenses if Physicians'
Specialty terminates the Merger Agreement because it has entered into a
definitive agreement concerning an Acquisition Proposal or if either party
terminates the Merger Agreement because of the failure to obtain the required
stockholder approval and the Company under certain circumstances enters into a
definitive agreement regarding an Acquisition Proposal within 12 months of
termination. Physicians' Specialty will pay MergerCo's out-of-pocket fees and
expenses (not to exceed $750,000) if MergerCo terminates the Merger Agreement
because the Board has withdrawn or adversely modified its recommendation of the
Merger or because Physicians' Specialty has entered into a definitive agreement
concerning an Acquisition Proposal. Each of MergerCo and Physicians' Specialty
agrees to pay the other party's fees and expenses (not to exceed $750,000) upon
the termination of the Merger Agreement based on a material breach of any
representation, warranty or covenant that such party has under the Merger
Agreement.
SHARE OWNERSHIP OF PHYSICIANS' SPECIALTY FOLLOWING THE MERGER (PAGE 32)
The TA Investors. The exact amount of the TA Investors' investment in
MergerCo is dependent upon the exact number of shares of Physicians' Specialty
Common Stock exchanged by the Management Sponsors, their affiliates, the
Physician Investors and other employees for shares of Surviving Corporation
common stock. Assuming that the Management Sponsors, their affiliates and the
Physician Investors exchange 2,047,310 shares of Physicians' Specialty Common
Stock for Surviving Corporation common stock (and that other employees exchange
approximately 11,500 shares), the TA Investors will contribute approximately
$32.8 million to MergerCo (which will consist of cash and shares of Physicians'
Specialty Common Stock acquired directly by the TA Investors from the Management
Sponsors, their affiliates and the Physician Investors for $10.50 per share in
cash immediately prior to such contribution) in exchange for approximately
27,800 shares of redeemable preferred stock of MergerCo and approximately 3.2
million shares of convertible participating preferred stock of MergerCo, which
shares will be converted into a like number of shares of Surviving Corporation
redeemable preferred stock and convertible participating preferred stock in the
Merger. Upon consummation of the Merger, the TA Investors and their assigns
(including Allied Capital Corporation, the subordinated debt lender, to which
the TA Investors will transfer approximately 97,000 shares of convertible
participating preferred stock) will own approximately 57% of the outstanding
shares of Surviving Corporation common stock on a fully diluted basis (assuming
the exercise of all rights to acquire, and the conversion of all securities and
promissory notes convertible into, Surviving Corporation common stock). See
"-- Unaudited Pro Forma Consolidated Financial Statements."
The Management Sponsors and the Physician Investors. In the Merger, the
Management Sponsors, their affiliates and the Physician Investors will exchange
an aggregate of 2,047,310 shares of Physicians' Specialty Common Stock for a
like number of shares of Surviving Corporation common stock. Upon consummation
of the Merger, the Management Sponsors, their affiliates and the Physician
Investors will own approximately 36% of the outstanding shares of Surviving
Corporation common stock on a fully diluted basis (assuming the exercise of all
rights to acquire, and the conversion of all securities and
4
<PAGE> 14
promissory notes convertible into, Surviving Corporation common stock).
Determinations have not yet been made by other employees as to the number, if
any, of shares of Physicians' Specialty Common Stock such employees will
exchange for Surviving Corporation common stock.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization for accounting
purposes.
FINANCING OF THE MERGER (PAGE 38)
The total amount of funds necessary to consummate the Transactions is
expected to be approximately $87.8 million. These funds are expected to come
from the following sources:
- an equity investment by the TA Investors of approximately $32.8 million;
- borrowings by the Surviving Corporation of approximately $40.0 million
under a new $60.0 million credit facility; and
- an investment by a subordinated lender of $15.0 million in exchange for
subordinated debentures and warrants to purchase Surviving Corporation
common stock (in addition to a $1.0 million equity investment that is
included in the $32.8 million investment described above).
In addition, the Management Sponsors, their affiliates and Physician
Investors will exchange approximately 2,047,310 shares of Common Stock having an
aggregate value of $21.6 million (based on a price of $10.50 per share) for
common stock in the Surviving Corporation.
Physicians' Specialty and TA Associates have received a financing letter
from First Union National Bank ("First Union") for a revolving credit facility
in the amount of $60.0 million, of which approximately $40.0 million will be
used to finance the consummation of the Merger and the related transactions. In
addition, Physicians' Specialty and TA Associates have received a financing
letter from Allied Capital Corporation ("Allied") under which Allied has
committed to invest $15.0 million in exchange for subordinated debentures
together with warrants to purchase Surviving Corporation common stock and to
invest an additional $1.0 million in exchange for convertible participating
preferred stock. These financing letters are subject to the satisfaction of
numerous conditions, including the satisfaction of certain financial tests.
CONFLICTS OF INTEREST (PAGE 31)
The Management Sponsors. The Management Sponsors have interests in the
Merger as employees and/or directors that are different from, or in addition to,
yours as a Physicians' Specialty stockholder. The Management Sponsors and their
affiliates will continue to have an equity interest in the Surviving Corporation
and the ultimate value of this interest could exceed the $10.50 per share to be
received by the Public Stockholders in the Merger. Following consummation of the
Merger, it is expected that the Management Sponsors who were members of
management prior to the Merger will continue as management of the Surviving
Corporation. The Board of Directors of the Surviving Corporation following the
Merger will be comprised of Dr. Tritt and Messrs. Ballard and Benjamin (the
designees of the Company's management), Richard Tadler and David S.B. Lang (the
designees of the TA Investors) and up to two outside directors to be determined
at a later time. In addition, if the Merger is consummated, options to purchase
common stock of the Surviving Corporation may be made available to the
Management Sponsors and amendments to the existing Employment Agreements of the
Management Sponsors will become effective. Also, certain indemnification
arrangements and directors' and officers' liability insurance for existing
directors and officers of Physicians' Specialty will be continued by Physicians'
Specialty after the Merger.
Advisory and Consulting Agreements. Pursuant to a letter agreement dated
January 13, 1999, the Company retained Premier HealthCare ("PHC"), a division of
Bock, Benjamin & Co., an entity in which Mr. Benjamin is chief executive officer
and holds a 25% beneficial ownership interest, to provide advisory
5
<PAGE> 15
services and assist the Company and its Board in the consummation of a leveraged
recapitalization transaction. In connection with its engagement of PHC,
Physicians' Specialty agreed to reimburse PHC's out-of-pocket expenses and pay a
success fee to PHC equal to (A) 1.25% of the total consideration paid in
connection with any consummated transaction, which shall include indebtedness
for borrowed money and the value of any options assumed less (B) a credit not to
exceed $150,000 for any fees payable by the Company to other investment banking
firms in connection with any consummated transaction. Upon consummation of the
Merger, PHC will receive a net fee of approximately $1.25 million under the
letter agreement. The Company also agreed to indemnify PHC against certain
liabilities. In addition, the Company and PHC are parties to a separate
agreement which provides for fees to be paid to PHC upon consummation of certain
transactions by the Company in which PHC has performed advisory services. PHC
will not receive any fee pursuant to this agreement as a result of the
consummation of the Merger. These arrangements are discussed in further detail
elsewhere in this Proxy Statement. See "SPECIAL FACTORS -- Conflicts of
Interests."
The Special Committee. Upon consummation of the Merger, the members of the
Special Committee will be entitled to receive $10.50 per share in cash, without
interest, for each share of Common Stock that they will receive upon the
exercise of stock options which will vest upon consummation of the Merger. In
addition, each member received an aggregate amount of $13,500 in connection with
meetings of the Special Committee, paid pursuant to the Board's policy for
compensation of directors. The members of the Special Committee believe that the
foregoing arrangements do not affect their independence or impartiality.
LITIGATION RELATING TO THE MERGER (PAGE 37)
As of the date of this Proxy Statement, Physicians' Specialty is aware of
one lawsuit that has been filed as a purported class action in the Chancery
Court for New Castle County, Delaware on behalf of all holders of Physicians'
Specialty Common Stock excluding the defendants and their related or affiliated
entities. The lawsuit names as defendants Physicians' Specialty, six of the
Company's seven directors (including the three members of the Special Committee)
and TA Associates, Inc.
The lawsuit alleges, among other things, that the directors of Physicians'
Specialty have breached their fiduciary duties to the Company's stockholders by
approving the Merger. In particular, the lawsuit alleges that members of the
Board of Directors suffer from conflicts of interest that made it impracticable
for the Board of Directors to conduct a "bona fide" market check or auction of
the Company prior to approval of the Merger. The lawsuit also alleges that the
announcement of the Merger was timed to place an artificial lid on the market
price of Physicians' Specialty Common Stock. The lawsuit seeks, among other
things, preliminary and permanent injunctive relief prohibiting consummation of
the Merger, unspecified damages, attorneys' fees and other relief. Physicians'
Specialty believes the lawsuit has no merit and intends to contest this lawsuit
vigorously.
APPRAISAL RIGHTS (PAGE 50)
Any stockholder of Physicians' Specialty who does not vote in favor of the
proposal to approve and adopt the Merger Agreement and who complies strictly
with the applicable provisions of Section 262 ("Section 262") of the Delaware
General Corporation Law (the "DGCL") is entitled to exercise his appraisal
rights to be paid cash for the "fair value" for such holder's shares of Common
Stock. To perfect these appraisal rights with respect to the Merger, you must
follow the required procedures precisely. The applicable provisions of Section
262 are attached to this Proxy Statement as Appendix C.
6
<PAGE> 16
MARKET INFORMATION
The Physicians' Specialty Common Stock is traded on The Nasdaq National
Market ("Nasdaq") (symbol: ENTS). The following table sets forth the high and
low sales prices for each quarterly period for the two most recent fiscal years
and for the current fiscal year to date.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997:
First quarter............................................. $ 8 1/4 $7 1/4
Second quarter............................................ 7 5/8 5
Third quarter............................................. 11 5 1/2
Fourth quarter............................................ 13 3/4 8 1/4
1998:
First quarter............................................. 12 8 7/16
Second quarter............................................ 11 1/2 8 1/8
Third quarter............................................. 8 3/4 5 3/4
Fourth quarter............................................ 8 3/8 6 1/4
1999:
First quarter............................................. 8 1/2 6 1/4
Second quarter............................................ 9 5/8 5 5/8
</TABLE>
On June 11, 1999, the last trading day prior to the announcement of the
execution of the Merger Agreement, the high, low and closing sales prices per
share of Common Stock as reported by Nasdaq were $8 7/8, $8 1/2, and $8 3/4,
respectively. On , 1999, the last trading day prior to printing of
this Proxy Statement, the high, low and closing sales prices per share of Common
Stock as reported by Nasdaq were $ , $ , and $ ,
respectively.
The Company has never paid any cash dividends on its Common Stock. Under
the Merger Agreement, the Company has agreed not to pay any dividends on the
Common Stock prior to the closing of the Merger. Under the Company's current
senior credit facility, the distribution of dividends is restricted.
In March, 1997, Physicians' Specialty completed its initial public offering
of 2,200,000 shares of Common Stock. The offering price per share was $8, and
the net proceeds received by Physicians' Specialty were approximately
$14,275,000. In May, 1998, Physicians' Specialty completed an underwritten
public offering of 2,307,537 shares of Common Stock. The offering price per
share was $8.50, and the net proceeds received by Physicians' Specialty were
approximately $16,520,000.
7
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
Certain selected consolidated historical financial data derived from the
audited financial statements of the Company are set forth below with respect to
the period from inception to December 31, 1996 and the fiscal years ended
December 31, 1997 and December 31, 1998. Selected financial data for the three
months ending March 31, 1998 and March 31, 1999 are based on unaudited financial
statements. The selected financial data should be read in conjunction with the
Consolidated Financial Statements of the Company, related notes, and other
financial information included in this Proxy Statement.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FISCAL YEARS ENDED THREE MONTHS ENDED
(JULY 31, 1996) DECEMBER 31, MARCH 31,
TO DECEMBER 31, ----------------------- -----------------------
1996 1997 1998 1998 1999
--------------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net revenue................................ $ 51 $ 24,488 $ 61,601 $ 12,004 $ 21,511
Expenses:
Provider claims, salaries, wages and
benefits............................... 47 16,747 38,339 7,924 14,082
General and administration............... 357 4,371 13,141 2,257 3,965
Depreciation and amortization............ 2 377 1,850 284 687
-------- ---------- ---------- ---------- ----------
Operating expenses......................... 406 21,495 53,330 10,465 18,734
-------- ---------- ---------- ---------- ----------
Operating income (loss).................... (355) 2,993 8,271 1,539 2,778
-------- ---------- ---------- ---------- ----------
Net income (loss).......................... (355) 2,060 5,010 957 1,685
======== ========== ========== ========== ==========
Earnings per share (loss)
Basic.................................... $ (0.64) $ 0.42 $ 0.62 $ 0.15 $ 0.18
Diluted.................................. $ (0.64) $ 0.42 $ 0.60 $ 0.14 $ 0.18
Weighted average shares outstanding
Basic.................................... 522,894 4,868,035 8,021,914 6,511,466 9,164,710
Diluted.................................. 522,894 4,966,778 8,434,583 7,033,786 9,405,764
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------- AT MARCH 31,
1996 1997 1998 1999
----- ------- ------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 123 $ 5,352 $ 4,926 $ 1,756
Working capital (deficit)................................... (473) 10,469 18,388 17,194
Total assets................................................ 613 30,598 63,685 67,203
Total liabilities........................................... 505 912 11,314 12,402
Stockholders equity (deficit)............................... (10) 25,114 47,808 49,557
</TABLE>
8
<PAGE> 18
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Physicians' Specialty, MergerCo and the TA Investors have entered into the
Merger Agreement, which provides that MergerCo will be merged with and into
Physicians' Specialty with Physicians' Specialty being the Surviving
Corporation. In connection with the Merger, each stockholder of Physicians'
Specialty (other than stockholders who are entitled to and have perfected their
appraisal rights, Physicians' Specialty and its subsidiaries, MergerCo, the
Management Sponsors and their affiliates, the Physician Investors and certain
employees) will be entitled to receive $10.50 in cash for each outstanding share
of common stock. The Management Sponsors and certain of their affiliates, the
Physician Investors and certain other employees will receive a cash payment for
certain of their shares and certain of their shares will be converted into
common stock of the Surviving Corporation. In addition, each share of common
stock of MergerCo, each share of convertible participating preferred stock of
MergerCo and each share of redeemable preferred stock of MergerCo outstanding
immediately prior to the consummation of the Merger will be converted into one
share of common stock of the Surviving Corporation, one share of convertible
participating preferred stock of the Surviving Corporation and one share of
redeemable preferred stock of the Surviving Corporation, respectively. In order
to consummate the Merger, Physicians' Specialty and TA Associates have received
financing letters from First Union for a $60 million revolving credit facility
and from Allied for $15 million of subordinated debt and $1 million of equity.
These financing letters are subject to the satisfaction of numerous conditions,
including the satisfaction of certain financial tests.
The following table sets forth certain unaudited pro forma consolidated
financial statements for Physicians' Specialty for the fiscal year ended
December 31, 1998 and the quarter ended March 31, 1999 and reflects the pro
forma effect of the Merger and the acquisition of the tangible assets of
Physicians' Domain, Inc..
The selected unaudited pro forma consolidated statements of operations for
the fiscal year ended December 31, 1998 and for the three months ended March 31,
1999, give pro forma effect to the Merger as if it had occurred January 1, 1998.
The unaudited pro forma consolidated statement of operations for the fiscal year
ended December 31, 1998 also gives pro forma effect to the acquisition of the
tangible assets of Physicians' Domain, Inc. on May 27, 1998, as if such
acquisition had occurred on January 1, 1998. The unaudited pro forma
consolidated balance sheet as of March 31, 1999 gives pro forma effect to the
Merger as if it had occurred on March 31, 1999. The unaudited pro forma
consolidated financial statements do not purport to be indicative of the results
of operations or financial position of Physicians' Specialty that would have
actually been obtained had the Merger been completed as of the assumed dates and
for the periods presented, or which may be obtained in the future. The unaudited
pro forma consolidated financial statements should be read in conjunction with
the separate historical consolidated financial statements of Physicians'
Specialty, and the notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company which are included
in this Proxy Statement. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
9
<PAGE> 19
PHYSICIANS' SPECIALTY CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PHYSICIANS' PRO FORMA PRO FORMA
ACTUAL DOMAIN, INC.(F) ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net patient service revenues... $54,889,930 $4,446,000 $59,335,930
Management fees................ 4,916,424 -- 4,916,424
Capitation revenues............ 1,164,418 -- 1,164,418
Earnings in unconsolidated
subsidiary.................. 630,415 -- 630,415
----------- ---------- -----------
Net Revenues................ 61,601,187 4,446,000 66,047,187
----------- ---------- -----------
EXPENSES:
Provider claims, wages and
benefits.................... 38,339,351 1,808,000 40,147,351
General and administrative..... 13,140,889 1,640,000 14,780,889
Depreciation and
amortization................ 1,849,864 72,000 1,921,864
----------- ---------- -----------
Operating expenses.......... 53,330,104 3,520,000 56,850,104
----------- ---------- -----------
OPERATING INCOME................. 8,271,083 926,000 9,197,083
OTHER INCOME (EXPENSE)........... (54,169) -- $(6,169,561)(A)(B)(E) (6,223,730)
----------- ---------- ----------- -----------
PRETAX INCOME.................... 8,216,914 926,000 (6,169,561) 2,973,353
PROVISION FOR INCOME TAXES....... 3,206,794 7,000 (2,406,129)(C) 807,665
----------- ---------- ----------- -----------
NET INCOME....................... 5,010,120 919,000 (3,763,432) 2,165,688
DIVIDENDS ON PREFERRED STOCK..... -- -- (1,668,000)(D) (1,668,000)
----------- ---------- ----------- -----------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS................... $ 5,010,120 $ 919,000 $(5,431,432) $ 497,688
=========== ========== =========== ===========
Earnings per share
Basic.......................... $ 0.62 $ 0.24
=========== ===========
Diluted........................ $ 0.60 $ 0.09
=========== ===========
Weighted average common shares
outstanding
Basic.......................... 8,021,914 2,058,789
=========== ===========
Diluted........................ 8,434,583 5,741,103
=========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
10
<PAGE> 20
PHYSICIANS' SPECIALTY CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Net patient service revenues................. $19,510,709 $19,510,709
Capitation revenue........................... 1,362,170 1,362,170
Management fees.............................. 343,300 343,300
Earnings in unconsolidated subsidiary........ 295,000 295,000
----------- -----------
Net Revenues.............................. 21,511,179 21,511,179
----------- -----------
EXPENSES:
Provider claims, wages and benefits.......... 14,082,477 14,082,477
General and administrative................... 3,964,749 3,964,749
Depreciation and amortization................ 686,432 686,432
----------- -----------
Operating expenses........................ 18,733,658 18,733,658
----------- -----------
OPERATING INCOME............................... 2,777,521 2,777,521
OTHER INCOME (EXPENSE)......................... (14,767) $(1,478,549)(A)(B)(E) (1,493,316)
----------- ----------- -----------
PRETAX INCOME.................................. 2,762,754 (1,478,549) 1,284,205
PROVISION FOR INCOME TAXES..................... 1,077,477 (576,634)(C) 500,843
----------- ----------- -----------
NET INCOME..................................... 1,685,277 (901,915) 783,362
DIVIDENDS ON PREFERRED STOCK................... -- (417,000)(D) (417,000)
----------- ----------- -----------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS.... $ 1,685,277 $(1,318,915) $ 366,362
=========== =========== ===========
Earnings per share
Basic........................................ $ 0.18 $ 0.18
=========== ===========
Diluted...................................... $ 0.18 $ 0.06
=========== ===========
Weighted Average Shares Outstanding
Basic........................................ 9,164,710 2,058,789
=========== ===========
Diluted...................................... 9,405,764 5,741,103
=========== ===========
</TABLE>
See notes to unaudited pro forma consolidated financial statements
11
<PAGE> 21
PHYSICIANS' SPECIALTY CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS AS ADJUSTED
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 1,756,288 $ 1,458,187(A) $ 3,214,475
Accounts receivable, net........................ 17,878,267 17,878,267
Notes receivable................................ 1,554,000 1,554,000
Prepayments and other........................... 1,249,042 1,249,042
----------- ------------ ------------
Total current assets.................... 22,437,597 1,458,187 23,895,784
PROPERTY AND EQUIPMENT, net....................... 9,918,007 9,918,007
INTANGIBLE ASSETS, net............................ 29,118,351 -- 29,118,351
PROMISSORY NOTE RECEIVABLE........................ 2,152,000 2,152,000
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY........... 3,262,843 3,262,843
OTHER ASSETS...................................... 313,760 1,546,539(E) 1,860,299
----------- ------------ ------------
TOTAL ASSETS............................ $67,202,558 $ 3,004,726 $ 70,207,284
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable................................... $ 272,000 $ 272,000
Due to physicians............................... 296,791 296,791
Accounts payable and accrued expenses........... 4,667,887 4,667,887
Deferred income taxes........................... 6,838 6,838
----------- ------------
Total current liabilities............... $ 5,243,516 $ 5,243,516
----------- ------------
BORROWINGS UNDER REVOLVING CREDIT FACILITY........ -- 40,000,000(A) 40,000,000
BORROWINGS UNDER SUBORDINATED DEBENTURE........... -- 15,000,000(A) 15,000,000
SUBORDINATED SELLER NOTES......................... 8,651,701 8,651,701
BORROWINGS UNDER CREDIT AGREEMENT................. 3,750,000 (3,750,000)(A) --
----------- ------------ ------------
Total long-term debt.................... 12,401,701 51,250,000 63,651,701
----------- ------------ ------------
Total liabilities....................... 17,645,217 51,250,000 68,895,217
----------- ------------ ------------
REDEEMABLE PREFERRED STOCK........................ -- 27,800,000(A) 27,800,000
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock................................... -- 5,000,000(A) 5,000,000
Common stock...................................... 9,172 (7,113)(A) 2,059
Additional paid-in capital........................ 41,147,388 (41,147,388)(A) --
Retained earnings................................. 8,400,781 (39,890,773)(A) (31,489,992)
----------- ------------ ------------
Total stockholders' equity (deficit).... 49,557,341 (76,045,274) (26,487,933)
Total liabilities and stockholders'
equity (deficit)...................... $67,202,558 $ 3,004,726 $ 70,207,284
=========== ============ ============
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
12
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
This transaction will be accounted for as a recapitalization for accounting
purposes. No goodwill is generated from the transaction but there are
adjustments and reductions from the equity accounts of the Company.
- ---------------
(A) These adjustments record (i) the borrowing under the First Union revolving
credit facility, (ii) the borrowing under the Allied Capital subordinated
debenture, (iii) the equity contribution (see "The Transactions,"
"Capitalization" and "Description of Preferred Stock"), and (iv) the use of
a portion of the net proceeds to purchase 7,484,931 of outstanding shares of
Physicians' Specialty Common Stock and to repay the existing credit
facility. The table below reflects the financing transactions:
<TABLE>
<S> <C>
Sources of cash
First Union revolving credit facility..................... $40,000,000
Allied Capital credit facility............................ 15,000,000
Preferred shares -- redeemable............................ 27,800,000
Preferred shares -- convertible........................... 5,000,000
-----------
$87,800,000
Uses of cash
Purchase of outstanding shares of common stock............ $78,591,813
Repayment of existing indebtedness........................ 3,750,000
Transaction fees and expenses............................. 4,000,000
General corporate purposes................................ 1,458,187
-----------
$87,800,000
</TABLE>
(B) Reflects the removal of interest expense under the Nationsbank Credit
Facility and the additional interest expense for the First Union Revolving
Credit Facility and the Allied Capital subordinated debenture incurred in
connection with this transaction computed at rates of 9% and 15.5% per
annum, respectively.
(C) Reflects the establishment of a provision for income taxes at an estimated
39% effective tax rate, which consists of a 34% statutory federal tax rate
and an average state statutory tax rate of 5%.
(D) Represents a 6% cumulative dividend on Redeemable Preferred Stock.
(E) Reflects the removal of debt issuance costs under the Nationsbank Credit
Facility and the additional amortization expense of debt issuance costs
for the First Union Revolving Credit Facility and the Allied Capital
subordinated debenture computed at rates of 2.5% and 1.0% on the total
commitment amounts, respectively.
(F) In addition, the Company acquired substantially all of the tangible assets
and assumed certain contractual liabilities of Physicians' Domain, Inc., a
White Plains, New York-based practice management company, in a purchase
combination. The unaudited pro forma statement of operations for the
fiscal year ended December 31, 1998 gives pro forma effect to the
acquisition of the tangible assets of Physicians' Domain, Inc. on May 27,
1998, as if such acquisition had occurred on January 1, 1998.
13
<PAGE> 23
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND BOOK VALUE PER SHARE
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges and book value per share of Physicians' Specialty
Common Stock for the years ended December 31, 1998 and 1997 and as at March 31,
1999. The following table also provides pro forma figures for the year ended
December 31, 1998 and as at March 31, 1999.
<TABLE>
<CAPTION>
AS OF THE AS OF THE PRO FORMA
YEAR ENDED YEAR ENDED YEAR ENDED AS OF PRO FORMA AS OF
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998 1999 1999
------------ ------------ ------------ --------- ---------------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges:(1)...................... 44.38 16.70 1.44 12.24 1.69
Book value per common share........ 5.16 5.96 N/A 5.41 (4.90)
</TABLE>
- ---------------
(1) For purposes of computing these ratios, earnings have been calculated
by adding fixed charges (excluding capitalized interest) to income
before extraordinary items. Fixed charges consist of interest costs,
whether expensed or capitalized, and amortization of debt discounts and
issue costs, whether expensed or capitalized.
14
<PAGE> 24
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In 1998, market valuations of publicly traded physician practice management
("PPM") companies deteriorated. The Company completed a follow-on equity
offering in May 1998 and was disappointed with the pricing of its Common Stock.
Shortly after the offering, an investment banker from one of the managing
underwriters of the offering approached management of the Company with a
proposal that Physicians' Specialty give consideration to consummating a
business combination with another PPM company so as to increase the Company's
market capitalization, thus allowing for a broader base of institutional
investors to establish positions in the Physicians' Specialty Common Stock. The
investment banker indicated that the Company's specialty focus and managed care
expertise might be attractive to three large PPM companies known to the
investment banker. After discussing the investment banker's proposal with the
Board, management authorized the investment banker, without a formal engagement,
to informally explore with these three PPM companies whether they might be
interested in a possible business combination. The investment banker was not
authorized to disclose the identity of the Company. The investment banker
reported that each of the three PPM companies approached indicated they were not
interested in pursuing a business combination.
During the third quarter of 1998, the Company's Board of Directors and the
management team were concerned about the overall deterioration of market
valuations of publicly traded PPM companies. Although the Company continued to
have strong revenue growth and to meet consensus Wall Street analyst estimates,
the Company's stock price had declined from a price of $12.00 in March 1998, to
a low of $5.375 in the third quarter of 1998. Management believed that the
declining stock price was a result of negative investor sentiment toward PPM
companies and a difficult market for small capitalization stocks. The Company's
depressed stock price was having an adverse impact upon the Company's ability to
attract and retain qualified management and to utilize its Common Stock in
connection with acquisitions. Management was concerned about the resulting
detrimental effect on the Company's long-term business strategy which has been
to consolidate in select markets the management and delivery of ENT and related
specialty care largely through acquisitions.
Late in the third quarter of 1998, another PPM company ("Company No. 1")
approached senior management of the Company to discuss the Company's interest in
pursuing a business combination. Management reported this approach to the Board
of Directors. After careful consideration, the Board determined a merger with
Company No. 1 would be inconsistent with the Company's long-term business
strategy given Company No. 1's geographic focus, limited financial resources and
small market capitalization.
During the fourth quarter of 1998, Physicians' Specialty approached
Robinson-Humphrey and requested that a meeting be arranged with another PPM
company ("Company No. 2") to discuss a possible business combination
transaction. Robinson-Humphrey had not been retained as financial advisor by
either Physicians' Specialty or Company No. 2. Management authorized
Robinson-Humphrey to approach Company No. 2 and to inquire informally as to that
company's interest in pursuing a business combination with Physicians'
Specialty. After an introductory meeting held during the course of the
Robinson-Humphrey Healthcare Conference, Company No. 2 informed
Robinson-Humphrey that it was not able to consider pursuing a business
combination with Physicians' Specialty at that time. Shortly thereafter, Company
No. 2 disclosed that its Board of Directors had approved a merger with another
publicly traded PPM company.
In December 1998, management of the Company approached a manufacturer and
distributor of surgical products ("Company No. 3") about its interest in
exploring a business combination with the Company. Company No. 3 subsequently
indicated through its investment bankers that it had no interest in pursuing a
business combination with a PPM company.
During the fourth quarter of 1998, the Company's senior management began to
receive unsolicited inquiries from private equity firms regarding the Company's
interest in pursuing a recapitalization of the
15
<PAGE> 25
Company. Dr. Ramie A. Tritt, the Chairman of the Board and President of the
Company, reported this development to the full Board of Directors on November 4,
1998. The Board of Directors encouraged Dr. Tritt to explore available
alternatives that would provide enhanced value to the Company's stockholders.
The Board of Directors considered the possibility of an acquisition of the
Company which would involve an investment by management as a potential
transaction that might provide enhanced value to the Company's stockholders.
Because of the depressed market values of the companies in the PPM industry and
the lack of success the Company had experienced over the previous months in
exploring a strategic business combination, the Board believed a transaction
involving management and a financial buyer was likely to be the best alternative
to enhance stockholder value. At the January 12, 1999 Board meeting, the Board
discussed the strategic alternatives available to the Company to enhance
stockholder value, including a merger with a strategic partner and a transaction
involving management and a financial buyer. The Board further discussed
continuing to implement the Company's long term business strategy. The Board did
not make any determination as to which strategic alternative to pursue. However,
given the Board's belief that a transaction involving management and a financial
buyer could be attractive, the Board of Directors decided to retain PHC, as
financial advisor, to seek and assist in the review of potential transactions,
including a transaction involving an investment by management. The Board
discussed the ownership interest held by Gerald R. Benjamin, the Company's Vice
Chairman and Secretary, in Bock, Benjamin & Co., the parent of PHC, and the
potential conflicts of interest, but determined that, because of its previous
association with the Company, its familiarity with the Company and its
recognized standing and expertise in the PPM and health care services sector,
the retention of PHC was advisable.
As part of its engagement, PHC performed various analyses and procedures as
it deemed appropriate to evaluate a potential transaction. These included (i)
interviews with senior management and a review of the Company's business plan
and budgets, (ii) an analysis of the equity capital markets and the PPM sector
in particular; (iii) an analysis of recent leveraged recapitalization
transactions; (iv) an analysis of the senior debt market and current terms being
offered to health care services companies; and (v) preparation of a detailed
leveraged recapitalization financial model. In addition, as part of its
engagement, PHC approached 11 private equity firms between January 1999 and
February 1999 regarding their interest in sponsoring a leveraged
recapitalization of Physicians' Specialty. In choosing the private equity firms
to be approached, PHC selected those firms which it knew or confirmed to have
(i) expertise in the PPM or health care services sector, (ii) sufficient amounts
of uncommitted capital available to complete a leveraged recapitalization of the
Company, and (iii) a continuing interest in funding health care service
investments in light of the well-publicized difficulties being encountered by a
number of PPM and health care services companies. Of the 11 firms approached,
nine firms received a confidential information package from the Company and held
meetings with members of the Company's senior management team. At the end of
this process, PHC received proposals from three of the firms contacted.
On March 3, 1999, the Company's Board of Directors met to review the
analyses prepared by PHC and the proposals received by PHC on behalf of the
Company. Of the three proposals received, the Board of Directors determined that
one proposal involved an inadequate valuation of the Company's stock and that
the second was subject to financing conditions that were unachievable in the
current lending environment for health care services companies. The third
proposal was from TA Associates. In reviewing the TA Associates proposal, the
Company's Board was informed by PHC that TA Associates initially proposed a
price of $10.50 per share for the Physicians' Specialty Common Stock.
Additionally, TA Associates required that a substantial amount of shares of
Physicians' Specialty Common Stock held by management and affiliated physicians
be invested in the Surviving Corporation. The following business day, however,
TA Associates revised its proposal downward to a price range of $9.50 to $9.75
per share for the Physicians' Specialty Common Stock, citing that it had omitted
to include the Company's subordinated seller notes and contingent notes when
developing its initial proposal. Over a two week period negotiations proceeded
between TA Associates and PHC. PHC countered the revised proposal from TA
Associates with a price of $11.1875 per share. TA Associates indicated that a
price of $10.00 per share was the most it could justify in light of a
deteriorating senior debt market for health care services companies. PHC
indicated that a price of $10.50 per share would be required in order for PHC to
present a transaction to the Company's Board of Directors. TA Associates agreed
to increase its offer to $10.50
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per share but indicated that, in order to justify the $10.50 price, its proposed
redeemable preferred stock investment, having a $27.8 million liquidation
preference, would be required to carry a 6% cumulative dividend.
The final proposal from TA Associates as presented to the Company's Board
on March 3, 1999 contemplated a leveraged recapitalization of Physicians'
Specialty with the Public Stockholders receiving $10.50 per share in cash. The
proposal contemplated that senior management and certain affiliated physicians
would participate in the proposed acquisition and have a continuing equity
interest in the Company. After discussing the process that had been undertaken
by PHC and the TA Associates proposal, the Board determined that the proposal
from TA Associates warranted further consideration. Given the potential
conflicts of interest embodied in the TA Associates proposal, at the March 3
Board meeting the Board of Directors formed the Special Committee consisting of
Sidney Kirschner, Edward D. Casas, M.D., and Steven Posar, M.D., three members
of the Board of Directors who are not employed by the Company or any of the
Company's affiliated physician practices and who will not own equity interests
in or be employed by the Surviving Corporation, to consider the fairness to the
Company's stockholders of the proposed transaction and to report its
determination regarding the fairness of the proposal from TA Associates to the
full Board of Directors. The Special Committee was authorized to conduct
negotiations with TA Associates regarding the terms of the proposed transaction
and to determine whether to accept or reject the proposed transaction. Further,
the Special Committee was authorized to solicit, as necessary, and evaluate any
alternative proposals. In making its determinations, the Special Committee was
authorized to establish such procedures, review such information, engage such
financial advisors and legal counsel as it deemed reasonable and necessary.
The Special Committee retained the law firm of King & Spalding as its legal
counsel. Thereafter, the Special Committee and its legal counsel discussed the
procedures to be followed in analyzing the offer from TA Associates. As part of
this discussion, King & Spalding advised the Special Committee as to the Special
Committee's legal responsibilities and the legal principles applicable to, and
the legal consequences of, actions taken by the Special Committee with respect
to the offer by TA Associates.
On March 10, 1999, the Special Committee met to interview two investment
banks to serve as financial advisor to the Special Committee. On March 17, the
Special Committee engaged Robinson-Humphrey to serve as its financial advisor
for the purpose of reviewing strategic alternatives available to the Company,
reviewing contacts and negotiations the Company had regarding a merger or sale
of the Company, advising and assisting the Special Committee in negotiations
with TA Associates and rendering an opinion to the Board as to the fairness,
from a financial point of view, to the Public Stockholders of the consideration
payable in the Merger. The Special Committee instructed Robinson-Humphrey to
commence its investigation and analysis of the proposal received from TA
Associates. In addition to reviewing the financial terms of the proposal from TA
Associates, the Special Committee requested that Robinson-Humphrey review the
process undertaken by PHC and the Company in connection with the TA Associates
proposal.
During the period from March 17 to March 24, 1999, Robinson-Humphrey
reviewed certain financial and other information concerning the Company,
assessed certain other strategic alternatives available to the Company, met with
certain members of the Company's management team and PHC and met telephonically
with TA Associates to discuss the proposal from TA Associates.
On March 24, 1999, the Special Committee met telephonically with
Robinson-Humphrey and King & Spalding to discuss the preliminary review and
analyses performed by Robinson-Humphrey. Representatives of Robinson-Humphrey
discussed with the Special Committee its preliminary findings in connection with
its investigation of the Company, its assessment of available strategic
alternatives, its review of the process undertaken by PHC, and how the proposed
purchase price of $10.50 per share compared with: (i) valuations of other
publicly traded PPM companies, (ii) valuations in other merger and acquisition
transactions in the PPM sector, (iii) premiums paid in other merger and
acquisition transactions since January 1997, and (iv) historical trading
patterns of the Company's Common Stock. Upon receiving this preliminary analysis
from Robinson-Humphrey of the proposed transaction, the Special Committee
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concluded not to respond with a specific price counteroffer to the TA Associates
proposal at that time. Instead the Special Committee determined that, although
it believed the $10.50 price to be attractive, it would be advisable for
Robinson-Humphrey to talk with TA Associates to attempt to negotiate a higher
price per share than $10.50 in cash.
At the March 24 Special Committee Meeting, the Special Committee considered
and discussed with Robinson-Humphrey the advisability of contacting other
potential acquirors regarding their interest in pursuing a transaction with the
Company. In connection with its review of available strategic alternatives,
Robinson-Humphrey identified three categories of companies that might have a
strategic interest in effecting a business combination with the Company that
could provide greater value to the Company's stockholders than the TA Associates
proposal. These included other PPM companies, operators of specialty health care
facilities and manufacturers of ENT related devices. After reviewing the current
market valuation, trading multiples, and the recent financial performance and
strategic objectives of publicly traded PPMs, Robinson-Humphrey informed the
Special Committee that the probability of another PPM being able to acquire or
merge with the Company at a valuation in excess of the TA Associates' proposal
was low. With respect to its analysis of operators of specialty health care
facilities, Robinson-Humphrey informed the Special Committee that given the
losses that several large operators of specialty health care facilities had
incurred in connection with the ownership of physician practices, the likelihood
of receiving a superior proposal from one of these entities in the current
industry environment was also low. In analyzing the opportunity to pursue a
transaction with an ENT related device manufacturer, Robinson-Humphrey reviewed
with the Special Committee the Company's prior discussions with Company No. 3, a
leading manufacturer of ENT related devices. Given Company No. 3's lack of
interest in pursuing a business combination with a PPM company and in light of
the specialized nature of the ENT device market, Robinson-Humphrey informed the
Special Committee that the likelihood that another medical device company would
be interested in a transaction was very low.
In connection with its review of the process undertaken by PHC,
Robinson-Humphrey reviewed with PHC the list of private equity firms contacted
by PHC and the responses received from each firm contacted. After reviewing
these responses as well as considering its own knowledge of the private equity
market, Robinson-Humphrey advised the Special Committee that PHC had contacted
an adequate and sufficient representation of the leading private equity firms
that were most likely to have an interest in pursuing a recapitalization of the
Company. Finally, Robinson-Humphrey advised the Special Committee that any
contact with other potential acquirors might cause TA Associates to withdraw its
proposal. After considering Robinson-Humphrey's assessment and analysis, the
Special Committee determined that, given the difficult market for PPM companies
and the discussions conducted by the Company in the third and fourth quarters of
1998 with respect to potential business combinations with strategic buyers, it
was unlikely that a strategic buyer would be interested in acquiring Physicians'
Specialty at a price in excess of $10.50 per share. In addition, the Special
Committee determined after consultation with Robinson-Humphrey that PHC had
contacted the financial buyers that appeared most likely to be interested in
acquiring Physicians' Specialty during its process. Further, based upon input
from Robinson-Humphrey, the members of the Special Committee were concerned that
if they contacted other bidders at this time, TA Associates would withdraw its
proposal which the Special Committee believed to be attractive.
Subsequent to the March 24 Special Committee meeting, Robinson-Humphrey, as
authorized, approached TA Associates to discuss a price higher than $10.50. TA
Associates informed Robinson-Humphrey that in light of the extensive purchase
price negotiations which had taken place with PHC and the deteriorating senior
debt market for health care services companies, it was unwilling to increase its
bid above $10.50 per share in cash. In addition, TA Associates informed
Robinson-Humphrey that in order to proceed with due diligence and document
preparation TA Associates required an agreement from the Company to provide an
exclusivity period and expense reimbursement. Robinson-Humphrey reported these
conversations to the Special Committee. As a result of the analysis presented at
the March 24 Special Committee meeting and the position taken by TA Associates,
upon inquiry, Robinson-Humphrey informed the Special Committee that it did not
recommend soliciting indications of interest from any third party
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with respect to the purchase of all or a part of the Company's business. The
Special Committee continued to believe the $10.50 price to be attractive,
concluded that $10.50 was the highest price TA Associates would pay and
authorized Robinson-Humphrey and King & Spalding to negotiate the terms of an
exclusivity and expense reimbursement letter. On April 5, 1999, the Special
Committee and TA Associates executed a letter agreement that provided that (i)
the Company would negotiate exclusively with TA Associates regarding a merger or
business combination involving the Company through May 15, 1999 and (ii) the
Company would reimburse TA Associates for its reasonable fees and expenses
incurred in connection with a potential transaction involving the Company up to
an initial cap of $100,000, which was increased to $200,000 with the consent of
the Special Committee. The exclusivity period was extended several times by the
Special Committee to facilitate the continuing negotiation of the terms of the
Merger Agreement and the financing commitments.
During the period from April 5 to June 10, 1999, TA Associates conducted a
due diligence review of the Company which included engaging KPMG Peat Marwick to
perform certain financial due diligence and engaging the law firm of Goodwin
Procter & Hoar LLP to perform certain legal due diligence. During this same
period, representatives from TA Associates and the Company's management met with
various banks and non-bank lenders to arrange the financing for the proposed
transaction.
At the April 30, 1999 meeting, the Special Committee discussed the progress
of the proposed transaction including the due diligence investigation by TA
Associates and its advisors. The Special Committee also reviewed with King &
Spalding the preliminary draft of the Merger Agreement that had been provided by
legal counsel for TA Associates. The terms of the Merger Agreement and related
documents continued to be negotiated by the Special Committee and its advisors
and TA Associates and its advisors through June 10, 1999.
On June 12, 1999, the Special Committee, together with representatives of
Robinson-Humphrey and King & Spalding, met telephonically to consider further
the $10.50 per share cash offer by TA Associates and the Merger Agreement. A
draft of the Robinson-Humphrey opinion and related analyses and other materials
had been delivered to the Special Committee members and the other directors
prior to the meeting. Representatives of King & Spalding reviewed again with the
members of the Special Committee their legal duties in connection with the
consideration of the offer. King & Spalding also reviewed with the Special
Committee the terms of the Merger Agreement and the terms of the commitment
letters for the debt financing for the Merger. At the meeting, Robinson-Humphrey
presented an analysis outlined in the materials distributed to the Special
Committee and the Board prior to the meeting of the $10.50 per share cash offer
and delivered an opinion that such consideration was fair, from a financial
point of view, to the Public Stockholders. The Special Committee discussed the
$10.50 per share cash offer in detail, and questioned Robinson-Humphrey
regarding certain aspects of its valuation methodologies and analyses. Based on
the opinion delivered by Robinson-Humphrey at the June 12 meeting and the
related analyses, the Special Committee's belief after discussions with
Robinson-Humphrey that it was unlikely that another proposal for a business
combination would be made that would provide greater value to the Public
Stockholders than the $10.50 per share cash price and the other factors
described below in " -- The Special Committee's and the Board's Recommendation,"
the Special Committee determined that the Merger, the Merger Agreement and the
other transactions contemplated thereby were advisable, fair and in the best
interests of Physicians' Specialty and the Public Stockholders and recommended
to the full Board of Directors that the Board accept the $10.50 per share cash
offer and that the Merger, the Merger Agreement and the transactions
contemplated thereby be approved, adopted and declared advisable. Immediately
after the Special Committee meeting on June 12, 1999, the Board of Directors of
the Company met to receive the report of the Special Committee. At this meeting,
Mr. Kirschner, Chairman of the Special Committee, gave the report of the Special
Committee in which the Special Committee unanimously recommended to the Board of
the Directors of the Company that the Board accept the $10.50 per share cash
offer and approve, adopt and declare advisable the Merger, the Merger Agreement
and the transactions contemplated thereby. At the Board meeting,
Robinson-Humphrey also summarized its presentation given to the Special
Committee on June 12, 1999 for the full Board of Directors of the Company. After
hearing the recommendations of the Special Committee, the Board of Directors
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unanimously determined that the Merger, the Merger Agreement and the
transactions contemplated thereby were advisable, fair and in the best interests
of Physicians' Specialty and the Public Stockholders and approved the Merger
Agreement.
On June 14, 1999, prior to the opening of trading on Nasdaq, the Company
issued a press release announcing that based on the recommendation of the
Special Committee, the Board of Directors had approved the TA Associates' merger
proposal of $10.50 per share in cash.
A copy of the written materials provided by Robinson-Humphrey and
distributed to the Special Committee prior to the June 12, 1999 meeting has been
filed as an exhibit to the Schedule 13E-3 and is available for inspection and
copying at the principal executive offices of the Company during its regular
business hours by any stockholder or any representative of a stockholder who has
been so designated in writing. A copy of such materials shall be provided to any
stockholder or any representative of a stockholder who has been so designated in
writing upon written request and at the expense of the requesting stockholder or
representative. In addition, these materials are available to the public at the
Internet World Wide Web Site maintained by the Commission at http:/www.sec.gov.
For additional information on where to obtain copies of these materials, see
"Where You Can Find More Information."
On June 25, 1999, TA Associates, Inc., TA Associates VIII LLC, TA MergerCo,
Inc., and TA/Advent VIII, L.P., as a group, and Dr. Tritt, individually, each
made a Schedule 13D filing with the Commission disclosing that Physicians'
Specialty had entered into the Merger Agreement with the TA Investors and that
Dr. Tritt, as well as certain other stockholders of the Company, had entered
into a voting agreement pursuant to which such stockholders agreed, among other
things, to (i) vote their shares of Physician's Specialty Common Stock in favor
of approval and adoption of the Merger Agreement and (ii) abide by certain
restrictions on the transfer of shares of Physicians' Specialty Common Stock
owned by each such stockholder.
THE SPECIAL COMMITTEE'S AND THE BOARD'S RECOMMENDATION
The full Board of Directors formed the Special Committee, comprised of
disinterested directors, to review and evaluate the proposed Transactions
because it appeared that certain of the directors would have actual or potential
conflicts of interest in evaluating the Transactions. As discussed above under
"-- Background of the Merger", the Special Committee unanimously recommended
that the Board approve, adopt and declare advisable the Merger, the Merger
Agreement and the transactions contemplated thereby. Following the unanimous
recommendation of the Special Committee, the Board approved and declared
advisable, fair and in the best interests of Physicians' Specialty and the
Public Stockholders the Merger, the Merger Agreement and the transactions
contemplated thereby and recommended that the stockholders of the Company
approve the Merger, the Merger Agreement and the transactions contemplated
thereby. In connection with their recommendations, the Special Committee and the
Board each adopted the analyses and findings of the Special Committee's
financial advisor, Robinson-Humphrey. See "-- Opinion of Financial Advisor." The
Special Committee and the Board recommend that the stockholders vote "For" the
approval of the Merger Agreement.
The Special Committee met on nine occasions between March 5, 1999 and June
12, 1999, in person or by telephone conference, to consider developments
relating to the possible recapitalization of the Company. The Special Committee
was assisted in its deliberations by its financial advisor, Robinson-Humphrey,
and its legal counsel, King & Spalding. At a meeting held June 12, 1999, the
Special Committee determined that the Merger, the Merger Agreement, and the
transactions contemplated thereby were advisable, fair and in the best interests
of the Public Stockholders of the Company and recommended that the full Board
approve and adopt the Merger, the Merger Agreement and the transactions
contemplated thereby.
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The material factors the Special Committee evaluated in connection with the
Merger are described below. Except for paragraph (ix) and as otherwise as noted
below, the Special Committee considered the following factors to be positive
factors supporting its determination that the Merger is advisable, fair and in
the best interests of the Public Stockholders. In arriving at its decision, the
Special Committee considered:
(i) The Special Committee's view that the market price of the Common
Stock has not reflected, and for an indefinite period of time would not
reflect, the value that may be inherent in the Company's business strategy
due to the negative investor sentiment towards PPM companies and a
difficult market for small capitalization stocks. The Special Committee
believed that the Company's depressed stock price was having and would
continue to have an adverse impact upon the Company's ability to attract
and retain qualified management and utilize its Common Stock in connection
with acquisitions. In addition, the Special Committee was concerned that
the market price of the Common Stock could decline further as a result of
negative investor sentiment toward PPM companies and the potential impact
of large sales of Common Stock by institutional holders and affiliated
physicians. The Company's depressed stock price had made acquisitions more
expensive and dilutive to earnings, and thus had a detrimental effect on
management's ability to execute the Company's business strategy. In this
regard, the Special Committee considered that the Company may be managed
more effectively as a private company not subject to pressures from Public
Stockholders and market professionals to grow earnings per share
consistently. Additionally, the Special Committee was concerned that, given
the reduced market price of the Common Stock, any additional equity
incentives which the Company might use to retain and attract key members of
management would have further adverse effects on the market price of the
Common Stock. The Special Committee believed that, as a private company,
the Company would have greater flexibility to consider business strategies
that have long-term benefits (including acquisitions which are often
dilutive in the short-term), but that would adversely impact earnings per
share and the market price of the Physicians' Specialty Common Stock in the
short-term if the Company remained public.
(ii) The belief of the Special Committee that the Merger represents a
more desirable alternative than continuing to operate the Company as a
public company. In this connection, the Special Committee gave
consideration to rejecting the TA Associates' proposal in favor of
maintaining the Company's independence and enabling the Public Stockholders
to share in the Company's future earnings and growth potential. However,
the Special Committee believed that continuing to operate the Company as an
independent entity would subject the Company and its stockholders to the
risk of delays in the implementation or execution of the Company's business
strategy which focuses primarily on the consolidation in select markets of
the management and delivery of ENT and related specialty care largely
through acquisitions. After evaluating such risk (including the factors
described under item (i) above), the Special Committee concluded that,
while the Company's business strategy could ultimately prove successful,
the risk that the negative investor sentiment towards PPM companies will
continue to adversely impact the performance of the Common Stock justifies
a recapitalization of the Company. As alternatives to the Merger, the
Special Committee considered continuing to operate the Company as an
independent entity and the inquiries of other companies that are described
above under "-- Background of the Merger."
(iii) Information with respect to the financial condition, results of
operations, and business of the Company. The Special Committee focused in
particular on the projections prepared by the Company's management, which
reflected decreased acquisition activity, and accordingly lower rates of
revenue and operating income growth for future periods than had been
realized prior to fiscal year 1999.
(iv) The scope of efforts to effect a transaction for the Company,
including the number and identity of potential parties from which
indications of interest were received. In this connection, the Special
Committee considered that Physicians' Specialty had made inquiries of the
likely strategic partners for Physicians' Specialty and that none of those
inquiries led to a definitive proposal to effect a business combination
with Physicians' Specialty or reasonable prospects that a definitive
proposal would be forthcoming. In addition, the Special Committee
considered the extensive process
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undertaken by PHC in which PHC approached 11 private equity firms regarding
their interest in sponsoring a leveraged recapitalization of Physicians'
Specialty. The Special Committee determined that based upon the inquiries
made of strategic partners and the extensive process undertaken by PHC to
locate a financial partner, it was unlikely that another bidder would make
a definitive proposal to effect a business combination with the Company, or
that if such a proposal were made, it would result in a transaction that
would provide greater value to the Public Stockholders. In making this
determination, the Special Committee relied in part on the advice of, and
information provided by, Robinson-Humphrey. In addition, the Special
Committee considered that Robinson-Humphrey had reported that TA Associates
would withdraw its bid if its proposal were used to attempt to generate
other bids from third parties.
(v) Robinson-Humphrey's written opinion delivered to the Special
Committee on June 12, 1999, that the $10.50 per share in cash to be
received by the Public Stockholders was fair to such holders from a
financial point of view. The Special Committee and the Board adopted the
analyses and findings of Robinson-Humphrey in their determination that the
Merger is fair from a financial point of view to the Public Stockholders.
(vi) The proposed terms and conditions of the Merger Agreement. In
particular, the Special Committee considered the fact that the termination
fees and expense reimbursement obligations provided in the Merger Agreement
(without which the Special Committee believed the TA Investors would not
have entered into the Merger Agreement) are reasonable and would not have
the effect of unreasonably discouraging competing bids and that, subject to
the satisfaction of certain conditions, the Board would be able to withdraw
or modify its recommendation to the stockholders regarding the Merger and
enter into an agreement with respect to a more favorable transaction with a
third party, if such a transaction became available prior to the
consummation of the Merger.
(vii) The market price of the Common Stock, which as recently as April
12, 1999 had traded at $5.625 per share, its lowest price, and the premium
over such prices (as well as over the $8.75 per share market price on June
11, 1999) represented by the $10.50 per share in cash to be received by the
Public Stockholders in the Merger. In addition, the Special Committee
considered Robinson-Humphrey's analyses of the premiums paid in comparable
selected healthcare transactions which indicated that the average premiums
paid over the target stock prices one trading day prior to the announcement
date, one week prior to the announcement date, and four weeks prior to the
announcement date were 8.9%, 11.8% and 22.3%, respectively. The
consideration payable to the Public Stockholders pursuant to the Merger
Agreement represented a premium being paid over the Physicians' Specialty
Common Stock prices one trading day prior to the date of announcement of
the Merger, one week prior to such date, and four weeks prior to such date,
of 20%, 18.3%, and 21.7%, respectively.
(viii) The financial ability and willingness of TA Associates to
consummate the Merger. The Merger Agreement conditions MergerCo's
obligations to consummate the Merger on MergerCo's having obtained
financing for the Merger on terms satisfactory to MergerCo. In this
connection, the Special Committee reviewed commitment letters for debt
financing supplied by First Union and Allied. In addition, the Special
Committee, through its financial and legal advisors, discussed the proposed
financing with the TA Investors and the lenders. Based on the foregoing,
the Special Committee did not view as substantial the risk that the
financing condition of the Merger Agreement would not be satisfied.
(ix) Actual or potential conflicts of interest to which certain
officers and directors of the Company and their affiliates are subject in
connection with the Merger, as follows:
- The Special Committee considered that the Management Sponsors, their
affiliates and the Physician Investors will own shares of common stock
in the Surviving Corporation, representing approximately 36% of the
Surviving Corporation's initial aggregate equity on a fully diluted
basis. The Special Committee also considered that the Surviving
Corporation will reserve approximately 5% of the common stock of the
Surviving Corporation on a fully diluted
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basis for the grant of options to management employees and affiliated
physicians on a prospective basis. The Special Committee further
considered that certain of the Management Sponsors will be parties to
employment agreements with the Surviving Corporation after the Merger,
and that certain of the Management Sponsors will receive increased
base salaries under amended employment agreements.
- The Special Committee considered that the TA Investors required each
of the Management Sponsors, their affiliates and the Physician
Investors to exchange a substantial portion of his or her equity
investment in the Company for an investment in the Surviving
Corporation. The Special Committee considered that the rollover of a
substantial portion of the current equity investment of the Management
Sponsors and the Physician Investors in the Company would indicate a
sufficient level of confidence in the Company's prospects that could
be deemed inconsistent with the Special Committee's assessment of the
risks associated with the Company's future.
- The Special Committee considered that upon consummation of the Merger,
pursuant to letter agreement dated January 13, 1999, PHC will receive
a net fee of approximately $1.25 million in consideration for
providing services to the Company and the Board in connection with the
Transactions.
- The Special Committee considered the foregoing conflicts of interest
in connection with management's preparation of the Company projections
(See "-- Projections"), which reflects a slower rate of acquisition
activity and related growth for the Company than realized prior to
1999. The Special Committee concluded, having considered its
discussions with Robinson-Humphrey, the Management Sponsors and other
officers and employees of the Company as described above, that
management's assumptions underlying the projections are reasonable.
The Special Committee did not assign relative weights to the factors it
considered, and it did not consider any relative weighting to be necessary in
reaching its fairness determination.
In considering the fairness of the Merger, the Special Committee and the
Board considered that the closing of the Merger is contingent upon the Company's
complying with certain financial tests and ratios (the "Financing Tests"), which
are conditions to the obligations of First Union and Allied (the "Banks") to
provide financing pursuant to their financing letters. The Special Committee and
the Board believe that the Company will be able to satisfy the Financing Tests
and that the Merger, the Merger Agreement and the transactions contemplated
thereby are advisable, fair and in the best interest of the Company's Public
Stockholders, even though the Financing Tests are conditions to the Banks'
obligations to provide financing.
In considering the fairness of the Merger, the Special Committee and the
Board did not consider such factors as the Company's net book value or
liquidation value, which are not believed to be indicative of the value of the
Company as a going concern. The Company's tangible net book value per share and
net book value per share as of December 31, 1998 were $2.55 and $5.67,
respectively, on a fully diluted basis, both substantially below the $10.50
purchase price per share of Common Stock to be paid MergerCo in the Merger. The
Special Committee further believes the Company's liquidation value, which takes
into account the appreciated value of the Company's assets, also would be
substantially below $10.50 per share.
Based on the foregoing, the Special Committee unanimously decided to
recommend approval and adoption of the $10.50 per share cash offer, determined
that the Merger, the Merger Agreement and the transactions contemplated thereby
were advisable, fair and in the best interests of Physicians Specialty and the
Public Stockholders. The Board unanimously approved the Merger Agreement on June
12, 1999, and determined that the Merger Agreement is advisable, fair and in the
best interests of Physicians' Specialty and the Public Stockholders. The Special
Committee is unaware of any development since its June 12,
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1999 meeting that would affect its June 12, 1999 determination, and,
accordingly, the Special Committee reconfirms, as of the date of this Proxy
Statement, its determination that the Merger, the Merger Agreement and the
transactions contemplated thereby are advisable, fair and in the best interests
of Physicians' Specialty and the Public Stockholders. Based on the foregoing,
the Board also reconfirms, as of the date of this Proxy Statement, its
determination that the Merger, the Merger Agreement and the transactions
contemplated thereby are advisable, fair and in the best interests of Physicians
Specialty and the Public Stockholders. THE BOARD AND THE SPECIAL COMMITTEE
RECOMMEND THAT THE STOCKHOLDERS APPROVE THE MERGER AGREEMENT.
PROJECTIONS
As part of the Board of Directors' review of a potential recapitalization
of the Company, the Board requested that PHC, as part of its engagement, prepare
a detailed leveraged recapitalization financial model based on certain
assumptions about the performance of the Company provided by the Company's
management. This initial model made certain assumptions about indebtedness
levels and interest expense in connection with a hypothetical recapitalization
of the Company and was delivered by PHC to seven of the private equity firms
contacted, including TA Associates. The initial model was subsequently updated
by PHC with minor modifications and delivered to Robinson-Humphrey and the
Special Committee. After receipt of TA Associates' final proposal with respect
to the Transactions, Robinson-Humphrey developed a recapitalization model (the
"Recapitalization Model") based on management's assumptions (which assumptions
are set forth in the Recapitalization Model through the Operating Income line
item) to reflect such proposal. As part of the Special Committee's review of the
Merger Agreement, the Special Committee reviewed the Recapitalization Model.
The Company does not, as a matter of course, publicly disclose projections
as to future revenues or earnings. The Recapitalization Model was not prepared
with a view to public disclosure and is included in the Proxy Statement only
because such information was considered by the Special Committee and the Board
of Directors in connection with entering into the Merger Agreement. Accordingly,
it is expected that there will be differences between actual and projected
results, and actual results may be materially different than those set forth
below. The Recapitalization Model was not prepared with a view to compliance
with the published guidelines of the Commission regarding projections, nor was
it prepared in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial projections. These forward-looking statements reflect numerous
assumptions made by the Company's management. In addition, factors such as
industry performance, general business, economic, regulatory, and market and
financial conditions, all of which are difficult to predict, may cause the
Recapitalization Model or the underlying assumptions to be inaccurate.
Accordingly, there can be no assurance that the results set forth in the
Recapitalization Model and management's assumptions will be realized, and actual
results may be materially greater or less than those contained in the
Recapitalization Model.
The inclusion of the Recapitalization Model herein should not be regarded
as an indication that the TA Investors, the Special Committee, the Board of
Directors, the Company or any of their respective financial advisors considered
or consider the Recapitalization Model to be a reliable prediction of future
events, and the Recapitalization Model should not be relied upon as such. None
of the Special Committee, the Board of Directors, the Company, the TA Investors,
or any of their financial advisors intends to update or otherwise revise the
Recapitalization Model to reflect circumstances existing after the date when
made or to reflect the occurrence of future events even in the event that any or
all of the assumptions underlying the Recapitalization Model are shown to be in
error.
24
<PAGE> 34
PHYSICIANS' SPECIALTY CORP.
CONSOLIDATED PROJECTED RECAPITALIZATION MODEL
(UNAUDITED)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEARS ENDING DECEMBER 31,(1)
-------------------------------------------------------------
INCOME STATEMENT 1999 2000 2001 2002 2003
- ---------------- --------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Revenues.......................... $ 95,311 $ 137,200 $ 178,000 $ 218,800 $ 259,600
Operating Expenses
Provider Claims, Wages, Benefits.... 58,025 82,413 106,966 131,447 155,856
General and Administrative.......... 21,128 30,328 39,323 48,356 57,430
--------- ---------- ---------- ---------- ----------
Total operating expenses.... 79,153 112,741 146,289 179,803 213,286
EBITDA................................ 16,158 24,459 31,711 38,997 46,314
Depreciation and Existing
Amortization........................ 2,046 2,842 4,096 5,358 6,629
Amortization of Goodwill (25 Years)... 1,022 1,863 2,220 2,583 2,892
Amortization of Transaction Costs (20
Years).............................. 29 200 200 200 200
--------- ---------- ---------- ---------- ----------
Operating Income...................... $ 13,061 $ 19,554 $ 25,196 $ 30,876 $ 36,593
Interest Expense:
Revolving Facility.................. 1,055.4 3,774.5 4,003.5 3,886.5 3,412.2
Bank Term Loan...................... 0.0 0.0 0.0 0.0 0.0
New Subordinated Notes (7 year)..... 452.0 1,847.5 1,912.2 1,979.1 2,048.4
Seller Notes........................ 790.7 1,000.3 1,428.6 1,823.3 2,184.3
Other Interest Expense/(Income)..... (40.0) (40.0) (40.0) (40.0) (40.0)
--------- ---------- ---------- ---------- ----------
Net Cash Interest Expense... 2,258.1 6,582.3 7,304.2 7,648.9 7,604.9
Income Before Income
Taxes..................... 10,802.4 12,972.1 17,891.0 23,226.8 28,988.0
Income Taxes.......................... 4,299.4 5,162.9 7,120.6 9,244.3 11,537.2
Cumulative Effect of Accounting Change
and Minority Interests.............. 0.0 0.0 0.0 0.0 0.0
--------- ---------- ---------- ---------- ----------
Net Income Before Preferred
Dividend............................ 6,503.0 7,809.2 10,770.4 13,982.5 17,450.8
Subordinated Debt PIK Dividend........ 131.3 529.6 548.1 567.3 587.2
Redeemable Preferred PIK Dividend..... 417.0 1,693.0 1,794.6 1,902.3 2,016.4
Net income available to
common.................... $ 5,954.8 $ 5,586.6 $ 8,427.6 $ 11,512.9 $ 14,847.2
========= ========== ========== ========== ==========
Assumed number of Affiliated
Physicians at Year End........... 130 178 226 274 322
</TABLE>
- ------------------------
(1) For year ended December 31, 1999, the line items from net revenues through
operating income were based on an operating forecast prepared by the
Company's management. For the years ended December 31, 2000 through December
31, 2003, the line items from net revenues through operating income were
obtained from PHC reflecting Company management's assumptions as part of
PHC's recapitalization model dated March 8, 1999. For the years ended
December 31, 1999 through 2003, the line items from interest expense through
net income were developed by Robinson-Humphrey to reflect the capital
structure in the TA Associates proposal and assume a transaction being
consummated on September 30, 1999.
OPINION OF FINANCIAL ADVISOR
General. Pursuant to an engagement letter dated as of March 17, 1999, the
Special Committee retained The Robinson-Humphrey Company, LLC
("Robinson-Humphrey") to act as its financial advisor in connection with the
consideration of the possible recapitalization and merger of the Company with a
new entity to be formed by the TA Investors. On June 12, 1999, at a meeting of
the Special Committee to
25
<PAGE> 35
consider the proposed Merger, Robinson-Humphrey delivered a written opinion to
the Special Committee that, as of such date, the Cash Merger Consideration to be
received in the proposed Merger was fair, from a financial point of view, to the
Public Stockholders. Robinson-Humphrey was selected as the Special Committee's
financial advisor because of its previous association and familiarity with the
Company, and its operations and standing as a nationally recognized investment
banking firm which is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate,
and other opinions. Based on these qualifications, the Special Committee
selected Robinson-Humphrey as its financial advisor after interviewing a
competing investment banking firm.
The full text of the written opinion of Robinson-Humphrey, dated June 12,
1999, which sets forth the assumptions made, procedures followed, other matters
considered and limits of the review by Robinson-Humphrey, appears as Appendix B
to this Proxy Statement. The Company's stockholders are urged to read this
opinion in its entirety. Robinson-Humphrey's opinion is addressed to the Special
Committee, is directed only to the fairness, from a financial point of view, of
the Merger Consideration to be received in the proposed Merger by the Public
Stockholders, and does not constitute a recommendation as to how any stockholder
should vote in relation to the Merger. This summary of the opinion of
Robinson-Humphrey is qualified in its entirety by reference to the full text of
such opinion.
Material and Information Considered with Respect to the Merger. In
arriving at its opinion, Robinson-Humphrey reviewed and analyzed: (1) a draft of
the Merger Agreement, (2) publicly available information concerning the Company
which Robinson-Humphrey believed to be relevant to its inquiry, (3) financial
and operating information with respect to the business, operations and prospects
of the Company furnished to Robinson-Humphrey by the Company, (4) a trading
history of the Company's Common Stock from March 20, 1997 to the present and a
comparison of that trading history with those of other companies which
Robinson-Humphrey deemed relevant, (5) certain other factors, including the
proposals and responses, as communicated to Robinson-Humphrey, that resulted
from the discussions that the Company's other financial advisor held with
various potential acquirors and investors, (6) a comparison of the historical
financial results and present financial condition of the Company with those of
other companies which Robinson-Humphrey deemed relevant, (7) a comparison of the
financial terms of the Merger with the financial terms of certain other recent
transactions which Robinson-Humphrey deemed relevant, and (8) certain historical
data relating to acquisitions of publicly traded companies, including percentage
premiums paid in such acquisitions. In addition, Robinson-Humphrey held
discussions with the management of the Company concerning its business,
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as Robinson-Humphrey deemed
appropriate. Further, Robinson-Humphrey reviewed other potential strategic
alternatives available to the Company.
In rendering its opinion, Robinson-Humphrey assumed and relied upon the
accuracy and completeness of the financial and other information used by
Robinson-Humphrey in arriving at its opinion without independent verification.
With respect to the financial projections provided by the Company,
Robinson-Humphrey assumed that such projections had been reasonably prepared on
a basis reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
In arriving at its opinion, Robinson-Humphrey did not conduct a physical
inspection of the properties and facilities of the Company and did not make or
obtain any evaluations or appraisals of the assets or liabilities of the
Company. In addition, Robinson-Humphrey was not authorized to solicit, and did
not solicit, any indications of interest from any third party with respect to
the purchase of all or a part of the Company's business. Robinson-Humphrey's
opinion is necessarily based upon market, economic and other conditions as they
may have existed and could be evaluated as of June 12, 1999.
The following is a summary of the material factors considered and principal
financial analyses performed by Robinson-Humphrey to arrive at its opinion.
Certain of the financial analyses summarized below include information presented
in tabular format. The tables should be read together with the text of
26
<PAGE> 36
each summary. Considering the data set forth below without considering the full
narrative description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of Robinson-Humphrey's analyses.
Analysis of Selected Public Companies. Robinson-Humphrey compared selected
financial data and market information for 12 selected public companies in the
PPM sector of the healthcare services industry (three companies in the
multi-specialty PPM sector and nine companies in the single-specialty PPM
sector):
<TABLE>
<CAPTION>
MULTI-SPECIALTY SINGLE-SPECIALTY
PHYSICIAN PRACTICE MANAGEMENT COMPANIES PHYSICIAN PRACTICE MANAGEMENT COMPANIES
--------------------------------------- ---------------------------------------
<S> <C>
- - MedPartners, Inc. - American Oncology Resources
- - Promedco Management Co. - American Physician Partners
- - PhyCor, Inc. - Ameripath, Inc.
- Omega Health Systems Inc.
- Pediatrix Medical Group, Inc.
- Physician Reliance Network
- Response Oncology Inc.
- Specialty Care Network, Inc.
- Vision Twenty One, Inc.
</TABLE>
For each of the comparable companies in both categories, Robinson-Humphrey
reviewed the market value of equity of the company, based upon its closing stock
price on June 11, 1999, as a multiple of: (i) its net income for the twelve
month period ended March 31, 1999, (ii) its annualized first quarter ended March
31, 1999 net income and (iii) its projected net income for the year ended
December 31, 1999 as provided by First Call Research Network as of June 8, 1999.
Robinson-Humphrey also reviewed each company's total firm value (current market
value of equity plus all debt outstanding less any cash held by the company) as
a multiple of revenues, earnings before interest and taxes ("EBIT") and earnings
before interest, taxes, depreciation and amortization ("EBITDA") for the latest
twelve months ended March 31, 1999 and for annualized first quarter ended March
31, 1999. This analysis indicated the following equity value and total firm
valuation multiples as compared to the implied multiples for the Company:
<TABLE>
<CAPTION>
MULTIPLES FOR
IMPLIED MULTIPLES FOR PHYSICIANS' SPECIALTY
SELECTED COMPANIES IMPLIED BY
---------------------- CASH MERGER
MEAN RANGE CONSIDERATION
----- ------------- ---------------------
<S> <C> <C> <C>
MARKET VALUE OF EQUITY TO:
Multi-Specialty PPMs
Latest Twelve Months Earnings Per Share.... 8.0x 6.5x - 9.6x 16.4x
Annualized Q1 1999 Earnings Per Share...... 10.3x 6.3x - 14.3x 14.6x
Estimated Calendar 1999 Earnings Per
Share................................... 13.7x 5.8x - 24.1x 13.3x
Single-Specialty PPMs
Latest Twelve Months Earnings Per Share.... 14.5x 7.7x - 26.9x 16.4x
Annualized Q1 1999 Earnings Per Share...... 15.4x 7.3x - 29.7x 14.6x
Estimated Calendar 1999 Earnings Per
Share................................... 11.1x 6.8x - 19.6x 13.3x
</TABLE>
27
<PAGE> 37
<TABLE>
<CAPTION>
MULTIPLES FOR
IMPLIED MULTIPLES FOR PHYSICIANS' SPECIALTY
SELECTED COMPANIES IMPLIED BY
---------------------- CASH MERGER
MEAN RANGE CONSIDERATION
----- ------------- ---------------------
<S> <C> <C> <C>
TOTAL FIRM VALUE TO:
Multi-Specialty PPMs
Latest Twelve Months Revenue............... 0.8x 0.7x - 1.0x 1.6x
Latest Twelve Months EBITDA................ 6.9x 4.6x - 10.5x 9.4x
Latest Twelve Months EBIT.................. 11.8x 7.7x - 19.5x 11.7x
Annualized Q1 1999 Revenue................. 1.2x 0.5x - 1.6x 1.3x
Annualized Q1 1999 EBITDA.................. 6.0x 2.2x - 9.5x 8.0x
Annualized Q1 1999 EBIT.................... 9.1x 6.3x - 19.7x 10.0x
Single-Specialty PPMs
Latest Twelve Months Revenue............... 1.2x 0.6x - 1.6x 1.6x
Latest Twelve Months EBITDA................ 7.2x 5.0x - 11.1x 9.4x
Latest Twelve Months EBIT.................. 11.0x 6.5x - 17.5x 11.7x
Annualized Q1 1999 Revenue................. 1.2x 0.5x - 1.6x 1.3x
Annualized Q1 1999 EBITDA.................. 6.0x 2.2x - 9.5x 8.0x
Annualized Q1 1999 EBIT.................... 9.1x 6.3x - 19.7x 10.0x
</TABLE>
Analysis of Selected Merger and Acquisition
Transactions. Robinson-Humphrey reviewed the purchase prices and implied
transaction multiples in the following seven proposed, pending or completed
merger and acquisition transactions announced since January 1, 1997 having
transaction values greater than $25.0 million in the specialty managed care and
PPM sectors of the healthcare services industry.
<TABLE>
<CAPTION>
TARGET ACQUIROR
------ --------
<S> <C>
- - AHI Healthcare Systems Inc. - FPA Medical Management Inc.
- - InPhyNet Medical Management - MedPartners, Inc.
- - MedCath Inc. - Kohlberg, Kravis & Roberts
- Welsh, Carson, Anderson & Stowe
- - Physician Reliance Network Inc. - American Oncology Resources
- - Team Health (MedPartners) - Madison Dearborn Partners
- - Sheridan Healthcare, Inc. - Vestar Capital Partners
- - Concentra Managed Care - Welsh, Carson, Anderson & Stowe
</TABLE>
Robinson-Humphrey calculated (i) the equity purchase price (purchase price
of target's common stock multiplied by total shares and shares equivalent
outstanding) in the selected transactions as a multiple of the target's most
recent generally accepted accounting principles ("GAAP") shareholder's equity
and latest twelve months net income and (ii) total firm value (equity purchase
price plus all debt outstanding less any cash held by the company) in the
selected transactions as multiples of the latest twelve months revenues, EBITDA
and EBIT. All multiples were based on publicly available information at the time
of announcement of the relevant transaction. With respect to the calculation of
equity purchase price to shareholder's equity, Robinson-Humphrey noted that a
number of PPM companies acquired in recent years had taken special accounting
charges that had significantly reduced shareholders's equity and, thus, resulted
in non-comparable equity purchase price to shareholder's equity multiples. This
analysis indicated the following implied adjusted market value and equity market
value multiples for the selected
28
<PAGE> 38
transactions, as compared to the implied multiples for the Company based on the
Cash Merger Consideration:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES FOR MULTIPLES FOR
SELECTED COMPANIES PHYSICIANS' SPECIALTY
---------------------- IMPLIED BY
MEAN RANGE CASH MERGER CONSIDERATION
----- ------------- -------------------------
<S> <C> <C> <C>
EQUITY PURCHASE PRICE TO:
Shareholders' Equity.................. 2.6x 1.5x - 3.9x 2.0x
Latest Twelve Months Net Income....... 22.5x 11.9x - 36.9x 17.5x
TOTAL FIRM VALUE TO:
Latest Twelve Months Revenue.......... 1.4x 0.8x - 2.5x 1.6x
Latest Twelve Months EBITDA........... 9.4x 7.1x - 11.1x 9.4x
Latest Twelve Months EBIT............. 13.5x 10.5x - 19.6x 11.7x
</TABLE>
Analysis of Premiums Paid. Robinson-Humphrey analyzed the premiums paid in
685 transactions having values between $25 and $300 million, 24 healthcare
services transactions having values between $25 and $300 million effected since
January 1, 1997, based on the target company's stock price one day, one week and
four weeks prior to public announcement of the transaction. Robinson-Humphrey
also analyzed 115 leveraged buyout and privatization transactions effected since
January 1, 1996, based on the target company's stock price one day, one week and
four weeks prior to public announcement of the transaction. This analysis
indicated the following premiums in the selected transactions, as compared to
the implied premiums in the proposed Merger one day, one week and four weeks
prior to the public announcement.
<TABLE>
<CAPTION>
PREMIUM ONE PREMIUM ONE PREMIUM ONE
DAY WEEK MONTH
PRIOR TO PRIOR TO PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
-------------- -------------- --------------
MEAN RANGE MEAN RANGE MEAN RANGE
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Selected Transactions (1).................... 23.2% (98.5)% 29.1% (82.2)% 34.4% (92.9)%
-250.3% -265.8% -282.7%
Selected Healthcare Transactions (2)......... 8.9% (86.7)% 11.8% (82.2)% 22.3% (92.2)%
-54.0% -60.4% -100.0%
Selected LBO and Privatization Transactions
(3)........................................ 20.5% (99.5)% 24.6% (99.4)% 30.1% (99.2)%
-132.0% -169.8% -176.2
MERGER PREMIUM IMPLIED FOR PHYSICIANS'
SPECIALTY TRANSACTION...................... 20.0% 18.3% 21.7%
</TABLE>
- ---------------
(1) 685 transactions having values between $25 and $300 million effected since
January 1, 1997
(2) 24 healthcare services transactions having values between $25 and $300
million effected since January 1, 1997
(3) 115 leveraged buyout and privatization transactions effected since January
1, 1996
The summary set forth above does not purport to be a complete description
of the analyses performed by Robinson-Humphrey. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description.
In performing its analysis, Robinson-Humphrey made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the Company. No company, transaction or business used in such analyses as a
comparison is identical to the Company or the proposed Merger, nor is an
evaluation of the results of those analyses entirely mathematical; rather, the
analyses involve complex considerations and judgments
29
<PAGE> 39
concerning financial and operating characteristics and other factors that could
affect the merger, public trading or other values of the companies, business
segments or transactions being analyzed.
Robinson-Humphrey is a nationally recognized investment banking firm and,
as a customary part of its investment banking activities, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements, and valuations
for corporate and other purposes. The Special Committee selected
Robinson-Humphrey because of its previous association and familiarity with the
Company and its operations and standing as a nationally recognized investment
banking firm. Robinson-Humphrey maintains a market in the Physicians' Specialty
Common Stock and regularly publishes research reports regarding the businesses
and securities of the Company and other publicly traded companies in the
healthcare industry. In the ordinary course of business, Robinson-Humphrey and
its affiliates may actively trade or hold the securities and other instruments
and obligations of the Company for their own account and for the accounts of
customers and, accordingly, may at any time hold long or short positions in such
securities, instruments or obligations.
The type and amount of consideration payable in the proposed Merger was
determined through negotiation between the Special Committee and TA Associates.
Although Robinson-Humphrey provided financial advice to the Special Committee
during the course of negotiations, the decision to enter into the Merger was
solely that of the Board of Directors and Special Committee. Robinson-Humphrey's
advice, opinion and financial analyses were only one of many factors considered
by the Board of Directors and Special Committee in their evaluation of the
proposed Merger and should not be viewed as determinative of the views of the
Board, Special Committee or management with respect to the Merger Consideration
or the Merger.
In connection with the Special Committee's engagement of Robinson-Humphrey,
the Company paid Robinson-Humphrey a retainer fee of $50,000 at the time of
engagement and a fee of $250,000 in connection with the preparation and delivery
of its fairness opinion. If the Merger is consummated, an additional fee equal
to 0.125% of the aggregate consideration, including liabilities assumed,
estimated at $98,000, will be paid to Robinson-Humphrey. The Company has also
agreed to reimburse Robinson-Humphrey for its out-of-pocket expenses incurred in
connection with the engagement and to indemnify Robinson-Humphrey against
certain liabilities, including certain liabilities under the federal securities
laws. Robinson-Humphrey has not provided investment banking services to the
Company, but participated in the underwriting syndicate in the Company's initial
public offering in March 1997 and its follow-on public offering in May 1998. No
investment banking fees have been paid by the Company to Robinson-Humphrey prior
to this engagement.
PURPOSE AND REASONS OF THE MANAGEMENT SPONSORS, THE TA INVESTORS AND TA
ASSOCIATES FOR THE MERGER
The purpose of the Management Sponsors, the TA Investors and TA Associates
for engaging in the transactions contemplated by the Merger Agreement is to
acquire ownership of the Company. The Management Sponsors, the TA Investors and
TA Associates believe that as a private company Physician's Specialty will have
greater ability to grow through acquisitions using its stock as currency and to
attract and retain qualified management. This assessment by the Management
Sponsors, the TA Investors and TA Associates is based upon publicly available
information regarding the Company, the TA Investors' due diligence investigation
of the Company and experience in investing in companies in the PPM industry and
the Management Sponsors' understanding of and familiarity with the Company's
business. The Management Sponsors, the TA Investors and TA Associates determined
that it was an appropriate time to make their proposal to Physician's Specialty
to engage in the transactions contemplated by the Merger Agreement based on
recent developments in the PPM industry and the competitive position of the
Company. The proposed acquisition of Physician's Specialty by the Investor Group
has been structured as a recapitalization in order to, among other things,
provide for the acquisition of the Physician's Specialty Common Stock held by
the Public Stockholders in connection with the transfer of the ownership of
Physician's Specialty from the current stockholders to the Investor Group, to
facilitate the required financing for the Transactions, and to preserve the
corporate identity of Physician's Specialty. While the Management Sponsors, the
TA Investors and TA Associates believe that there will be significant
30
<PAGE> 40
opportunities associated with their investment in the Company, the Management
Sponsors, the TA Investors and TA Associates also understand that the investment
involves substantial risks.
As a result of the Merger, the TA Investors and their assigns will acquire,
for an investment of approximately $32.8 million, approximately 57% of the
equity interest in the Surviving Corporation on a fully diluted basis (assuming
the exercise of all rights to acquire, and the conversion of all securities and
promissory notes convertible into, common stock in the Surviving Corporation);
the Management Sponsors, their affiliates and the Physician Investors will
acquire, following the exchange of approximately 2,047,310 shares of Common
Stock for shares of common stock of the Surviving Corporation, approximately 36%
of the equity interest in the Surviving Corporation on a fully diluted basis.
The Management Sponsors, their affiliates and the Physician Investors also will
receive an amount per share in cash equal to the Cash Merger Consideration for
the remainder of their investment in the Company on the same terms as other
stockholders. The exchange by the Management Sponsors, their affiliates and the
Physician Investors of a portion of their equity interest in Physician's
Specialty Common Stock for an equity interest in the Surviving Corporation will,
among other things, enable the Merger to be accounted for as a recapitalization
for accounting purposes.
POSITION OF THE MANAGEMENT SPONSORS, THE TA INVESTORS AND TA ASSOCIATES AS TO
FAIRNESS OF THE MERGER
Each member of the Management Sponsors, the TA Investors and TA Associates
has considered the analyses and findings of the Special Committee and the Board
(described in detail in "--The Special Committee's and the Board's
Recommendation") with respect to the fairness of the Merger to the Public
Stockholders of the Company. As of the date of this Proxy Statement, based upon
(i) the reasons set forth under "-- The Special Committee's and the Board's
Recommendation," which were made known to the Management Sponsors and the TA
Investors subsequent to the Special Committee's determination that the Merger
was fair to and in the best interests of the Public Stockholders of the Company,
(ii) the TA Investors' review of publicly available information regarding the
Company, (iii) the TA Investors' due diligence investigation of the Company, and
(iv) the Management Sponsors' understanding of and familiarity with the
Company's business, each member of the Management Sponsors and the TA Investors
and TA Associates has adopted the analyses and findings of the Special Committee
and the Board with respect to the fairness of the Merger and believes that the
Merger, the Merger Agreement, and the transactions contemplated thereby are fair
and in the best interests of the Company's Public Stockholders; provided that no
opinion is expressed as to the fairness to any stockholder making an investment
in the Surviving Corporation. No member of the Management Sponsors, the TA
Investors or TA Associates makes any recommendation as to how the Company's
stockholders should vote on the Merger Agreement. The TA Investors and TA
Associates have financial interests in the Merger and the Management Sponsors
have financial and employment interests in the Merger. See "-- Conflicts of
Interest."
CONFLICTS OF INTEREST
In considering the recommendations of the Board with respect to the Merger,
stockholders should be aware that certain officers and directors of Physicians'
Specialty have interests in connection with the Merger which may present them
with actual or potential conflicts of interest as summarized below. The Special
Committee and the Board were aware of these interests and considered them among
the other matters described under "-- The Special Committee's and the Board's
Recommendation." The Special Committee considered the Management Sponsors'
conflicts of interest to be a negative factor in its determination that the
Merger Agreement is advisable, fair and in the best interests of the Public
Stockholders.
31
<PAGE> 41
Post-Merger Ownership and Control of the Surviving Corporation. It is
anticipated that immediately after the Merger the following individuals and
entities will beneficially own the number of shares of common stock and
redeemable preferred stock of the Surviving Corporation shown in the following
table.
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OF OWNERSHIP OF
COMMON REDEEMABLE
STOCK PERCENTAGE(%)(1) PREFERRED STOCK PERCENTAGE(%)(1)
------------ ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
TA/Advent VIII, L.P................. 1,951,413(2) 34.0% 16,705 60.1%
TA/Atlantic and Pacific IV, L.P..... 1,219,755(2) 21.2% 10,442 37.6%
TA Executives LLC................... 37,021(2) 0.6% 317 1.1%
TA Investors LLC.................... 39,295(2) 0.7% 336 1.2%
Richard D. Ballard.................. 62,765 1.1%
Gerald R. Benjamin (3).............. 52,214 0.9%
Robert A. DiProva................... 22,721 0.4%
Lawrence P. Kraska.................. 33,755 0.6%
Ramie A. Tritt, M.D................. 1,402,875 24.4%
27 affiliated physicians............ 472,980 8.2%
</TABLE>
- ---------------
(1) The table above assumes that the Management Sponsors, their affiliates and
the Physician Investors exchange 2,047,310 shares of Physicians' Specialty
Common Stock for Surviving Corporation common stock and that employees
exchange approximately 11,500 shares of Physicians' Specialty Common Stock
for Surviving Corporation common stock.
(2) The number of shares of common stock beneficially owned by the TA Investors
includes the number of shares of common stock into which convertible
participating preferred stock of the Surviving Corporation will be
convertible.
(3) Includes 27,500 shares of common stock of the Surviving Corporation to be
held by Bock, Benjamin & Co. Partners, L.P. Gerald R. Benjamin is a
principal of the general partner of Bock, Benjamin & Co. Partners, L.P.
Voting Agreement. Pursuant to a Voting Agreement dated as of June 14, 1999
(the "Voting Agreement"), the Management Sponsors, their affiliates and the
Physician Investors agreed with MergerCo to vote (or cause to be voted) at the
Special Meeting all of the shares of Physicians' Specialty Common Stock (the
"Voting Shares") owned by them in favor of the proposal to approve the Merger
Agreement and the Merger. The Management Sponsors, their affiliates and
Physician Investors also agreed (i) not to sell, tender, transfer, pledge,
encumber, assign or otherwise dispose of any Voting Shares, or deposit any
Voting Shares into a voting trust or enter into a voting agreement or
arrangement with respect to voting any Voting Shares, or grant any proxy or
power of attorney with respect thereto and (ii) to take such other actions and
execute such other agreements as may be reasonably necessary to effectuate the
intent of the Voting Agreement. The Voting Shares represent approximately 40% of
the outstanding shares of Physicians' Specialty Common Stock.
The Voting Agreement will terminate upon the earlier of the consummation of
the Merger or the termination of the Merger Agreement without consummation of
the Merger.
The Management Sponsors. Following consummation of the Merger, it is
expected that the Management Sponsors who were members of management prior to
the Merger will continue as management of the Surviving Corporation. The Board
of Directors of the Surviving Corporation following the Merger will be comprised
of Dr. Tritt and Messrs. Ballard and Benjamin (the designees of the Company's
management), Richard Tadler and David S.B. Lang (the designees of the TA Funds)
and up to two outside directors to be determined at a later time. It is
anticipated that immediately after the Merger the Management Sponsors and their
affiliates will beneficially own the number of shares of common stock of the
Surviving Corporation set forth in the table above.
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<PAGE> 42
Prior to the closing of the Merger, all outstanding options to purchase
Common Stock held by the Management Sponsors will be either exercised or
terminated in accordance with the terms of the Stock Option Exercise and
Termination Agreement (the "Option Exercise Agreement") entered into between the
Company and each of the Management Sponsors holding options. Pursuant to the
terms of the Option Exercise Agreement, the Management Sponsors will exercise
all of their outstanding options with an exercise price below $10.50 (the "In
the Money Options"). Options with an exercise price in excess of $10.50 will be
terminated by the Company. Conversion of the In the Money Options into Common
Stock will be effectuated through a cashless exercise of the options. The
Company will issue to each Management Sponsor an amount of Common Stock equal to
(i) the number of shares of Common Stock issuable upon the exercise of the In
the Money Options by such Management Sponsor minus (ii) the quotient of the
aggregate exercise price of such In the Money Options divided by $10.50.
The Management Sponsors, their affiliates and the Physician Investors have
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with
the TA Investors, whereby immediately prior to the consummation of the Merger,
1,873,919 shares of Common Stock held by the Management Sponsors (including
shares of Common Stock acquired through the exercise of In the Money Options),
their affiliates and the Physician Investors will be sold to the TA Investors at
a purchase price of $10.50 per share. The Management Sponsors, their affiliates
and the Physician Investors have also entered into a Rollover Agreement (the
"Rollover Agreement"), whereby they have agreed that pursuant to the terms of
the Merger Agreement, 2,047,310 shares of Common Stock held by them (including
shares of Common Stock acquired through the exercise of In the Money Options)
will be treated as "Recapitalization Shares" under the Merger Agreement and
converted into an equal number of shares of common stock of the Surviving
Corporation. Pursuant to the terms of the Merger Agreement, such shares will not
be entitled to receive Cash Merger Consideration upon consummation of the
Merger. See "THE MERGER -- Merger Consideration."
The following table sets forth information as of the date of this Proxy
Statement as to the shares of Common Stock beneficially owned or to be received
upon the exercise of stock options by Management Sponsors and their affiliates
for which cash payments will be received upon consummation of the Merger and the
number of shares of Surviving Corporation common stock to be owned by such
individuals and entities immediately after the Merger.
<TABLE>
<CAPTION>
SURVIVING CORPORATION
SHARES SOLD AMOUNT OF CASH COMMON STOCK
MANAGEMENT SPONSOR FOR CASH TO BE RECEIVED TO BE RECEIVED
- ------------------ ----------- -------------- ---------------------
<S> <C> <C> <C>
Ramie A. Tritt, M.D................................ 396,001 $4,158,010.50 1,402,875
Bock, Benjamin & Co. Partners, L.P................. 266,448 2,797,704.00 27,500
Richard D. Ballard................................. 41,843 439,351.50 62,765
Gerald R. Benjamin................................. 16,476 172,998.00 24,714
Robert A. DiProva.................................. 34,081 357,850.50 22,721
Lawrence P. Kraska................................. 22,504 236,292.00 33,755
------- ------------- ---------
Totals................................... 777,353 $8,162,206.50 1,574,330
======= ============= =========
</TABLE>
General Terms of Employment Agreements with the Management Sponsors. As a
condition to the TA Investors' entering into the Merger Agreement, Richard D.
Ballard, Gerald R. Benjamin, Lawrence P. Kraska and Ramie A. Tritt, M.D. have
entered into amended employment agreements (the "Amended Employment Agreements")
with the Company, effective upon consummation of the Merger, which extend the
terms of their existing employment agreements and reduce certain severance
benefits they would otherwise have been entitled to receive upon termination
after a change of control of the Company. The principal terms (other than those
described directly below (See "-- Change of Control Payments to Management
Sponsors")) of the Amended Employment Agreements are as follows:
- Each agreement has an initial term extending until March 26, 2002,
with the term automatically renewing for successive additional one
year terms thereafter unless terminated.
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<PAGE> 43
- Each agreement provides for compensation consisting of base salary
and a potential annual cash bonus of up to 50% of base salary, based
on the Company's meeting certain approved milestones relating to
such matters as practice acquisitions, pre-tax profit margins,
consolidated operating income levels, consummation of follow-on
financings and management team development.
- Each agreement provides for participation in the Company's group
medical, 401k and any other benefit plans adopted by the Company.
One of the Management Sponsors, Mr. DiProva, has declined to enter into an
amended employment agreement. The terms of Mr. DiProva's employment agreement
are substantially similar to the terms of the Amended Employment Agreements,
except for certain differences in severance benefits upon termination after a
change of control (as described below) and except for the initial term, which
expires March 26, 2000.
The initial base salaries for Messrs. Ballard, Benjamin, DiProva and
Kraska, and Dr. Tritt with the Surviving Corporation will be $200,000, $150,000,
$120,000, $160,000, and $350,000, respectively. The potential annual cash
bonuses of each Management Sponsor pursuant to each of their employment
agreements would be at the discretion of the Compensation Committee of the Board
of Directors.
In addition, the Surviving Corporation will reserve approximately 5% of its
common stock on a fully diluted basis for the grant of options to purchase
common stock in the Surviving Corporation to the Management Sponsors, other
management employees and affiliated physicians on a prospective basis.
Change in Control Payments to the Management Sponsors. The consummation of
the Merger would constitute a "change in control" of the Company under the
Management Sponsors' employment agreements prior to amendment. Prior to
amendment of such employment agreements, the Management Sponsors would have been
entitled to severance payments upon any termination of employment by the Company
following such "change in control." The employment agreement between Mr. DiProva
and the Company, which will not be amended, provides that in the event the
Company terminates Mr. DiProva's employment following a change of control, he is
entitled to a lump sum payment in an amount equal to two times the taxable
compensation he received during the most recently concluded fiscal year of the
Company. In addition, the employment agreement between Mr. DiProva and the
Company provides that in the event Mr. DiProva terminates his employment
following a change of control, he is entitled to, for a period of 12 months, his
prior base salary with the Company, less any salary or other amounts he is paid
by any other person during that 12 month period. The Merger will constitute a
change in control under Mr. DiProva's employment agreement. The Amended
Employment Agreements between the Company and Messrs. Ballard, Benjamin and
Kraska and Dr. Tritt provide that in the event the Company terminates their
employment within 90 days following a change of control occurring after the
Merger, they are entitled to, for a period of 18 months, their prior base salary
with the Company, less any salary or other earned income amounts that they are
paid by any other person during that 18 month period. In the event the Company
terminates their employment more than 90 days following a change of control
occurring after the Merger, their period of severance payment is reduced to 12
months.
Stockholders' Agreement, Registration Rights Agreement and Right of First
Offer Agreement. Members of the Investor Group have entered into a stockholders
agreement (the "Stockholders Agreement") that restricts the ability of members
to transfer the shares of capital stock of Physicians' Specialty to be owned by
them and creates certain other rights and obligations with respect to such
shares. Under the Stockholders Agreement, the Surviving Corporation has a right
of first refusal in the event that a Management Sponsor, any of its affiliates
or any Physician Investor wishes to sell shares of Surviving Corporation common
stock, or, in the event that the Surviving Corporation does not exercise its
right of first refusal, any nontransferring stockholder who holds at least 2.5%
of the outstanding shares of Surviving Corporation common stock held by the
Investor Group in the aggregate will have the opportunity to participate in such
right of first refusal. The Stockholders Agreement also provides that the
Management Sponsors, their affiliates and Physician Investors will have the
opportunity to participate in certain sales by one or more TA Investors of more
than 50% of the Surviving Corporation common stock then held by
34
<PAGE> 44
such TA Investors. In addition, the Management Sponsors and their affiliates
have entered into a registration rights agreement (the "Registration Rights
Agreement") pursuant to which the TA Investors, the Management Sponsors and
their affiliates who are parties to such agreement will have the right to
participate, or "piggy-back," in equity offerings initiated by the Surviving
Corporation that are registered under the Securities Act, subject to the
approval of the underwriters involved with any such equity offering and other
customary terms and conditions. Pursuant to the terms of the Registration Rights
Agreement, the Management Sponsors, their affiliates and the TA Investors will
also have the right to compel Physicians' Specialty to register their securities
after certain "triggering events," including: the redemption for cash of all of
Physicians' Specialty's redeemable preferred stock then outstanding; the sale,
transfer or other disposition of at least 50% of the convertible participating
preferred stock held by TA Investors as of the effective date of the Merger; or
a "qualified public offering" (as defined in Physicians' Specialty's Amended and
Restated Certificate of Incorporation, to be adopted upon consummation of the
Merger). Dr. Tritt, the Company and the TA Investors entered into a right of
first offer agreement (the "Right of First Offer Agreement") pursuant to which
the TA Investors granted to Dr. Tritt a right of first offer to purchase shares
of capital stock held by the TA Investors in the event of a proposed transfer by
the TA Investors within one year of the effective date of the Merger of such
shares which would not satisfy certain conditions.
The foregoing summaries of the Stock Purchase Agreement, the Rollover
Agreement, the Amended Employment Agreements, the Voting Agreement, the
Stockholders Agreement, the Registration Rights Agreement and the Right of First
Offer Agreement are qualified in their entirety by reference to the actual terms
of such agreements, which are filed as exhibits to the Company's Schedule 13E-3.
Special Committee. Members of the Special Committee, which met on nine
occasions from March 5, 1999 through June 12, 1999, each received compensation
in connection with these committee meetings in the aggregate amount of $13,500,
paid pursuant to the Board's policy for compensation of directors for attendance
at committee meetings in the amount of $1,500 per meeting. Members of the
Special Committee will be entitled to certain indemnification rights and to
directors' and officers' liability insurance which will be continued by
Physicians' Specialty following the Merger as provided for by the Merger
Agreement for the current and former officers and directors of Physicians'
Specialty. (See "-- Indemnification and Insurance"). Under the terms of Option
Exercise Agreements to be executed by members of the Special Committee, the
options held by the members of the Special Committee with an exercise price in
excess of $10.50 will be terminated and each Special Committee member will be
entitled to exercise such member's In the Money Options in a cashless exercise
immediately prior to the Effective Time on the same basis as other holders of
Physicians' Specialty stock options who sign Option Exercise Agreements. The
shares for which such options are exercised will be converted into the right to
receive the Cash Merger Consideration.
Upon the cashless exercise of their respective stock options, Mr. Kirschner
will own 3,958 shares of Common Stock, Dr. Casas will own 4,815 shares of Common
Stock and Dr. Posar will own 3,958 shares of Common Stock. Upon consummation of
the Merger, these shares will be canceled in exchange for the Cash Merger
Consideration. Accordingly, upon consummation of the Merger, the members of the
Special Committee will receive the following cash payments: Mr. Kirschner will
receive $41,562, Dr. Casas will receive $50,562 and Dr. Posar will receive
$41,562.
Advisory and Consulting Agreements. Pursuant to a letter agreement dated
January 13, 1999, the Company retained PHC to provide advisory services and
assist the Company and its Board in the consummation of a leveraged
recapitalization transaction. In connection with its engagement of PHC,
Physicians' Specialty agreed to reimburse PHC's out-of-pocket expenses and to
pay a success fee to PHC equal to (A) 1.25% of the total consideration paid in
connection with any consummated transaction, which shall include indebtedness
for borrowed money and the value of any options assumed less (B) a credit not to
exceed $150,000 for any fees payable by the Company to other investment banking
firms in connection with any consummated transaction. Upon consummation of the
Merger, PHC will receive a net fee of approximately $1.25 million under the
letter agreement. The Company also agreed to indemnify PHC against certain
liabilities.
35
<PAGE> 45
In May 1997, the Company entered into an agreement with PHC, which
agreement was amended in March 1998, pursuant to which PHC will assist the
Company as a financial advisor in connection with acquisitions and similar
transactions. The agreement provides that in the event that the Company
completes any transaction in which PHC performed advisory services, PHC will
receive a fee equal to (i) its out-of-pocket expenses and (ii) 5% of the initial
$1 million of Transaction Value (as defined below), 4% of the next $1 million of
Transaction Value, 3% of the next $1 million of Transaction Value, 2% of the
next $1 million of Transaction Value and 1% of the amount of Transaction Value
in excess of $4 million. "Transaction Value" is defined under the agreement as
the product of (i) the pro-forma annual management fee to be derived by the
Company in connection with the proposed transaction and (ii) 7.5. Pursuant to
the agreement, the fee to be paid to PHC for a particular transaction will be
reduced by any finder's fee payable by the Company to a third party, which has
been approved by PHC, and the aggregate fee to be paid to PHC in any given year
will be reduced by the product of (i) $12,500 and (ii) the number of months in
any year in which Mr. Benjamin is employed by the Company (the "Reduction
Amount"). During 1998, based on Mr. Benjamin's 1998 base salary, the Reduction
Amount was approximately $115,000. The agreement may be terminated by either
party upon 90 days written notice to the other. PHC will not receive any fee
pursuant to this agreement as a result of the consummation of the Merger.
During the year ended December 31, 1998, Physicians' Specialty paid an
aggregate of approximately $893,000 to PHC, consisting of (i) $197,000 for
consulting services in connection with the Company's public offering in May
1998, and (ii) approximately $696,000 (net of $115,000, the amount of salary
paid to Mr. Benjamin by Physicians' Specialty during 1998) for consulting
services in connection with the acquisition of assets or equity of physician
practices and ancillary acquisitions. During the first quarter of 1999,
Physicians' Specialty paid to PHC approximately $207,000 (net of $37,500, the
amount of salary paid to Mr. Benjamin by Physicians' Specialty during the first
quarter of 1999) for advisory services in connection with the acquisition of
assets of certain physician practices and other acquisitions during the period.
In addition, pursuant to the Stock Purchase Agreement, Bock, Benjamin & Co.
Partners, L.P. will sell 266,448 shares of Physicians' Specialty Common Stock to
the TA Investors in exchange for consideration in an aggregate amount of
$2,797,704 and pursuant to the Rollover Agreement will convert its remaining
27,500 shares of Common Stock (approximately 10% of the Common Stock
beneficially owned by Bock, Benjamin & Co. Partners, L.P. as of the date of this
Proxy Statement) into shares of common stock in the Surviving Corporation.
Other Employees. Each employee holding options to purchase Physicians'
Specialty Common Stock will be given the opportunity pursuant to an Option
Exercise Agreement to exercise in a cashless exercise such employee's In the
Money Options and to request that some or all of the shares received by such
employee upon exercise of such options be converted into shares of common stock
of the Surviving Corporation on a share for share basis. As of June 30, 1999,
there were options outstanding to purchase an aggregate of 1,524,940 shares of
Common Stock, of which 1,422,960 have an exercise price per share of less than
$10.50. At or prior to the Effective Time, each option then outstanding to
purchase Physicians' Specialty Common Stock will vest and become fully
exercisable.
Indemnification and Insurance. The Merger Agreement provides that the
Company's current and former directors and officers will be indemnified by the
Surviving Corporation, to the fullest extent permitted under the DGCL, against
any costs, expenses, losses, claims, damages, liabilities, or judgments, or
amounts paid in settlement with the approval of the indemnifying party in
connection with any threatened or actual claim, action, suit, proceeding, or
investigation based in whole or in part on, or arising in whole or in part out
of, or pertaining to the fact that such person is or was a director or officer
of Physicians' Specialty or any of its subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the consummation of the Merger, and
whether asserted or claimed prior to, or at or after such time. In addition, the
Surviving Corporation is required to maintain in effect, for a period of six
years after the Effective Time, Physicians' Specialty's policies of directors'
and officers' liability insurance (provided that the Surviving Corporation may
substitute therefor policies of at least the same amounts and
36
<PAGE> 46
comparable coverage). However, in no event will the Surviving Corporation be
required to pay premiums for such insurance in excess of $150,000.
Robinson-Humphrey. In the ordinary course of Robinson-Humphrey's business,
Robinson-Humphrey and its affiliates actively trade in the equity securities of
the Company for their own account and for the accounts of their customers and,
accordingly, may at any time hold a long or a short position in such securities.
In addition, Robinson-Humphrey participated in the underwriting syndicate in the
Company's initial public offering in March 1997 and its follow-on public
offering in May 1998. Robinson-Humphrey believes that the foregoing arrangements
do not affect its ability to independently and impartially deliver an opinion to
the Special Committee that the Cash Merger Consideration to be received in the
proposed Merger is fair from a financial point of view to the Public
Stockholders.
Leases. The Company leases one clinical location from Dr. Tritt. The lease
is for approximately 23,000 square feet and provides for monthly rental payments
of approximately $47,000, subject to annual increases. The Company also leases
one clinical location from Eastside Physicians Center, L.P., a Georgia limited
partnership, of which Dr. Tritt is a limited partner. The lease is for
approximately 4,800 square feet and provides for monthly rental payments of
approximately $8,000, subject to annual increases. In addition, the Company has
entered into a lease with ENT 87th St., LLC, an entity in which a director of
the Company, Dr. Steven Sacks, has a substantial interest, for real property in
New York City, New York for a medical office for ENT Associates, LLP.
Credit Facility. NationsBank, N.A., a member of the syndicate for the
Company's $45 million amended and restated senior credit facility, which will be
repaid in connection with the Merger, is together with certain of its
affiliates, a principal stockholder of Physicians' Specialty.
LITIGATION RELATING TO THE MERGER
As of the date of this Proxy Statement, Physicians' Specialty is aware of
one lawsuit that has been filed as a purported class action in the Chancery
Court for New Castle County, Delaware on behalf of all holders of Physicians'
Specialty Common Stock excluding the defendants and their related or affiliated
entities. The lawsuit names as defendants Physicians' Specialty, six of the
Company's seven directors (including the three members of the Special Committee)
and TA Associates, Inc.
The lawsuit alleges, among other things, that the directors of Physicians'
Specialty have breached their fiduciary duties to the Company's stockholders by
approving the Merger. In particular, the lawsuit alleges that members of the
Board of Directors suffer from conflicts of interest that made it impracticable
for the Board of Directors to conduct a "bona fide" market check or auction of
the Company prior to approval of the Merger. The lawsuit also alleges that the
announcement of the Merger was timed to place an artificial lid on the market
price of Physicians' Specialty Common Stock. The lawsuit seeks, among other
things, preliminary and permanent injunctive relief prohibiting consummation of
the Merger, unspecified damages, attorneys' fees and other relief. Physicians'
Specialty believes the lawsuit has no merit and intends to contest this lawsuit
vigorously.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, Physicians' Specialty will be owned principally
by the Investor Group. The Public Stockholders will no longer be stockholders of
Physicians' Specialty, and therefore, will not participate in the future
earnings and potential growth of Physicians' Specialty or bear the risk of any
decreases in the value of Physicians' Specialty. Instead, the Public
Stockholders will have the right to receive $10.50 in cash, without interest,
for each share held (other than shares in respect of which appraisal rights have
been perfected under Delaware law). An equity investment in Physicians'
Specialty following the Merger involves substantial risk resulting from the
limited liquidity of any such investment and the leverage resulting from the
future borrowings that will be required to purchase the Common Stock from the
Public Stockholders and to fund the capital expenditures and acquisitions
necessary to execute the Company's business strategy. Nonetheless, if
Physicians' Specialty successfully executes its business strategy, the value of
such an equity investment could be considerably greater than the original cost
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<PAGE> 47
thereof. The Investor Group will have the opportunity to benefit from any future
earnings and growth of Physicians' Specialty. See "-- Conflicts of Interest" and
"CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION."
In addition, the Common Stock will no longer be traded on Nasdaq and price
quotations with respect to sales of shares in the public market will no longer
be available. The registration of the Common Stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), will terminate and the Company
will no longer be required to file reports pursuant to Section 15(d) of the
Exchange Act.
FINANCING OF THE MERGER
Generally. It is estimated that approximately $87.8 million will be
required to consummate the Transactions and pay related fees and expenses. This
sum will be provided by (i) a cash investment of up to approximately $32.8
million from currently available funds by the TA Investors, (ii) borrowings of
approximately $40.0 million of a new $60.0 million revolving credit facility,
and (iii) a $15.0 million investment by Allied in exchange for $15.0 million of
subordinated debentures and warrants to purchase common stock of the Surviving
Corporation (in addition to a $1.0 million equity investment in exchange for
$850,000 of redeemable preferred stock and $150,000 of convertible preferred
stock, which is included in the $32.8 million investment in clause (i) above).
In addition, the Management Sponsors, their affiliates and the Physician
Investors will exchange 2,047,310 shares of Physicians' Specialty Common Stock
having an aggregate value of $21.6 million (based on a price of $10.50 per
share) for common stock of the Surviving Corporation. The TA Investors have
committed under the Merger Agreement to provide the equity financing to
MergerCo, subject to certain conditions set forth in the Merger Agreement. See
"The Merger -- Terms of the Merger Agreement."
Subordinated Debentures. Pursuant to the terms of a binding commitment
letter, Physicians' Specialty expects to receive $15.0 million from Allied in
exchange for issuing to Allied $15.0 million of subordinated debentures and
warrants to purchase common stock of the Surviving Corporation. The subordinated
debentures will mature seven years from the date of consummation of the Merger
(or up to an additional 6 months depending on the maturity of certain other debt
obligations of the Surviving Corporation); interest will accrue at the rate of
15.5% per annum, 12% of which will be paid in cash and 3.5% in additional
principal amount; and the subordinated debentures will be unsecured and
subordinate to a revolving bank facility (described below) and any debt
refinancing thereof. In addition, the Surviving Corporation will be subject to
customary covenants for this type of financing including restrictions on
affiliate transactions, indebtedness, dividends, liens, stock repurchases, asset
sales and acquisitions.
Credit Facility. Physicians' Specialty plans to draw down approximately
$40.0 million of a new $60.0 million revolving credit facility provided in a
binding commitment letter from First Union in order to consummate the Merger.
Borrowings under the revolving credit facility will be secured by a first
priority lien on and security interest in (a) 100% of the capital stock of each
subsidiary of the Surviving Corporation and (b) all of the assets of the
Surviving Corporation and its subsidiaries. The revolving credit facility will
terminate five years after the closing of the Merger. Interest on borrowings
under the revolving credit facility would, in the event a LIBOR pricing option
is exercised, range from 2.25% to 3.50% over LIBOR, and, in the event an
alternate base rate pricing option is exercised, range from 1.00% to 2.25% over
First Union's base lending rate.
The foregoing commitment letters are subject to numerous conditions,
including the preparation and execution of definitive loan agreements and
related documents, the absence of a material adverse change in the Company's
business, the receipt of a legal opinion from counsel to Physicians' Specialty,
the reasonableness of assumptions underlying financial projections provided to
the lenders, the accuracy of financial information provided to the lenders and
satisfaction of certain financial tests. In addition, the First Union and Allied
commitment letters will expire on November 30, 1999 if the Merger and related
transactions are not consummated by such date. First Union's commitment letter
provides that its commitment to provide the credit facility may be subject to
additional conditions contained in the
38
<PAGE> 48
definitive loan agreements. These commitment letters are filed as exhibits to
the Company's Schedule 13E-3.
CONDUCT OF PHYSICIANS' SPECIALTY BUSINESS AFTER THE MERGER
The Investor Group is continuing to evaluate the Company's business,
practices, operations, properties, corporate structure, capitalization,
management, and personnel and will discuss what changes, if any, will be
desirable. Subject to the foregoing, the Investor Group expects that the
day-to-day business and operations of the Surviving Corporation will be
conducted substantially as they are currently being conducted by Physicians'
Specialty. The Investor Group does not currently intend to dispose of any assets
of Physicians' Specialty, other than in the ordinary course of business.
Additionally, the Investor Group does not currently contemplate any material
change in the composition of the Company's current management or personnel,
although after the Merger the Board will consist of Dr. Tritt and Messrs.
Benjamin and Ballard (as designees of the Company's management), Richard Tadler
and David S. B. Lang (as designees of the TA Investors) and up to two outside
directors to be determined at a later time.
RISK THAT THE MERGER WILL NOT BE CONSUMMATED
Consummation of the Merger is subject to several conditions, including
receipt of the required approval of the Physicians' Specialty stockholders, the
absence of an injunction or other order prohibiting consummation of the
Transactions, the absence of a change resulting in a material adverse effect on
the business, results of operations, or condition (financial or otherwise) of
the Company and its subsidiaries taken as a whole, receipt of required debt
financing and holders of not more than 5% of the outstanding shares of
Physicians' Specialty Common Stock electing to demand appraisal rights. See "THE
MERGER -- Conditions to Consummation of the Merger." Although, as described in
"-- FINANCING OF THE MERGER," the Company and TA Associates have obtained
commitments for the required debt financing, these commitments contain several
conditions. Therefore, even if the required stockholder approval is obtained,
there can be no assurance that the Merger will be consummated.
EVEN IF THE STOCKHOLDERS APPROVE AND ADOPT THE MERGER AGREEMENT, THERE CAN
BE NO ASSURANCE THAT THE MERGER WILL BE CONSUMMATED.
The Merger Agreement provides for the following payments in the event of
the termination of the Merger Agreement. Physicians' Specialty will pay MergerCo
a termination fee equal to $3.5 million plus up to $750,000 of MergerCo's
out-of-pocket fees and expenses if Physicians' Specialty terminates the Merger
Agreement because it has entered into a definitive agreement concerning an
Acquisition Proposal or if either party terminates the Merger Agreement because
of the failure to obtain the required stockholder approval and the Company under
certain circumstances enters into a definitive agreement concerning an
Acquisition Proposal within 12 months of termination. The Company will pay
MergerCo's out-of-pocket fees and expenses (not to exceed $750,000) if MergerCo
terminates the Merger Agreement because the Physicians' Specialty Board has
withdrawn or adversely modified its recommendation of the Merger or Physicians'
Specialty has entered into a definitive agreement concerning an Acquisition
Proposal. Each of MergerCo and Physicians' Specialty agrees to pay the other
party's fees and expenses (not to exceed $750,000) upon the termination of the
Merger Agreement based on a material breach of any representation, warranty or
covenant that such party has made under the Merger Agreement. No other
transaction is currently being considered by the Company as an alternative to
the Merger.
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THE SPECIAL MEETING
DATE, TIME, AND PLACE OF THE SPECIAL MEETING
The Special Meeting of Physicians' Specialty will be held on ,
1999, at 10:00 a.m., local time, at the offices of King & Spalding, located at
191 Peachtree Street, Atlanta, Georgia.
PROXY SOLICITATION
This Proxy Statement is being solicited by the Company. All expenses
incurred in connection with solicitation of the enclosed proxy will be paid by
the Company. Officers, directors and regular employees of the Company, who will
receive no additional compensation for their services, may solicit proxies by
telephone or personal call. The Company has requested brokers and nominees who
hold stock in their names to furnish this proxy material to their customers, and
the Company will reimburse such brokers and nominees for their related
out-of-pocket expenses. This Proxy Statement and the accompanying proxy card are
being mailed to stockholders on or about , 1999.
RECORD DATE AND QUORUM REQUIREMENT
The Common Stock is the only outstanding voting security of the Company.
The Board has fixed the close of business on , 1999 as the Record
Date for the determination of stockholders entitled to notice of, and to vote
at, the Special Meeting and any adjournment or adjournments thereof. At the
close of business on the Record Date, there were shares of Common Stock
issued and outstanding held by holders of record. Each holder of record
of Physicians' Specialty Common Stock at the close of business on the Record
Date is entitled to one vote for each share then held on each matter that may
properly come before the Special Meeting.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business.
VOTING PROCEDURES
Approval and adoption of the Merger Agreement, which is attached as
Appendix A hereto, will require the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting. The Management Sponsors, their affiliates and certain
affiliated physicians, who as of the Record Date, beneficially owned
approximately 40% of the outstanding shares of Physicians' Specialty Common
Stock, have agreed to vote their shares for approval and adoption of the Merger
Agreement. A failure to vote or a vote to abstain will have the same legal
effect as a vote cast against approval. Brokers and, in many cases, nominees
will not have discretionary power to vote on the proposal to be presented at the
Special Meeting. Accordingly, beneficial owners of shares should instruct their
brokers or nominees how to vote. A broker non-vote will have the same effect as
a vote against the Merger Agreement.
If there are insufficient votes to approve and adopt the Merger Agreement
at the Special Meeting, proxies voted in favor of the Merger Agreement and
proxies as to which no voting instructions are given may be voted to adjourn the
Special Meeting in order to solicit additional proxies in favor of approval of
the Merger Agreement. If the Special Meeting is adjourned for any purpose, at
any subsequent reconvening of the Special Meeting, all proxies will be voted in
the same manner as such proxies would have been voted at the original convening
of the meeting (except for any proxies which have been revoked or withdrawn),
notwithstanding that they may have been voted on the same or any other matter at
a previous meeting.
Under Delaware law, holders of Physicians' Specialty Common Stock who do
not vote in favor of the proposal to approve and adopt the Merger Agreement and
who comply strictly with the notice
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requirements and other procedures of Section 262 are entitled to exercise their
appraisal rights and to be paid cash for the "fair value" of their shares as
finally determined under such procedures. The fair value may be more or less
than the consideration to be received by other stockholders of the Company under
the terms of the Merger Agreement. Failure to follow such procedures precisely
may result in loss of appraisal rights. See "RIGHTS OF DISSENTING STOCKHOLDERS."
VOTING AND REVOCATION OF PROXIES
A stockholder who gives a proxy may revoke it at any time before it is
voted at the Special Meeting by (i) filing with the Secretary of the Company an
instrument revoking it, (ii) submitting a duly executed proxy bearing a later
date or (iii) voting in person at the Special Meeting. Subject to such
revocation, all shares represented by each properly executed proxy received by
the Secretary of the Company will be voted in accordance with the instructions
indicated thereon, and if no instructions are indicated, will be voted to
approve and adopt the Merger Agreement and in such manner as the persons named
on the enclosed proxy card in their discretion determine upon such other
business as may properly come before the Special Meeting or any adjournment
thereof.
The shares represented by the accompanying proxy card and entitled to vote
will be voted if the proxy card is properly signed and received by the Secretary
of the Company prior to the Special Meeting.
EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES
The effective time of the Merger, which shall be the date and time of
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time"), is currently expected to occur as soon as
practicable after the Special Meeting, subject to approval and adoption of the
Merger Agreement at the Special Meeting and satisfaction or waiver of the terms
and conditions of the Merger Agreement. Detailed instructions with regard to the
surrender of Common Stock certificates, together with a letter of transmittal,
will be forwarded to stockholders by the Company's exchange agent,
(the "Exchange Agent"), promptly following the Effective Time. Stockholders
should not submit their certificates to the Exchange Agent until they have
received such materials. The Exchange Agent will send payment of the Cash Merger
Consideration to stockholders as promptly as practicable following receipt by
the Exchange Agent of their certificates and other required documents. No
interest will be paid or accrued on the cash payable upon the surrender of
certificates. Stockholders should not send any certificates at this time. See
"THE MERGER -- Conditions."
OTHER MATTERS TO BE CONSIDERED
The Company's Board of Directors is not aware of any other matters which
will be brought before the Special Meeting. If, however, other matters are
presented, proxies will be voted in accordance with the discretion of the
holders of such proxies.
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THE MERGER
TERMS OF THE MERGER AGREEMENT
General. The Merger Agreement provides that subject to satisfaction of
certain conditions, MergerCo will be merged with and into Physicians' Specialty,
and that following the Merger, the separate existence of MergerCo will cease and
Physicians' Specialty will continue as the Surviving Corporation. At the
Effective Time, and subject to the terms and conditions set forth in the Merger
Agreement, each share of issued and outstanding Common Stock (other than shares
as to which appraisal rights are properly perfected and not withdrawn, shares
held by the Company or any of its subsidiaries or by MergerCo, and shares held
at the Effective Time by the Management Sponsors, their affiliates and the
Physician Investors and certain shares held by employee option holders (the
"Recapitalization Shares")) will, by virtue of the Merger, be canceled and
converted into the right to receive $10.50 in cash, without interest (the "Cash
Merger Consideration"). As a result of the Merger, the Common Stock will no
longer be publicly traded and the equity of the Surviving Corporation will be
100% owned by the Investor Group.
The terms of and conditions to the Merger are contained in the Merger
Agreement which is included in full as Appendix A to this Proxy Statement and is
incorporated herein by reference. The discussion in this Proxy Statement of the
Merger and the summary description of the principal terms of the Merger
Agreement are subject to and qualified in their entirety by reference to the
more complete information set forth in the Merger Agreement.
Merger Consideration. Upon consummation of the Merger, each share of
Common Stock issued and outstanding immediately prior to the Effective Time
(excluding shares owned by the Company or any of its subsidiaries or by
MergerCo, the Recapitalization Shares and dissenting shares) will be converted
into the right to receive the Cash Merger Consideration, upon surrender and
exchange of the certificate or certificates which immediately prior to the
Effective Time evidenced Common Stock (the "Certificate(s)"). All such shares of
Common Stock, when converted (the "Shares"), will no longer be outstanding and
will automatically be canceled and retired and will cease to exist, and each
Certificate previously evidencing such Shares will thereafter represent only the
right to receive the Cash Merger Consideration.
As holders of Recapitalization Shares, the Management Sponsors and their
affiliates will in the aggregate have 1,574,330 shares of Common Stock converted
in the Merger into 1,574,330 shares of common stock of the Surviving
Corporation, and the Physician Investors, as holders of Recapitalization Shares,
will have in the aggregate 472,980 shares of Common Stock converted in the
Merger into 472,980 shares of common stock of the Surviving Corporation. In
addition, each share of convertible participating preferred stock and redeemable
preferred stock of MergerCo outstanding immediately prior to the Effective Time
(all of which shares are held by the TA Investors) will be converted into a
share of Convertible Participating Preferred Stock and Redeemable Preferred
Stock, respectively. As a result, upon consummation of the Merger, the TA
Investors and their assigns will hold approximately 3.2 million shares of
Convertible Participating Preferred Stock and 27,800 shares of Redeemable
Preferred Stock of the Surviving Corporation.
Payment for Shares. Promptly after the Effective Time, the Exchange Agent
will mail to each holder of record of a Certificate (other than Physicians'
Specialty or any of its subsidiaries or MergerCo or holders of dissenting shares
or Recapitalization Shares) a form of letter of transmittal and instructions for
use in effecting the surrender of the Certificate in exchange for payment
therefor. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such duly executed letter of transmittal, and any
additional requested items, the holder of such Certificate will be entitled to
receive in exchange therefor cash in an amount equal to the product of (x) the
number of shares of Common Stock represented by such Certificate and (y) the
Cash Merger Consideration.
Stock Options. Pursuant to the Company's 1996 Stock Option Plan, as
amended, and the 1996 Healthcare Professionals Stock Option Plan and resolutions
of the Physicians' Specialty Board of Directors, each outstanding option will
vest and become fully exercisable at or prior to the Effective Time.
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The Merger Agreement provides that the Company will use its reasonable best
efforts to cause each holder of options to purchase Physicians' Specialty Common
Stock to enter into an Option Exercise Agreement. The Option Exercise Agreement
will provide for a cashless exercise of options which have an exercise price of
less than $10.50 per share and the termination and cancellation of options which
have an exercise price of greater than or equal to $10.50 per share. In
addition, the Merger Agreement required Physicians' Specialty to terminate,
effective as of June 30, 1999, the Physicians' Specialty 1997 Employee Stock
Purchase Plan.
Transfer of Shares. At the Effective Time, the stock transfer books of
Physicians' Specialty will be closed and there will be no further transfer of
shares of Common Stock thereafter on the records of Physicians' Specialty. On or
after the Effective Time, any certificates presented to the Surviving
Corporation or the Exchange Agent for any reason will be canceled in return for
the Cash Merger Consideration.
Conditions to the Merger. Each party's respective obligation to effect the
Merger is subject to the satisfaction, prior to the Closing Date, of each of the
following conditions: (i) the Merger Agreement and the Transactions, including
the Merger, shall have been approved and adopted by the affirmative vote of the
holders of a majority of the outstanding shares of Physicians' Specialty Common
Stock to the extent required by the DGCL and the Physicians' Specialty
Certificate of Incorporation; (ii) all necessary approvals, authorizations and
consents of governmental or regulatory entities required to consummate the
Merger shall have been obtained and remain in full force and effect and all
waiting periods relating to such approvals, authorizations and consents shall
have expired or been terminated; (iii) no injunction, order, decree or ruling
nor any statute, rule or regulation shall be in effect which would make the
consummation of the Merger illegal or otherwise prevent or prohibit the
consummation of the Transactions including the Merger, or prohibit or limit the
ownership or operation by the Company or any of its subsidiaries of any portion
of its or their business, properties or assets which is material, or compel the
Company or any of its subsidiaries to dispose of or hold separate any portion of
the Company's or the subsidiaries' business, properties or assets which is
material; and (iv) any waiting period (and any extension thereof) applicable to
the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, shall have expired or been terminated.
The obligations of MergerCo and each of the TA Investors, who have agreed,
subject to certain limitations, to guarantee certain obligations of MergerCo
under the Merger Agreement, to effect the Merger are subject to the satisfaction
of the following conditions, unless waived by MergerCo and the TA Investors: (i)
there shall not have occurred a change which would reasonably be expected to
have a Company Material Adverse Effect; (ii) the representations and warranties
of Physicians' Specialty in the Merger Agreement, which are qualified by
materiality or Company Material Adverse Effect shall be true and correct as of
the closing of the Merger (the "Closing Date") as though made on and as of the
Closing Date (except to the extent such representations and warranties expressly
relate to a specific date, in which case such representations and warranties
shall be true and correct as of such date) and those other representations and
warranties of Physicians' Specialty in the Merger Agreement shall be true and
correct in all material respects as of the Closing Date as though made on and as
of the Closing Date (except to the extent such representations and warranties
expressly relate to a specific date in which case such representations and
warranties shall be true and correct in all material respects as of such date);
(iii) Physicians' Specialty shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement; (iv) debt
financing in amounts and substantially on the terms set forth in the existing
bank commitments shall have been obtained; (v) the holders of no more than 5% of
the outstanding shares of Physicians' Specialty Common Stock shall have taken
all required actions to assert appraisal rights under Section 262 of the DGCL
and not withdrawn or otherwise permitted to lapse such appraisal rights or
demands therefor; (vi) not less than 2,047,310 shares of Physicians' Specialty
Common Stock shall be subject to a Rollover Agreement which shall be in full
force and effect; (viii) the Amended Employment Agreements shall be in full
force and effect; (ix) amounts owing by Physicians' Specialty to NationsBank
under the existing credit facility shall have been repaid and releases of
related liens shall have been obtained pending receipt of amounts stated in
payoff letters;
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(x) all consents and approvals by third parties (A) identified as conditions to
closing and (B) that are required to prevent a breach of, default under, or
termination, change in the terms or conditions or modification of, any contract
or other agreement, where such breach, default, termination or change would have
a Company Material Adverse Effect, will have been obtained; and (xi) the
Commission shall not have disapproved of the statement made in this Proxy
Statement that the Merger will be treated as a recapitalization for accounting
purposes.
The obligations of Physicians' Specialty to effect the Merger are subject
to the satisfaction of the following conditions, unless waived by Physicians'
Specialty: (i) the representations and warranties of MergerCo contained in the
Merger Agreement which are qualified by materiality or MergerCo Material Adverse
Effect shall be true and correct as of the Closing Date as though made on and as
of the Closing Date (except to the extent such representations and warranties
expressly relate to a specific date, in which case such representations and
warranties shall be true and correct as of such date) and those other
representations and warranties of MergerCo in the Merger Agreement shall be true
and correct in all material respects as of the Closing Date as though made on
and as of the Closing Date (except to the extent such representations and
warranties expressly relate to a specific date in which case such
representations and warranties shall be true and correct in all material
respects as of such date); (ii) MergerCo shall have performed in all material
respects all obligations required to be performed by it at or prior to the
Closing Date; and (iii) the stock purchase between the TA Investors and the
Management Sponsors, their affiliates and the Physician Investors shall have
been consummated.
Subject to applicable law, the Merger Agreement may be amended by written
agreement of the parties to the Merger Agreement; provided, however, that, after
the Merger Agreement is approved by the Physicians' Specialty stockholders, no
such amendment or modification shall reduce the amount or change the form of
consideration to be received by the Physicians' Specialty stockholders.
Consequently, if Physicians' Specialty waives a condition to its obligations to
perform under the Merger Agreement, unless otherwise required by applicable law,
Physicians' Specialty will only resolicit stockholder approval of the Merger
Agreement if such waiver reduces the amount or changes the form of consideration
to be received by the Physicians' Specialty stockholders.
EVEN IF THE STOCKHOLDERS APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT
THE MERGER WILL BE CONSUMMATED.
Representations and Warranties. Physicians' Specialty has made
representations and warranties in the Merger Agreement regarding, among other
things, its organization and good standing, authority to enter into the
Transactions, its capitalization, its financial statements, the absence of
certain changes in the business of Physicians' Specialty since December 31,
1998, the content and submission of forms and reports required to be filed by
Physicians' Specialty with the Commission, requisite governmental and other
consents and approvals, compliance with applicable laws, absence of litigation
against Physicians' Specialty, brokers and finders fees, requisite tax filings,
absence of defaults under material contracts, employee benefits, environmental
matters, healthcare compliance and intellectual property matters.
MergerCo has made representations and warranties in the Merger Agreement
regarding, among other things, its organization and good standing, its prior
activities, authority to enter into the Transactions, the requisite governmental
and other consents and approvals, and accuracy of information supplied by
MergerCo for submission on forms and reports required to be filed by Physicians'
Specialty with the Commission.
The TA Investors have made representations and warranties in the Merger
Agreement regarding, among other things, their organization and good standing,
authority to enter into the transaction, requisite governmental and other
consents and approvals, accuracy of information supplied by the TA Investors for
submission on forms and reports required to be filed by Physicians' Specialty
with the Commission, and certain financing commitments.
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The representations, warranties and agreements (other than Sections 7.4,
7.6, 7.7, 10.3 and 10.7) in the Merger Agreement or in any instrument delivered
pursuant to the Merger Agreement will expire at the Effective Time.
Covenants. In the Merger Agreement, Physicians' Specialty has agreed that
prior to the Effective Time, unless otherwise agreed to in writing by MergerCo
or as otherwise expressly contemplated or permitted by the Merger Agreement,
Physicians' Specialty and each of its subsidiaries will, among other things,
carry on its business in the ordinary course consistent with past practice,
including, without limitation, not declaring any dividend on its capital stock,
issuing any shares of capital stock or entering into certain transactions.
Solicitation of Acquisition Proposal. The Merger Agreement provides that
neither Physicians' Specialty nor its subsidiaries nor any of their respective
officers, directors, employees or representatives shall be permitted, directly
or indirectly, to initiate, solicit, encourage (including by way of furnishing
non-public information) or take any action to facilitate, any inquiries or the
making of any proposal that constitutes an Acquisition Proposal (as defined
below); to participate in discussions or negotiations regarding an Acquisition
Proposal; or to enter into any agreements, definitive or otherwise, regarding an
Acquisition Proposal. Physicians' Specialty may, however, upon receipt of a
non-solicited Acquisition Proposal at any time prior to the approval of the
Merger Agreement by the Physicians' Specialty stockholders, furnish non-public
information with respect to Physicians' Specialty and its subsidiaries to the
person making such proposal and may participate in discussions with such party
if the Board of Directors of Physicians' Specialty determines based on the
advice of independent legal counsel that failure to do so would be inconsistent
with its fiduciary duties and determines based on advice of its financial
advisors that such Acquisition Proposal is likely to lead to a Superior
Acquisition Proposal.
Physicians' Specialty will advise MergerCo promptly after it receives an
indication of interest, inquiry or proposal from a third party regarding an
Acquisition Proposal and of the status of material developments in the
negotiations with respect to the Acquisition Proposal or the taking of actions
not otherwise permitted under the Merger Agreement with respect to such
Acquisition Proposal.
As defined in the Merger Agreement, an "Acquisition Proposal" means any
proposed or actual (i) merger, consolidation or similar transaction involving
the Company, (ii) sale, lease or other disposition of any assets of the Company
or the Company's subsidiaries representing 15% or more of their consolidated
assets, (iii) issuance, sale or other disposition by the Company of securities
representing 15% or more of the votes associated with the outstanding securities
of the Company, (iv) tender or exchange offer in which any person shall acquire
or has the right to acquire beneficial ownership, or any group shall have been
formed which beneficially owns or has the right to acquire beneficial ownership
of, 15% or more of the outstanding shares of the Company's Common Stock, (v)
recapitalization, restructuring, liquidation, dissolution or other similar
transaction with respect to the Company or (vi) transaction which is similar in
form, substance or purpose to any of the foregoing transactions.
Indemnification and Insurance. The Merger Agreement provides that the
Company's current and former directors and officers will be indemnified by the
Surviving Corporation, to the fullest extent permitted under the DGCL, against
any costs, expenses, losses, claims, damages, liabilities or judgments, or
amounts paid in settlement with the approval of the indemnifying party in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on, or arising in whole or in part out
of, or pertaining to the fact that such person is or was a director or officer
of Physicians' Specialty or any of its subsidiaries, whether pertaining to any
matter existing or occurring at or prior to the Effective Time, and whether
asserted or claimed prior to, or at or after, the Effective Time. In addition,
the Surviving Corporation is required to maintain in effect, for a period of six
years after the Effective Time, Physicians' Specialty's policies of directors'
and officers' liability insurance (provided that the Surviving Corporation may
substitute therefor policies of at least the same amounts and comparable
coverage). However, in no event will the Surviving Corporation be required to
pay premiums for such insurance in excess of $150,000.
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Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the stockholders of Physicians' Specialty: (a) by
mutual written consent of Physicians' Specialty and MergerCo; (b) by Physicians'
Specialty if MergerCo shall have breached in any material respect any of its
representations, warranties, covenants or other agreements (except where such
representations, warranties, covenants or other agreements are qualified by
materiality or MergerCo Material Adverse Effect, in which case MergerCo's breach
shall not be qualified as to materiality), which breach or failure to perform
has not been or cannot be cured within 15 days following the giving to MergerCo
of notice of such breach or failure, except for breaches which are not
reasonably likely to affect adversely MergerCo's ability to consummate the
Merger; (c) by MergerCo if Physicians' Specialty shall have breached in any
material respect any of its representations, warranties, covenants or other
agreements (except where such representations, warranties, covenants or other
agreements are qualified by materiality or Company Material Adverse Effect, in
which case the Company's breach shall not be qualified as to materiality), which
breach or failure to perform has not been or cannot be cured within 15 days
following the giving to MergerCo of notice of such breach; (d) by MergerCo or
Physicians' Specialty if any court or other governmental entity shall have
issued an injunction or other order, ruling or decree which permanently
restrains, enjoins or otherwise prohibits the Merger which shall have become
final and nonappealable; (e) by MergerCo or Physicians' Specialty if the Merger
shall not have occurred on or before November 30, 1999; (f) by MergerCo in the
event (i) the Physicians' Specialty Board shall have withdrawn or adversely
modified its approval or recommendation of the Merger or the Merger Agreement to
the Physicians' Specialty stockholders, or (ii) the Company shall have entered
into an agreement concerning an Acquisition Proposal; (g) by Physicians'
Specialty in connection with entering into a definitive agreement to effect a
Superior Acquisition Proposal; provided, however that Physicians' Specialty
shall not terminate the Merger Agreement in this manner without (i) providing
MergerCo at least five days prior written notice, which notice shall include in
reasonable detail the terms of the Superior Acquisition Proposal, and (ii)
making payments to MergerCo in accordance with Section 9.2 of the Merger
Agreement (as described below); or (h) by MergerCo or Physicians' Specialty if
the Merger and the Merger Agreement shall have been voted on by the Physicians'
Specialty stockholders, and the votes shall not have been sufficient to satisfy
the condition set forth in Section 8.1(a) of the Merger Agreement.
Fees and Expenses. Except as otherwise provided in Section 9.2 of the
Merger Agreement, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses; provided that the Company shall pay the reasonable
out-of-pocket costs of MergerCo and the TA Investors if the Merger is
consummated. Physicians' Specialty agrees to pay MergerCo a fee in immediately
available funds equal to $3.5 million plus the amount of all of MergerCo's
Designated Expenses (as defined below) (i) if the Company terminates the Merger
Agreement pursuant to Section 9.1(c)(i) of the Merger Agreement or (ii) either
the Company or MergerCo terminates the Merger Agreement pursuant to Section
9.1(b)(i) of the Merger Agreement and (A) prior to the Special Meeting, an
Acquisition Proposal shall have been made to the Company's Stockholders
generally or any person shall have publicly announced an Acquisition Proposal or
an intention to make an Acquisition Proposal or solicited proxies or consents in
opposition to the Merger, and (B) Physicians' Specialty shall have entered into
a definitive agreement on or before the first anniversary of the termination of
the Merger Agreement with respect to an Acquisition Proposal. MergerCo agrees to
pay Physicians' Specialty a fee in immediately available funds equal to the
amount of all of Physicians' Specialty's Designated Expenses if the Company
terminates the Merger Agreement pursuant to Section 9.1(c)(ii), and Physicians'
Specialty agrees to pay MergerCo a fee in immediately available funds equal to
the amount of all MergerCo's Designated Expenses if MergerCo terminates the
Merger Agreement pursuant to Section 9.1(d) of the Merger Agreement. All
Designated Expenses shall be paid within three days of termination. The term
"Designated Expenses" shall mean all out-of-pocket costs and expenses (not to
exceed $750,000) incurred in connection with the Merger Agreement and the
Transactions.
Terms of the Convertible Participating Preferred Stock and Redeemable
Preferred Stock. The following description of the Convertible Participating
Preferred Stock and the Redeemable Preferred Stock
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is qualified in its entirety by reference to the Amended and Restated
Certificate of Incorporation of the Surviving Corporation which will become
effective following the consummation of the Merger and which is attached as an
exhibit to the Merger Agreement (the "Certificate of Incorporation").
Convertible Participating Preferred Stock
Voting. For so long as the holders of shares of Convertible Participating
Preferred Stock hold at least 25% of the shares of such Convertible
Participating Preferred Stock issued in the original issuance, the holders will
be entitled to elect two directors to the Board of Directors of the Surviving
Corporation. In addition, each share of Convertible Participating Preferred
Stock will entitle the holder thereof to the number of votes equal to the number
of full shares of common stock of the Surviving Corporation into which such
shares of Convertible Participating Preferred Stock could be converted (as
described below) on the record date for the vote or written consent of
stockholders, if applicable, with appropriate adjustments for stock splits,
stock dividends, recapitalizations and the like. The holders of Convertible
Participating Preferred Stock will vote together with holders of common stock of
the Surviving Corporation as a single class upon all matters submitted to a vote
of stockholders, except those matters required to be submitted to a class or
series vote pursuant to the Certificate of Incorporation or by applicable law.
Dividends. The holders of Convertible Participating Preferred Stock will
be entitled to receive dividends out of funds legally available therefor at such
times and in such amounts as the Board of Directors of the Surviving Corporation
may determine in its sole discretion; provided, however, that no such dividend
may be declared or paid on any shares of Convertible Participating Preferred
Stock unless at the same time a dividend is declared or paid on all outstanding
shares of common stock of the Surviving Corporation and vice versa. The holders
of Convertible Participating Preferred Stock and common stock of the Surviving
Corporation shall share in any such dividends as if they constituted a single
class of stock with each holder of shares of Convertible Participating Preferred
Stock entitled to receive such dividends based on the number of shares of common
stock of the Surviving Corporation into which such shares of Convertible
Participating Preferred Stock are then convertible.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
the Surviving Corporation and its subsidiaries, whether voluntary or involuntary
(a "Liquidation Event"), each holder of outstanding shares of Convertible
Participating Preferred Stock shall be entitled to receive out of the assets of
the Surviving Corporation available for distribution to stockholders and before
any amount shall be paid or distributed to the holders of common stock of the
Surviving Corporation or any other stock of the Surviving Corporation ranking
junior to the Convertible Participating Preferred Stock (collectively, "Junior
Stock"), an amount of cash equal to (i) $1.53 per share of Convertible
Participating Preferred Stock held by such holder (adjusted appropriately for
stock splits, stock dividends, recapitalization and similar events with respect
to the Convertible Participating Preferred Stock), plus (ii) any declared but
unpaid dividends to which such holder of outstanding shares of Convertible
Participating Preferred Stock is then entitled (the sum of clauses (i) plus (ii)
being the "Convertible Preferred Base Liquidation Amount"), plus (iii) any
Unredeemed Shares Interest (as defined below) (the sum of clauses (i), (ii) and
(iii) being the "Convertible Preferred Liquidation Preference Amount");
provided, however, that if upon any Liquidation Event the amounts payable with
respect to the Convertible Preferred Liquidation Preference Amount are not paid
in full, the holders of the Convertible Participating Preferred Stock shall
share ratably in any distribution of assets in proportion to the full respective
preferential amounts to which they are entitled; and provided further, however,
that if upon any Liquidation Event the holders of the outstanding shares of
Convertible Stock would receive more than the Convertible Liquidation Preference
Amount in the event their shares were converted into Common Stock immediately
prior to such Liquidation Event and such shares of common stock received a
liquidating distribution from the Corporation (after giving effect to the
preferential amounts payable to the holders of the Redeemable Preferred Stock),
then each holder of Convertible Participating Preferred Stock shall receive as a
distribution from the Corporation in connection with such Liquidation Event an
amount equal to the amount that would be paid if such holder's shares of
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Convertible Participating Preferred Stock were converted into common stock
immediately prior to such Liquidation Event, in lieu of the Convertible
Liquidation Preference Amount.
Redemption. At any one time on or after the sixth anniversary of the date
of original issuance of the Convertible Participating Preferred Stock, upon the
election of holders of not less than two-thirds of the outstanding Convertible
Participating Preferred Stock, the Surviving Corporation shall redeem all of the
outstanding shares of the Convertible Participating Preferred Stock at the
Convertible Preferred Redemption Price (as defined below). The Convertible
Preferred Redemption Price for each share of Convertible Stock redeemed shall be
the per share Convertible Liquidation Preference Amount. In addition, upon the
election of the holders of not less than two-thirds of the outstanding
Convertible Participating Preferred Stock, to have the Convertible Participating
Preferred Stock redeemed or otherwise to participate in connection with the
occurrence of any of the following events: (A) a merger or consolidation of the
Surviving Corporation with or into another corporation (with respect to which
less than a majority of the outstanding voting power of the surviving or
consolidated corporation is held by stockholders of the Surviving Corporation
immediately prior to such event), (B) the sale or transfer of all or
substantially all of the properties and assets of the Surviving Corporation, (C)
any purchase by any party (or group of affiliated parties) of shares of capital
stock of the Surviving Corporation (either through a negotiated stock purchase
or a tender for such shares, the effect of which is that such party (or group of
affiliated parties) that did not beneficially own a majority of the voting power
of the outstanding shares of capital stock of the Surviving Corporation
immediately after such purchase, (D) the redemption or repurchase of shares
representing a majority of the voting power of the outstanding shares of capital
stock of the Surviving Corporation or (E) a public offering not constituting a
qualified public offering (as defined in the Certificate of Incorporation) (each
an "Extraordinary Transaction"), then as a part of and as a condition to the
effectiveness of such Extraordinary Transaction, unless the holders of
Convertible Stock shall have elected to convert their shares of Convertible
Participating Preferred Stock into common stock in accordance with the voluntary
conversion provisions (described below) prior to the effective date of such
Extraordinary Transaction, the Surviving Corporation shall either redeem all of
the outstanding shares of Convertible Participating Preferred Stock for the
Convertible Redemption Price, if redemption is elected, or if the holders elect
to participate in the transaction, the Surviving Corporation shall take actions
that facilitate the holders of Convertible Participating Preferred Stock
receiving such Convertible Redemption Price as a preferential amount, in which
event the distribution to the holders of Convertible Participating Preferred
Stock of such preferential amount shall be deemed a Liquidation Event.
Notwithstanding the foregoing, if upon any Extraordinary Transaction the holders
of the outstanding shares of Convertible Participating Preferred Stock would
receive more than the Convertible Redemption Price in the event their shares
were converted into shares of common stock immediately prior to such
Extraordinary Transaction and such shares of common stock were purchased or
otherwise participated in such Extraordinary Transaction, then each holder of
Convertible Participating Preferred Stock shall receive from the Surviving
Corporation or the relevant purchaser, as applicable, upon the election by a
two-thirds interest to redeem or otherwise to participate in such Extraordinary
Transaction an amount equal to the amount per share that would be paid if the
shares of Surviving Corporation common stock receivable upon conversion of the
Convertible Participating Preferred Stock were being acquired in the
Extraordinary Transaction at the same price per share as is paid for other
shares of common stock, which amount shall be paid in the same form of
consideration as is paid to the holders of common stock, as if each share of
Convertible Participating Preferred Stock had been converted into the number of
Shares of common stock issuable upon the conversion of such share of Convertible
Participating Preferred Stock immediately prior to such Extraordinary
Transaction.
If the Surviving Corporation is prohibited under the DGCL from redeeming
all the outstanding shares of Convertible Participating Preferred Stock on the
date on which it is required to redeem the Convertible Participating Preferred
Stock, then it shall redeem such shares on a pro rata basis among the holders of
Convertible Participating Preferred Stock in proportion to the full respective
redemption amounts to which they are entitled to the extent possible and shall
redeem the remaining shares (the "Unredeemed Shares") as soon as the Surviving
Corporation is not prohibited from redeeming some or all of such shares under
the DGCL. Any Unredeemed Shares shall remain outstanding and entitled to all of
the rights and
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preferences of Convertible Participating Preferred Stock until they are
redeemed. The Surviving Corporation shall take such commercially reasonable
action as shall be necessary or appropriate to review and promptly remove any
impediment to its ability to redeem the Unredeemed Shares. In addition, from the
date on which the Surviving Corporation is first required to redeem the
Unredeemed Shares until such shares are redeemed, the applicable Convertible
Preferred Base Liquidation Amount will bear interest, payable in cash, at the
higher of 10% per annum or 4% over the prime rate as reported in the Wall Street
Journal on the Convertible Redemption Date, provided, however, that such
interest does not exceed the maximum permitted rate of interest under applicable
law ("Unredeemed Share Interest").
Conversion. Each holder of a share of Convertible Participating Preferred
Stock may, upon the written election of such holder, without any additional
consideration, convert such share of Convertible Participating Preferred Stock
into one fully paid and nonassessable share of common stock of the Surviving
Corporation, subject to adjustment. In addition, the holders of not less than
two-thirds of the outstanding shares of Convertible Participating Preferred
Stock may elect to convert all (but not less than all) of the outstanding
Convertible Stock without the payment of any additional consideration, or cause
all (but not less than all) of the outstanding shares of Convertible
Participating Preferred Stock to be automatically converted into common stock.
If the holders of shares of Convertible Participating Preferred Stock elect to
convert their shares of Convertible Preferred Stock, or if such shares are
automatically converted into shares of common stock at a time when there are any
declared but unpaid dividends or other amounts owed on or in respect of such
shares, the Surviving Corporation shall pay such amounts in full in cash in
connection with such conversion.
Redeemable Preferred Stock
Voting. Except to the extent required under the DGCL, the Redeemable
Preferred Stock is not entitled to vote on any matters.
Dividends. The holders of shares of Redeemable Preferred stock will be
entitled to receive, in preference to the holders of any and all other classes
of capital stock of the Surviving Corporation, out of any funds legally
available therefor, cumulative annual cash dividends subject to adjustment, or
at the option of the holders of not less than two-thirds of the outstanding
shares of Redeemable Preferred Stock, in shares of common stock of equivalent
value, at the per share rate per annum of six percent (6%).
Liquidation Preference. Upon any Liquidation Event, each holder of
Redeemable Preferred Stock will be entitled to receive, out of the assets of the
Surviving Corporation available for distribution to stockholders and before any
amount shall be paid or distributed to the holders of Common Stock or any other
stock ranking junior to the Redeemable Preferred Stock, an amount of cash equal
to $1,000 per share held by such holder, subject to adjustment, plus, any
accumulated but unpaid dividends (the "Redeemable Base Liquidation Amount"),
plus any interest accrued at the rate of the higher of 10% per annum or 4% over
the prime rate as reported in the Wall Street Journal on the Redeemable
Redemption Date (the sum of which is the "Redeemable Liquidation Preference
Amount"). If, upon any Liquidation Event, the amounts payable with respect to
the Redeemable Preferred Stock Liquidation Preference Amount are not paid in
full, the holders of the Redeemable Preferred Stock shall share ratably in any
distribution of assets in proportion to the full respective preferential amounts
to which they are entitled.
Redemption. Immediately upon the closing of a "qualified public offering,"
the Surviving Corporation will automatically redeem all (and not less than all)
of the outstanding shares of Redeemable Preferred Stock at the Redeemable
Redemption Price in cash, unless the principal underwriter expressly and
reasonably requests, or causes the Surviving Corporation to request, that the
holders of Redeemable Preferred Stock waive the election to have all of such
holders' shares of Redeemable Preferred Stock redeemed for cash, with any
outstanding shares of Redeemable Preferred Stock exchangeable for any
combination or cash and notes of the Surviving Corporation ("Series A Notes"),
without any additional consideration. In addition, at any one time on or after
the sixth anniversary of the date of original issuance of the Redeemable
Preferred Stock, upon the election of not less than two-thirds of the
outstanding Redeemable Preferred Stock, the Surviving Corporation shall redeem
all (and not less than all) of the
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outstanding shares of Redeemable Preferred Stock at the Redeemable Redemption
Price. The Redeemable Redemption Price is the per share Redeemable Liquidation
Preference Amount. Upon the closing of an Extraordinary Transaction, if the
Redeemable Preferred Stock is acquired in such an Extraordinary Transaction on
terms giving effect to the preferential amount to which the Redeemable Preferred
Stock would be entitled in connection with a Liquidation Event and otherwise as
agreed to by the holders of not less than two-thirds of the voting power of the
Redeemable Preferred Stock, the Surviving Corporation shall redeem all (and not
less than all) of the outstanding shares of Redeemable Preferred Stock at the
Redeemable Redemption Price, payable in cash.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Estimated fees and expenses incurred or to be incurred by the Surviving
Corporation are approximately as follows:
<TABLE>
<S> <C>
Advisory fees and expenses (1).............................. $
Lender fees and expenses (2)................................
Legal fees and expenses (3).................................
Accounting fees and expenses................................
Exchange Agent fees and expenses............................
Securities and Exchange Commission filing fee...............
Printing and mailing costs..................................
Miscellaneous expenses......................................
Total.............................................
</TABLE>
- ---------------
(1) Includes the fees and expenses of Robinson-Humphrey and PHC.
(2) Includes the fees and expenses of First Union National Bank and Allied
Capital Corporation
(3) Includes the estimated fees and expenses of counsel for the Company, the
Special Committee, the TA Investors and the Management Sponsors.
RIGHTS OF DISSENTING STOCKHOLDERS
Holders of shares of the Physicians' Specialty Common Stock are entitled to
appraisal rights under Section 262 of the DGCL provided that they comply with
the conditions established by Section 262. Section 262 is reprinted in its
entirety as Appendix C to this Proxy Statement. All references in Section 262
and in this summary to a "stockholder" are to the record holder of the shares of
the Physicians' Specialty Common Stock as to which appraisal rights are
asserted. A person having a beneficial interest in shares of Physicians'
Specialty Common Stock that are held of record in the name of another person,
such as a broker or nominee, must act promptly to cause the record holder to
properly follow the steps summarized below and in a timely manner to perfect
whatever appraisal rights the beneficial owner may have.
The following discussion is not a complete statement of the law relating to
appraisal rights and is qualified in its entirety by reference to Appendix C.
THIS DISCUSSION AND APPENDIX C SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO
WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH
HEREIN AND THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
Each stockholder electing to demand the appraisal of his shares must
deliver to the Company, before the taking of the vote on the Merger Agreement at
the Special Meeting, a written demand for appraisal of his shares of Physicians'
Specialty Common Stock. The demand must reasonably inform the Company of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of the shares of Physicians' Specialty Common Stock held by him.
This written demand for appraisal of the shares of Physicians' Specialty Common
Stock must be in addition to and separate from any proxy or vote against the
Merger Agreement. Voting against, abstaining from voting, or failing to vote on
the Merger
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Agreement will not constitute a demand for appraisal within the meaning of
Section 262. Any stockholder electing to demand his appraisal rights will not be
entitled to appraisal rights under Section 262 if such stockholder has either
voted in favor of the proposal to approve and adopt the Merger Agreement or
consented thereto in writing. Additionally, a stockholder will not be entitled
to appraisal rights under Section 262 if the stockholder does not continuously
hold through the Effective Time his shares of Physicians' Specialty Common Stock
with respect to which he demands appraisal.
A demand for appraisal must be executed by or for the stockholder of
record. If the shares of Physicians' Specialty Common Stock are owned of record
in a fiduciary capacity, such as by a trustee, guardian, or custodian, such
demand must be executed by the fiduciary. If the shares of Physicians' Specialty
Common Stock are owned of record by more than one person, as in a joint tenancy
or tenancy in common, such demand must be executed by or for all joint owners.
An authorized agent, including an agent for two or more joint owners, may
execute the demand for appraisal for a stockholder of record; however, the agent
must identify the record owner and expressly disclose the fact that, in
exercising the demand, such person is acting as agent for the record owner.
If a stockholder holds shares of Physicians' Specialty Common Stock through
a broker who in turn holds the shares through a central securities depository
nominee such as Cede & Co., a demand for appraisal of such shares must be made
by or on behalf of the depository nominee and must identify the depository
nominee as record holder.
A record owner, such as a broker, who holds shares of Physicians' Specialty
Common Stock as a nominee for others, may exercise appraisal rights with respect
to the shares of Physicians' Specialty Common Stock held for all or less than
all beneficial owners of shares of Physicians' Specialty Common Stock as to
which such person is the record owner. In such case, the written demand must set
forth the number of shares of Physicians' Specialty Common Stock covered by such
demand. Where the number of shares of Physicians' Specialty Common Stock is not
expressly stated, the demand will be presumed to cover all shares of Physicians'
Specialty Common Stock outstanding in the name of such record owner. Beneficial
owners who are not record owners and who intend to exercise appraisal rights
should instruct the record owner to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights before the date of
the Special Meeting.
A stockholder who elects to exercise appraisal rights must mail or deliver
his or her written demand to the Secretary of the Company at 1150 Lake Hearn
Drive, Suite 640, Atlanta, Georgia 30342. The written demand for appraisal
should specify the stockholder's name and mailing address, the number of shares
of Physicians' Specialty Common Stock owned, and that the stockholder is thereby
demanding appraisal of his or her shares. Within ten days after the Effective
Time, the Company must provide notice of the Effective Time to all stockholders
who have complied with Section 262 and have not voted for or consented to
approval and adoption of the Merger Agreement.
Within 120 days after the Effective Time, either the Company or any
stockholder who has complied with the required conditions of Section 262 may
file a petition in the Delaware Court of Chancery (the "Delaware Chancery
Court"), with a copy served on the Company in the case of a petition filed by a
stockholder, demanding a determination of the fair value of the shares of
Physicians' Specialty Common Stock of the dissenting stockholders. If a petition
for an appraisal is timely filed, after a hearing on such petition, the Delaware
Chancery Court will determine which stockholders are entitled to appraisal
rights and will appraise the shares of Physicians' Specialty Common Stock owned
by such stockholders, determining the fair value of such shares of Physicians'
Specialty Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value. In
determining such fair value, the Delaware Chancery Court is to take into account
all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court
discussed the factors that could be considered in determining fair value in an
appraisal proceeding, stating that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered and the "[f]air price
obviously requires consideration of all relevant factors involving the value of
a
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company." The Delaware Supreme Court has stated that in making this
determination of fair value the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which could be ascertained as of the date of the merger which throw any light on
future prospects of the merged corporation. Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation.
In Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."
The Delaware Chancery Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings, and if any stockholder
fails to comply with such direction, the Delaware Chancery Court may dismiss the
proceedings as to such stockholder.
Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of shares of Physicians' Specialty Common Stock not
voting in favor of the Merger Agreement and with respect to which demands for
appraisal were received by the Company and the number of holders of such shares.
Such statement must be mailed (i) within 10 days after the written request
therefor has been received by the Company or (ii) within 10 days after the
expiration of the period for the delivery of demands as described above,
whichever is later.
Stockholders who are considering whether to seek appraisal should have in
mind that, although the Company believes that the Cash Merger Consideration is
fair, the "fair value" of their shares of Physicians' Specialty Common Stock as
determined by the Delaware courts in an appraisal proceeding under Section 262
could be more than, the same as, or less than the Cash Merger Consideration to
be received by the Company's stockholders in the Merger, and that the opinion of
Robinson-Humphrey as to fairness, from a financial point of view, is not an
opinion as to fair value under Section 262. Moreover, the Company does not
anticipate offering more than the Cash Merger Consideration to any stockholder
exercising appraisal rights and reserves the right to assert in any appraisal
proceeding, that for purposes of Section 262, the "fair value" of a share
Physicians' Specialty Common Stock is less than the Cash Merger Consideration.
The cost of the appraisal proceeding may be determined by the Delaware Chancery
Court and taxed against the parties as the Delaware Chancery Court deems
equitable in the circumstances. However, costs do not include attorneys' and
expert witness fees. Upon application of a dissenting stockholder, the Delaware
Chancery Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of the Company's
Common Stock entitled to appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, from and after the Effective Time, be entitled to vote for any
purpose the shares of Physicians' Specialty Common Stock subject to such demand
or to receive payment of dividends or other distributions on such shares of
Physicians' Specialty Common Stock, except for dividends or distributions
payable to stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger Agreement by delivering a written withdrawal of his
demand for appraisal and acceptance of the Cash Merger Consideration; after this
period, the stockholder may withdraw his or her demand for appraisal only with
the consent of the Company. If no petition for appraisal is filed with the
Delaware Chancery Court within 120 days after the Effective Time, stockholders'
rights to appraisal shall cease, and all holders of shares of Physicians'
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Specialty Common Stock shall be entitled to receive the Cash Merger
Consideration as provided for in the Merger Agreement. Inasmuch as the Company
has no obligation to file such a petition, and has no present intention to do
so, any stockholder who desires such a petition to be filed is advised to file
it on a timely basis. No petition timely filed in the Delaware Chancery Court
demanding appraisal shall be dismissed as to any stockholder without the
approval of the Delaware Chancery Court, and such approval may be conditioned
upon such terms as the Delaware Chancery Court deems just.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization for accounting
purposes.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Physicians' Specialty Common Stock. This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the holders of Physicians' Specialty Common Stock as described
herein. Special tax consequences not described below may be applicable to
particular classes of taxpayers, including financial institutions,
broker-dealers, persons who are not citizens or residents of the United States
or who are foreign corporations, foreign partnerships, or foreign estates or
trusts as to the United States, persons who will own stock of Physicians'
Specialty (actually or constructively, under certain constructive ownership
rules in the Code) after the Merger, and holders who acquired their stock
through the exercise of an employee stock option or otherwise as compensation.
The receipt of the Cash Merger Consideration in the Merger by holders of
Physicians' Specialty Common Stock will be a taxable transaction for federal
income tax purposes. Each holder's gain or loss per share of Physicians'
Specialty Common Stock will be equal to the difference between $10.50 and the
holder's basis in that particular share of the Common Stock. Such gain or loss
generally will be a capital gain or loss. In the case of individuals, trusts,
and estates, such capital gain will be subject to a maximum federal income tax
rate of 20% for shares of Physicians' Specialty Common Stock held for more than
12 months prior to the date of disposition.
A holder of Physicians' Specialty Common Stock may be subject to backup
withholding at the rate of 31% with respect to Cash Merger Consideration
received pursuant to the Merger, unless the holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (b) provides a correct taxpayer identification number ("TIN"), certifies
as to no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. To prevent the
possibility of backup federal income tax withholding on payments made with
respect to shares of Physicians' Specialty Common Stock pursuant to the Merger,
each holder must provide the Exchange Agent with his correct TIN by completing a
Form W-9 or Substitute Form W-9. A holder of Physicians' Specialty Common Stock
who does not provide Physicians' Specialty with his or her correct TIN may be
subject to penalties imposed by the Internal Revenue Service (the "IRS"), as
well as backup withholding. Any amount withheld under these rules will be
creditable against the holder's federal income tax liability. Physicians'
Specialty (or its agent) will report to the holders of Physicians' Specialty
Common Stock and the IRS the amount of any "reportable payments," as defined in
Section 3406 of the Code, and the amount of tax, if any, withheld with respect
thereto.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED UPON PRESENT LAW. THE FOREGOING DISCUSSION DOES NOT DISCUSS TAX
CONSEQUENCES UNDER THE LAWS OF STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER
JURISDICTION OR TAX CONSEQUENCES TO CATEGORIES OF
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STOCKHOLDERS THAT MAY BE SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN PERSONS,
TAX-EXEMPT ENTITIES, INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, AND DEALERS IN
STOCKS AND SECURITIES. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A
STOCKHOLDER WHO CONTINUES TO OWN STOCK OF THE COMPANY (ACTUALLY OR
CONSTRUCTIVELY) AFTER THE MERGER OR WHO ACQUIRED HIS OR HER SHARES OF
PHYSICIANS' SPECIALTY COMMON STOCK PURSUANT TO THE EXERCISE OF STOCK OPTIONS OR
OTHERWISE AS COMPENSATION. EACH HOLDER OF COMMON STOCK SHOULD CONSULT SUCH
HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES IN SUCH TAX LAWS.
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BUSINESS OF THE COMPANY
GENERAL DEVELOPMENT OF BUSINESS
Physicians' Specialty provides comprehensive practice management services
to physician practices and health care providers specializing in the treatment
and management of diseases and disorders of the ear, nose, throat, head and
neck, known as ENT, including specialists practicing in the fields of allergy,
audiology, oral surgery, plastic surgery and sleep medicine.
Since January 1, 1998, Physicians' Specialty has acquired substantially all
of the non-medical assets and assumed certain liabilities of:
- four ENT physician practices in the metropolitan New York area with 33
physicians and 16 allied health care professionals with 11 clinical
offices;
- two ENT physician practices in the metropolitan Cleveland, Ohio area with
ten physicians and eight allied health care professionals with eight
clinical offices;
- four ENT physician practices in South Florida with five physicians and
four allied health care professionals with five clinical offices;
- one solo ENT physician practice in the metropolitan Atlanta area with one
clinical office;
- Preferred Diagnostic Services Inc., which operates 12 sleep diagnostic
laboratories in the metropolitan Atlanta area; and
- Computerized Tomography Center, Inc., which operates a diagnostic imaging
center in the metropolitan Atlanta area.
Physicians' Specialty also acquired minority limited partnership interests
in Atlanta Surgery Center Ltd., a limited partnership operating three
multi-specialty ambulatory surgery centers, and Marietta Outpatient Surgery,
Ltd., a limited partnership operating a multi-specialty ambulatory surgery
center.
Physicians' Specialty is currently affiliated with 95 physicians, one
dentist and 85 allied health care professionals operating 60 clinical locations
in Alabama, Florida, Georgia, Illinois, New Jersey, New York and Ohio.
Physicians' Specialty currently holds, manages and administers capitated
ENT managed care contracts covering an aggregate of approximately 363,000
enrollees of health maintenance organization plans of United HealthCare of
Georgia, Inc., United HealthCare of Alabama, Inc. and Cigna HealthCare of
Georgia, Inc. Physicians' Specialty believes it is the leading physician
practice management company focusing solely or substantially on affiliating with
and managing ENT physician practices.
Physicians' Specialty was incorporated in Delaware in July 1996. The
Company's executive offices are located at 1150 Lake Hearn Drive, Suite 640,
Atlanta, Georgia 30342. The Company's telephone number is (404) 256-7535 and its
fax number is (404) 256-1078.
INDUSTRY SEGMENTS
Physicians' Specialty operates in only one business segment.
DESCRIPTION OF BUSINESS
General
Physicians' Specialty provides comprehensive practice management services
to physician practices and health care providers specializing in the treatment
and management of ENT diseases and disorders, including specialists practicing
in the related fields of allergy, audiology, oral surgery, plastic surgery and
sleep medicine. Physicians' Specialty seeks to affiliate with physician
practices and health care
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professionals who provide high quality, cost effective medical and surgical
services to fee-for-service patients and capitated managed care enrollees.
Physicians' Specialty provides:
- financial and administrative management;
- enhancement of clinical operations;
- access to ancillary services; and
- network development and payor contracting services, including the
negotiation and administration of capitated arrangements.
HEALTH CARE INDUSTRY OVERVIEW
General. The health care delivery system in the United States has been
undergoing substantial change, largely in response to concerns over the quality
and escalating cost of health care. The growth in health care expenditures has
increased the demand by government and third party payors to control health care
costs.
Significant changes in the way physicians organize have been precipitated
and accelerated by:
- the emphasis on cost containment;
- the consolidation of the health care market in general;
- the increased market share of managed care companies;
- the transfer of risk from payors to providers;
- the focus on improving the quality of patient care; and
- reduced payments under government reimbursement programs.
Health care in the United States historically has been delivered by a
fragmented system of health care providers, including hospitals, individual
physicians and physician group practices. Compared to physician practice
management companies and larger group practices, individual physicians and small
group practices tend to have limited capacity for any of the following:
- ties to other health care providers, restricting their ability to
coordinate care across a variety of specialties;
- access to patients;
- capital to invest in new clinical equipment and technologies; and
- purchasing power with vendors of medical supplies.
Individual physicians and small group practices also typically lack the
negotiating leverage with payors and information systems necessary to manage
risk-sharing contracts.
In response to the foregoing factors, physicians are increasingly forming
larger group practices and affiliating with physician networks and physician
hospital organizations. Physicians are also affiliating with physician practice
management companies in order to gain greater access to:
- third party payor contracts;
- patient information and management systems;
- leverage with vendors and payors;
- capital resources; and
- ancillary services frequently unavailable to independent practitioners.
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In addition, many payors and their intermediaries, including governmental
entities and managed care companies, are increasingly looking to outside
providers of physician services to develop and maintain quality outcomes,
management programs and patient care data.
Several multi-specialty companies in the physician practice management
industry have discontinued physician practice management activities or divested
assets related to physician practice management or announced plans to do so.
Other physician practice management companies have completed or announced
transactions, including mergers, recapitalizations or other corporate
transactions, as a result of which they are no longer public companies. As a
result of these trends and the depressed stock prices of physician practice
management companies, Physicians' Specialty believes that physician practice
management companies may generally experience a decrease in practice acquisition
activity and an associated slow down in revenue growth attributable to practice
acquisitions. Consistent with the Company's market driven strategy, Physicians'
Specialty focuses primarily on practice and ancillary services acquisitions in
markets in which Physicians' Specialty already manages ENT practices and to a
lesser extent, in new markets.
Otolaryngology
Otolaryngology is the management of diseases and disorders of the ear,
nose, nasal passages, sinuses, larynx, mouth and throat, as well as structures
of the neck and face. An otolaryngologist is commonly referred to as an ENT
physician and provides some or all of the following subspecialty services:
- Pediatric Otolaryngology: the medical and surgical treatment of diseases
of the ear, nose and throat in children.
- Head and Neck Surgery: the medical and surgical treatment of cancerous
and noncancerous tumors in the head and neck, including thyroid and
parathyroid surgery.
- Rhinology: the medical and surgical treatment of disorders of the nose
and sinuses.
- Allergy: the medical treatment of inhalant allergies affecting the upper
respiratory system.
- Facial Plastic and Reconstructive Surgery: the treatment of cosmetic,
functional and reconstructive abnormalities of the face and neck.
- Otology/Neurotology: the medical and surgical treatment of diseases of
the ear, including traumatic and cancerous disorders of the external,
middle and inner ear, as well as the nerve pathways which affect hearing
and balance.
- Laryngology: the medical and surgical treatment of disorders of the
throat, including the voice.
ENT services in the United States are delivered largely through individual
and small single specialty group practices and, to a lesser extent,
multi-specialty clinics.
According to the American Academy of Otolaryngology-Head and Neck Surgery,
Inc., there were approximately 9,000 ENT physicians in the United States as of
December 31, 1997 and, based upon membership in the Academy, Physicians'
Specialty estimates that at least 70% of all ENT practices consist of individual
practitioners or small group practices (less than four physicians). According to
industry sources, ENT physicians and related specialists are increasingly
seeking to form larger group practices and affiliate with physician practice
management companies which understand the needs of ENT physicians and can
enhance practice performance.
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AFFILIATED PRACTICES
Physicians' Specialty is affiliated with 95 physicians, one dentist and 85
allied health care professionals operating 60 clinical offices in Alabama,
Florida, Georgia, Illinois, New Jersey, New York and Ohio. The following table
sets forth certain information concerning Physicians' Specialty's affiliated
practices as of June 30, 1999:
<TABLE>
<CAPTION>
ALLIED
AREAS HEALTH CARE OFFICE
MEDICAL GROUP LOCATION SERVED PHYSICIANS PROFESSIONALS LOCATIONS
------------- ------------------- ------------------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Atlanta Ear, Nose & Atlanta, Georgia Metropolitan Atlanta 32* 42 29
Throat
Associates, P.C
PSC Alabama Corp. Birmingham, Alabama Birmingham 2 1 1
Allatoona E.N.T & Cartersville, Cartersville 2 1 1
Facial Plastic Georgia
Surgery, P.C
Otolaryngology Chicago, Illinois Barington, Crystal Lake 4 3 3
Medical & and McHenry
Surgical
Associates, Ltd.
Ear, Nose & Throat Boca Raton, Florida Boca Raton, Pompano 13 11 9
Associates of Beach, West Palm Beach
South Florida P.A & Delray Beach
ENT Associates, LLP New York and Metropolitan New York 33 16 10
New Jersey
Cleveland Ear, Nose Cleveland, Ohio Metropolitan New York 9 11 7
& Throat Center,
Inc.
--- -- --
95* 85 60
=== == ==
</TABLE>
- ---------------
* Includes one dentist.
Atlanta Ear, Nose & Throat Associates, P.C. Physicians' Specialty believes
Atlanta ENT is the largest independent (non-academic) otolaryngology group
practice in the United States. Atlanta ENT consists of 31 ENT physicians, one
dentist, 29 audiologists, 11 physician assistants, one nurse practitioner and
one clinical esthetician with 29 clinical offices. Atlanta ENT offers a wide
range of ENT subspecialty services, including pediatric otolaryngology, head and
neck surgery, rhinology, facial plastic and reconstructive surgery, otology and
laryngology, to children and adults in the metropolitan Atlanta area. The
practice also provides audiology services, hearing aid sales, temporo-mandibular
joint diagnostics and snoring and sleep apnea laser surgical services. The
affiliated physicians at Atlanta ENT maintain privileges at 34 hospitals and
eight ambulatory surgical centers throughout metropolitan Atlanta. Ramie A.
Tritt, M.D., the Company's Chairman of the Board and President and a principal
stockholder of Physicians' Specialty, is the President and founder of Atlanta
ENT. Preferred Diagnostic Services, Inc. and Computerized Tomography Center,
Inc. are subsidiaries of Atlanta ENT.
PSC Alabama Corp. PSC Alabama Corp. is one of the Company's wholly-owned
subsidiaries and consists of two ENT physicians and one audiologist with one
clinical office. PSC Alabama Corp. provides a wide range of ENT subspecialty
services, including allergy testing and treatment, head and neck surgery,
rhinology, facial plastic and reconstructive surgery, otology, neurotology and
laryngology, to children and adults in the metropolitan Birmingham area.
Allatoona ENT & Facial Plastic Surgery, P.C. Allatoona ENT consists of two
ENT physicians and one audiologist with one clinical office. Allatoona ENT
provides a wide range of ENT subspecialty services, including allergy testing
and treatment, head and neck surgery, rhinology, facial plastic and
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reconstructive surgery, otology and laryngology, to children and adults in the
North Georgia area. The physicians at Allatoona ENT also have instituted a
hearing screening program for infants and newborns.
Otolaryngology Medical & Surgical Associates, Ltd. Otolaryngology Medical
& Surgical Associates, Ltd. consists of four ENT physicians and three clinical
audiologists with three clinical offices in the Barington, Crystal Lake and
McHenry suburbs of Chicago. Otolaryngology Medical & Surgical Associates
provides a wide range of ENT subspecialty services, including head and neck
surgery, rhinology, facial plastic and reconstructive surgery, otology and
laryngology, to children and adults in the metropolitan Chicago area. The
practice also provides audiology services, hearing aid sales and snoring and
sleep apnea surgical services. The affiliated physicians at Otolaryngology
Medical & Surgical Associates maintain privileges at three hospitals and one
ambulatory surgical center in metropolitan Chicago.
Ear, Nose & Throat Associates of South Florida, P.A. Ear, Nose & Throat
Associates of South Florida, P.A. consists of 13 ENT physicians and 11 clinical
audiologists with nine clinical offices in Boca Raton, Pompano Beach, Palm
Beach, Delray Beach, Hollywood, Fort Lauderdale and Lacahatchee, Florida. Ear,
Nose & Throat Associates of South Florida provides a wide range of ENT
subspecialty services, including allergy testing and treatment, head and neck
surgery, rhinology, facial plastic and reconstructive surgery, otology and
neurotology, to children and adults in the South Florida area. The practice also
provides audiology services, hearing aid sales and snoring and sleep apnea
surgical services. The affiliated physicians at Ear, Nose & Throat Associates of
South Florida maintain privileges at six hospitals and two ambulatory surgical
centers in South Florida.
ENT Associates, LLP. ENT Associates, LLP consists of 33 ENT physicians and
16 clinical audiologists with 10 clinical offices. ENT Associates provides a
wide range of ENT subspecialty services, including pediatric otolaryngology,
head and neck surgery, rhinology, facial plastic and reconstructive surgery,
otology and laryngology, to children and adults in the metropolitan New York
area. The practice also provides audiology services, hearing aid sales and
snoring and sleep apnea laser surgical services. The affiliated physicians at
ENT Associates maintain privileges at 15 hospitals throughout metropolitan New
York.
Cleveland Ear, Nose & Throat Center, Inc. Cleveland Ear, Nose & Throat
Center, Inc. ("Cleveland ENT") consists of nine ENT physicians and eleven
clinical audiologists with seven clinical offices. Cleveland ENT provides a wide
range of ENT subspecialty services, including pediatric otolaryngology, head and
neck surgery, rhinology, facial plastic and reconstructive surgery, otology and
laryngology, to children and adults in the metropolitan Cleveland area. The
practice also provides audiology services, hearing aid sales and snoring and
sleep apnea laser surgical services. The affiliated physicians at Cleveland ENT
maintain privileges at nine hospitals and four ambulatory surgical centers
throughout metropolitan Cleveland.
AMBULATORY SURGERY CENTERS, SLEEP DIAGNOSTIC LABORATORIES AND DIAGNOSTIC IMAGING
CENTERS
PSC Ambulatory Surgery, Ltd. and PSC Marietta Ambulatory Surgery, Ltd. PSC
Ambulatory Surgery, Ltd. and PSC Marietta Ambulatory Surgery, Ltd. are limited
partnerships of which a subsidiary of Physicians' Specialty is the sole general
partner and one of the Company's affiliated practices is the sole limited
partner. PSC Ambulatory Surgery owns a 17.5 % limited partnership interest in
Atlanta Surgery Center, Ltd., the general partner of which is not affiliated
with Physicians' Specialty, and PSC Marietta Ambulatory Surgery, Ltd. owns a
12.5% limited partnership interest in Marietta Outpatient Surgery, Ltd., the
general partner of which is not affiliated with the Company. Atlanta Surgery
Center operates three multi-specialty ambulatory surgery centers, consisting of
14 operating rooms, in the metropolitan Atlanta area. Marietta Outpatient
Surgery operates a multi-specialty ambulatory surgery center, consisting of 8
operating rooms in the Marietta suburbs of Atlanta. The Company's affiliated
physicians, as well as other surgeons in the Atlanta area, utilize these surgery
centers for a variety of outpatient surgical procedures. In 1998, in excess of
28,000 cases were performed at these surgery centers.
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Preferred Diagnostic Services, Inc. Preferred Diagnostic Services, Inc.
operates 12 sleep diagnostic laboratories in the metropolitan Atlanta area.
Preferred Diagnostic Services provides testing for a variety of sleep disorders,
including severe snoring, sleep apnea and restless leg syndrome.
Computerized Tomography Center, Inc. Computerized Tomography Center, Inc.
operates a diagnostic imaging center in the Atlanta area. In 1998, in excess of
3,000 MRI and CT diagnostic imaging studies were performed at the Computerized
Tomography Center.
COMPANY OPERATIONS
Physicians' Specialty has a long term management services agreement with
each of its affiliated physician practices. Under the terms of a management
services agreement, Physicians' Specialty employs the practice's non-medical
personnel, provides offices for the practice and provides services in the areas
of practice management, information systems and negotiation and management of
payor contracts. The non-medical personnel, together with additional personnel
at the Company's headquarters, manage the day-to-day non-medical operations of
each affiliated practice, including providing administrative, bookkeeping,
scheduling and other routine services. This operating structure established by
the Company facilitates close cooperation between the Company and the affiliated
practice, while ensuring that the affiliated practice maintains clinical
autonomy.
Under the terms of the management services agreements, Physicians'
Specialty:
- assists the affiliated practices in strategic planning, preparation of
operating budgets and capital project analysis;
- coordinates group purchasing of supplies, inventory and insurance for the
practices;
- assists the affiliated practices in physician recruitment by introducing
physician candidates to the affiliated practices and advising the
affiliated practices in structuring employment arrangements; and
- provides or arranges for a variety of additional services relating to the
day-to-day non-medical operations of the affiliated practices, including:
- managing and monitoring each practice's billing levels, invoicing and
accounts receivable collection by payor type;
- accounting and payroll services and records; and
- cash management and centralized disbursements.
These services are designed to reduce the amount of time physicians spend
on administrative matters, thereby enabling the physicians to dedicate more of
their efforts toward the delivery of care.
The Company has similar management service agreements with Preferred
Diagnostic Services, Inc. and Computerized Tomography Center, Inc.
Physicians' Specialty establishes an advisory board at each affiliated
practice consisting of physicians of the affiliated practice and the Company's
management personnel whose responsibilities are advisory in nature. The advisory
board reviews, evaluates and makes recommendations to the officers of the
affiliated practice and Physicians' Specialty's officers with respect to
strategic and operational planning, physician employment and recruitment,
patient fees and collection policies, quality review and the establishment and
maintenance of relationships with managed care and other payors. Notwithstanding
recommendations of the advisory board, Physicians' Specialty has ultimate
control over all decisions relating to the non-medical operations of the
affiliated practice, and the affiliated practice has ultimate control over all
decisions relating to the practice of medicine. See "-- Affiliation Agreements."
INFORMATION SYSTEMS
Physicians' Specialty supports free-standing practice management systems
utilized by its affiliated practices to facilitate patient scheduling, billing
and collection, accounts receivable management, provider
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productivity analysis and certain cash disbursement functions. Rather than
replacing systems utilized by affiliated practices, Physicians' Specialty
generally integrates an affiliated practice's systems in order to streamline
consolidated financial reporting, accounts receivable management and
productivity analysis functions. Physicians' Specialty is also evaluating
patient electronic medical record systems for possible implementation at
affiliated practices. Physicians' Specialty believes that the use of an
electronic medical record system may enhance operating efficiency through
automation of many routine functions, as well as the capacity to link "procedure
specific" treatment protocols, thereby enhancing the physician's ability to
provide quality cost-effective patient care.
Physicians' Specialty believes that effective and efficient access to key
patient data is critical in controlling costs and improving quality outcomes in
connection with managing risk contracts. The Company's proprietary comprehensive
network administration and utilization management system designed specifically
for ENT practices provides effective and efficient access to key patient data
and performs the complex processing and analytical tasks required to manage risk
contracts effectively. The Company's system facilitates the automation of many
routine functions and provides affiliated physicians with Internet access to the
clinical and financial data necessary to issue and manage authorization for
surgeries, to track diagnosis, procedures and admissions and to perform outcome
studies, cost analysis, quality and utilization management and reviews.
The Company's system integrates the following functions:
- tracking referrals from primary care and other physicians;
- issuing and managing authorization for surgeries and tracking diagnoses,
procedures and admissions;
- processing claims for physician payment;
- providing extensive customized management reports, including diagnosis
and procedure utilization data; and
- maintaining support files.
Physicians' Specialty believes that this system provides it with a
competitive advantage in procuring, managing and administering risk contracts.
COMPETITION
The physician practice management industry is highly competitive. The
restructuring of the health care system is leading to rapid consolidation of the
existing highly fragmented health care delivery system into larger and more
organized groups and networks of health care providers. Physicians' Specialty
expects competition to increase as a result of consolidation and ongoing cost
containment pressures, among other factors. Physicians' Specialty competes with:
- physician practice management companies;
- hospitals;
- managed care companies;
- physician practices; and
- other competitors seeking to affiliate with physicians or provide
management services to physicians.
As compared to the Company, many of these competitors are:
- significantly larger;
- provide a wider variety of services;
- have greater experience in providing practice management services;
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- have longer established relationships with customers for these services;
and
- have access to substantially greater financial resources.
There can be no assurance that Physicians' Specialty will be able to
affiliate with a sufficient number of competent physicians and other health care
professionals to expand its business. Physicians' Specialty believes that the
quality of its management services, experience in procuring, managing and
administering capitated managed care contracts, the breadth of ENT medical and
surgical professional services provided by affiliated physicians and the utility
of its network management system position it to compete favorably for
affiliation with additional ENT and related specialty practices.
Physicians are facing the challenge of providing quality patient care while
experiencing rising costs, strong competition for patients and a general
reduction of reimbursement rates by both private and government payors.
Physicians' Specialty believes that competition for patients is dependent upon:
- the geographic coverage of affiliated practices;
- the reputation and referral patterns of affiliated physicians; and
- the breadth of ENT and related specialty medical and surgical
professional services provided by physicians practicing at Physicians'
Specialty's affiliated practices.
As a result, the Company's success is dependent upon its or its affiliated
practices' ability to recruit, train and retain qualified health care
professionals in new and existing markets. Physicians' Specialty faces
competition for these personnel from other health care providers, research and
academic institutions, government entities and other organizations. There can be
no assurance that sufficient numbers of qualified health care professionals can
be hired and retained. The inability to hire and retain such health care
professionals could have a material adverse effect on the Company's operations
and financial condition.
Concern over the rising cost of health care has led to the emergence and
increased prominence of managed care and a resulting increase in competition for
managed care contracts. The Company's ability to compete successfully for
managed care contracts may depend upon its ability to manage utilization under
such contracts and to increase the number of associated physicians and other
health care professionals included in the Company's provider networks.
MEDICAL ADVISORY BOARD
Physicians' Specialty has a medical advisory board whose responsibilities
include:
- reviewing the medical appropriateness of the Company's policies and
procedures with respect to disease management and utilization management
protocols and practice and surgery guidelines;
- consulting with it on acquisitions;
- reviewing the medical appropriateness of information systems utilized or
developed by Physicians' Specialty;
- evaluating new medical technologies to be utilized by affiliated
practices; and
- developing and coordinating the Company's sponsored managed care and
practice management seminars for ENT physicians.
The Company's advisory board consists of three affiliated ENT physicians,
including Dr. Tritt, the Company's Chairman of the Board and President, and
three non-affiliated ENT physicians.
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AFFILIATION AGREEMENTS
The relationship between Physicians' Specialty and its affiliated practices
and physicians is set forth in asset or stock acquisition agreements, management
services agreements and employment agreements.
Acquisition Agreements. Pursuant to acquisition agreements, Physicians'
Specialty acquires either:
- substantially all of the assets utilized in a practice, other than
certain excluded assets such as employment agreements and patient charts,
records and files, and assumes certain liabilities of the practice group;
or
- the equity of the practice.
The practice remains liable for the payment of liabilities not assumed by
Physicians' Specialty under the acquisition agreement. Under the acquisition
agreements the medical practice and the stockholders of the practice agree for a
period of time following the closing of the acquisition, not to compete with
Physicians' Specialty within a specified geographic area, solicit patients of
the practice within such geographic area or solicit the Company's employees. The
acquisition agreements also contain representations and warranties and
indemnification provisions by each of the parties to the agreement.
Simultaneously with the closing of an acquisition, employment agreements
are entered into between the practice and each of its physicians, and
Physicians' Specialty enters into a management services agreement with the
practice.
Management Services Agreements. The Company's management services
agreements provide for the affiliated practice to:
- assign to Physicians' Specialty all of its non-governmental accounts
receivable and all of its rights and interest in the proceeds of its
governmental accounts receivable, or the revenue it receives, to the
extent permitted by applicable law;
- grant to Physicians' Specialty the right to collect and retain the
proceeds of the accounts receivable, or revenue, for its account to be
applied in accordance with the management services agreements; and
- grant to Physicians' Specialty the right to grant a security interest and
factor the accounts receivable to secure its borrowings under its credit
facility.
Physicians' Specialty generally retains a management fee equal to:
- a stipulated percentage of all revenue generated by or on behalf of
physicians at the affiliated practice, after adjustment for contractual
allowances, as payment for the services provided by Physicians' Specialty
and non-allocable costs incurred by it as a result of providing
management services; and
- an amount equal to all operating and capital expenses of the practice,
including depreciation, amortization and interest.
In New York, in order to comply with state law, the affiliated practice
reimburses Physicians' Specialty for the practice's operating and non-operating
expenses and pays Physicians' Specialty a fixed management fee.
Under the Company's management services agreements, Physicians' Specialty
is responsible for the payment of and incurs:
- operating expenses of the affiliated practice, including salaries and
benefits of non-medical employees of the practice, lease obligations for
office space and equipment and medical and office supplies; and
- the non-operating expenses of the affiliated practice.
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Physicians' Specialty pays for all these expenses, including its fees, directly
out of the proceeds of the accounts receivable, or revenue, assigned to it by
the affiliated practice. The remaining net practice revenue is remitted to the
affiliated practice.
The affiliated practice retains the responsibility for:
- compensating physician employees and physician assistants;
- paying insurance premiums and deductibles for professional liability
insurance policies;
- ensuring that affiliated physicians have the required licenses,
credentials, approvals and other certifications needed to perform their
duties; and
- complying with federal and state laws and regulations applicable to the
practice of medicine.
The affiliated practice also retains exclusive control over all aspects of the
practice of medicine and the delivery of medical services.
Under the management services agreements, Physicians' Specialty:
- acts as the exclusive manager and administrator relating to all
non-medical operations of the affiliated practice;
- bills patients, insurance companies and other third party payors and
collects, on behalf of the affiliated practice, the fees for professional
medical services and other services and products rendered or sold by the
affiliated practice;
- provides clerical, accounting, purchasing, payroll, bookkeeping and
computer services and personnel and information management services to
the affiliated practice;
- supervises and maintains custody of all files and records of the
affiliated practice;
- provides facilities, furniture and equipment for the affiliated practice;
- prepares all annual and capital operating budgets of the affiliated
practice;
- orders and purchases inventory and supplies as reasonably required by the
affiliated practice;
- provides financial and business assistance to the affiliated practice in
the negotiation, establishment, evaluation and administration of
contracts and relationships with managed care and other similar providers
and payors; and
- performs administrative services relating to the recruitment of
physicians for the affiliated practice.
The management services agreements have an initial term of 40 years, which
may be extended for separate and successive five year terms. The management
services agreements may be terminated by either party if the other party files a
petition in bankruptcy or other similar events occur or if the other party
defaults on the performance of a material duty or obligation, which default
continues without cure for a specified term after notice.
During the term of a management services agreement, the affiliated practice
agrees, with respect to management services, not to compete with Physicians'
Specialty within a specified geographic area. During the term of a management
services agreement and for a period following the termination of such agreement,
the affiliated practice also agrees not to solicit any of Physicians'
Specialty's employees or persons affiliated with Physicians' Specialty or to
contract with any entity for the provision of management services substantially
of the kind contemplated by the management services agreement. The affiliated
practice also agrees not to disclose certain confidential and proprietary
information relating to Physicians' Specialty and the affiliated practice.
Physician Employment Agreements. Physicians at the Company's affiliated
practices have employment agreements with their respective practice. Affiliated
physicians are compensated based upon either productivity or other negotiated
formulas agreed upon between the affiliated physician and the affiliated
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practice. The affiliated practice may provide the affiliated physicians with
health, death and disability insurance and other benefits. Affiliated physicians
are obligated to obtain and maintain professional liability insurance coverage
which Physicians' Specialty may procure on behalf of the affiliated physicians.
Generally, under the employment agreements, affiliated physicians agree not
to compete with the affiliated practice, not to solicit patients of the
affiliated practice and not to interfere with employees of the affiliated
practice for a certain period following the termination of such employment
agreement unless the agreement is terminated by the affiliated physician for
cause. However, in certain states, such as Alabama, certain types of restrictive
covenants, including non-competition covenants, are deemed to be unenforceable
against professionals, including physicians. In other states, these provisions
may be deemed to be unenforceable if a court determines that the duration of the
restriction, the territory covered by such restriction or the activities
restricted were unreasonable or otherwise violated public policy.
In addition, affiliated physicians agree:
- not to disclose any confidential and proprietary information of the
affiliated practice during the term of the agreement and for a certain
period following the termination of the agreement;
- to assign to the affiliated practice all revenue related to contracts
with managed care companies and to grant the affiliated practice the
right to enter into such contracts on behalf of the physicians; and
- to exercise independent professional and ethical judgment in all patient
care responsibilities.
The employment agreements with the affiliated physicians generally provide
for an initial term of five years. The agreements are automatically renewed for
successive one or two year terms unless an affiliated physician or the medical
practice elects not to renew the term by providing at least 90 days written
notice of such election or such agreement is otherwise terminated for cause or
the death or disability of an affiliated physician. The employment agreements
with the physicians of PSC Alabama Corp., one of the Company's wholly-owned
subsidiaries, provide for an initial term of six years and six months, which
will be automatically renewed for successive one or two year terms unless the
physician or PSC Alabama Corp. elects not to renew the agreement.
ACQUISITION OF ENT PRACTICES SINCE JANUARY 1, 1998
In May 1998, Physicians' Specialty acquired the stock of three corporations
that had been affiliated with Physicians' Domain, Inc., a White Plains, New York
based ENT physician practice management company, employing an aggregate of 20
physicians and 16 allied health care professionals with 11 clinical offices in
the metropolitan New York area.
In connection with this transaction, Physicians' Specialty:
- paid approximately $5.4 million in cash;
- discharged approximately $3.8 million of liabilities; and
- issued a note in the principal amount of approximately $6.4 million,
payable in May 2003.
The note accrues interest at a rate of 6.0% per annum, payable quarterly,
is secured by the fixed assets acquired by Physicians' Specialty in the
transaction and is subordinate to senior indebtedness, including borrowings
under the Company's credit facility. Physicians' Specialty also agreed to pay an
additional $500,000, in cash or shares of its common stock at its option, if
these practices achieve certain performance targets. Pursuant to the stock
purchase agreement, the New York physicians nominated one member to the
Company's Board of Directors, Steven H. Sacks, M.D.
Physicians' Specialty entered into a management services agreement with a
newly organized ENT practice employing the 20 ENT physicians that had been
affiliated with Physicians' Domain. The management services agreement provided
for a fixed annual management fee of approximately $2.1 million, plus
reimbursement of practice operating expenses. In March 1999, in connection with
an additional acquisition in the metropolitan New York area, the management
services agreement was
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amended and the fixed annual management fee was increased to approximately $2.6
million. Under the management services agreements, the fixed management fee is
subject to annual increases after May 27, 2003 consistent with the annual
percentage increase in the consumer price index for the prior year. The
management services agreements also provide for mutually agreed increases in the
fixed management fee upon Physicians' Specialty's management of ancillary
business developed or acquired or the acquisition of additional physician
practices which become part of the existing practice.
In October 1998, Physicians' Specialty acquired the assets of Cleveland
Ear, Nose and Throat Center, Inc., a ten physician ENT practice with eight
allied health care professionals and eight clinical offices in metropolitan
Cleveland, Ohio. Cleveland ENT had previously been affiliated with MedPartners,
Inc. Physicians' Specialty also entered into a management services agreement
with Cleveland ENT maintaining as a management fee the percentage of net income
structure which existed in the agreement between MedPartners and Cleveland ENT.
Under the terms of the transaction, Physicians' Specialty granted Cleveland ENT
the option to unwind the transaction by December 15, 1998 and repurchase all
Cleveland ENT non-medical assets acquired by the Company for a total cash
purchase price equal to the price paid by the Company to MedPartners for such
assets, plus amounts invested by the Company in Cleveland ENT. Physicians'
Specialty paid approximately $4.2 million consisting of cash and borrowings
under its credit facility, and Physicians' Specialty issued a $150,000
non-interest bearing contingent promissory note which is payable at its option
in cash or its Common Stock upon Cleveland ENT achieving certain performance
targets. Cleveland ENT did not exercise its option to unwind the transaction.
Physicians' Specialty amended the management services agreement with Cleveland
ENT to provide that, effective January 1, 1999, Physicians' Specialty would
receive a management fee equal to 12.5% of all net clinic revenue, after
adjustment for contractual allowances, generated by Cleveland ENT.
In January 1999, Physicians' Specialty entered into a financing arrangement
with the physicians at Cleveland ENT. Under the financing arrangement,
Physicians' Specialty loaned $1.475 million to the Cleveland physicians. The
loan bears interest at a rate of 6% per annum and matures on the earlier of
January 14, 2000, the termination of the management services agreement or the
termination of the employment of three or more of the Cleveland physicians.
Physicians' Specialty also granted the physicians the right and option to
require Physicians' Specialty to purchase from the physicians all of the common
stock of a newly organized corporate entity owned by the physicians, which holds
two corporate domain names. The option may be exercised by the physicians
between January 10, 2000 and March 1, 2000. If the physicians exercise the
option, Physicians' Specialty would be required to purchase the common stock for
approximately $2 million in cash and issue a subordinated promissory note in the
principal amount of $520,000. The cash portion of the purchase price would be
reduced by any amounts owed by the physicians to Physicians' Specialty pursuant
to the loan or any other obligations. The subordinated promissory note would
bear interest at a rate of 6% per annum and would be payable in four equal
annual installments commencing on the first anniversary of the date of issuance
of the note. Physicians' Specialty has also agreed to indemnify the physicians
for certain matters in connection with or arising out of this transaction.
Since January 1, 1998, Physicians' Specialty also has acquired:
- substantially all of the assets and assumed certain contractual
liabilities of four ENT physician practices in the metropolitan New York
area, four ENT physician practices in South Florida, one ENT physician
practice in the metropolitan Atlanta area and one ENT physician practice
in the metropolitan Cleveland area;
- minority limited partnership interests in Atlanta Surgery Center, Ltd., a
limited partnership operating three multi-specialty ambulatory surgery
centers, and Marietta Outpatient Surgery, Ltd., a limited partnership
operating a multi-specialty ambulatory surgery center;
- substantially all of the assets of Preferred Diagnostic Services, which
operates 12 sleep centers in the metropolitan Atlanta area; and
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- substantially all of the assets of Computerized Tomography Center, Inc.,
which operates a diagnostic imaging center in the metropolitan Atlanta
area.
In connection with these acquisitions, Physicians' Specialty:
- paid an aggregate of approximately $11.3 million in cash;
- issued an aggregate of 69,873 shares of common stock, valued at the time
of issuance at an aggregate of approximately $532,000:
- agreed to issue to four of the affiliated practices beginning in February
1999, an aggregate of 79,675 additional shares of common stock, valued at
the time of issuance at an aggregate of approximately $628,000;
- issued a subordinated convertible promissory note in the principal amount
of $250,000, accruing interest at a rate of 6% per annum and payable in
April 2000 in cash or Physicians' Specialty's common stock, at
Physicians' Specialty's option;
- issued subordinated promissory notes in the aggregate principal amounts
of approximately $1.525 million of which $1.4 million in notes accrue
interest at 6% per annum payable quarterly beginning in May 1999 with
five annual equal payments of principal beginning on February 1, 2000 and
of which a note in the principal amount of $125,000 accrues interest of
6% per annum payable quarterly beginning September 1999 with three equal
annual payments of principal beginning on June 30, 1999; and
- issued a non-interest bearing contingent subordinated promissory note in
the principal amount of $150,000. The payment of this note is contingent
upon the physicians or practice holding such note reaching certain
performance targets. This contingent note is payable by Physicians'
Specialty, at its option, in cash or shares of its common stock, valued
at the average closing price of the Company's common stock for the ten
trading days preceding the date of delivery of such shares.
CAPITATED MANAGED CARE CONTRACTS; NETWORK DEVELOPMENT AND MANAGEMENT
At December 31, 1998, the Company's Atlanta affiliated practices served as
the primary ENT provider network for three capitated managed care contracts for
United HealthCare of Georgia, Cigna HealthCare of Georgia and The Morgan Health
Group covering an aggregate of approximately 351,400 enrollees in the
metropolitan Atlanta area. At December 31, 1998, the Company's Birmingham,
Alabama affiliated ENT practice participated in an exclusive panel of ENT
physicians providing services for a capitated managed care contract for United
HealthCare of Alabama covering approximately 80,000 enrollees in the
metropolitan Birmingham area. The following table sets forth the covered lives
for each managed care contract as of December 31, 1998:
<TABLE>
<CAPTION>
CAPITATED
COVERED
LIVES
---------
<S> <C>
United HealthCare of Georgia, Inc........................... 169,200
United HealthCare of Alabama, Inc........................... 79,694
Cigna HealthCare of Georgia, Inc............................ 114,571
The Morgan Health Group, Inc.*.............................. 67,629
-------
431,094
=======
</TABLE>
- ---------------
* Contract terminated effective June 16, 1999.
These managed care contracts are held, managed and administered by three of
the Company's wholly-owned subsidiaries. Through these subsidiaries, Physicians'
Specialty manages the existing provider networks, and performs quality and
utilization management under each contract. Physicians' Specialty receives a
pre-determined capitation fee per enrollee per month from the payors of the
managed care
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contracts in exchange for agreeing to arrange for the provision of ENT medical
and surgical professional services required by enrollees. Physicians' Specialty
has contracted with physicians at certain of its affiliated practices and with
non-affiliated physicians to provide these services to enrollees. The physicians
providing services are compensated by Physicians' Specialty on a discounted
fee-for-service or contract capitation basis. For the year ended December 31,
1998, approximately 8% of the Company's net revenue was attributable to ENT
medical and surgical professional services rendered pursuant to the Company's
managed care contracts.
Physicians' Specialty intends to develop or acquire additional ENT provider
networks in order to enter into exclusive managed care contracts with payors.
Physicians' Specialty expects that the networks will consist of affiliated
physicians and related specialists as well as non-affiliated physicians and
other health care providers engaged in ENT and related specialties who will
enter into network administration agreements with Physicians' Specialty. These
agreements will provide for Physicians' Specialty to manage the provider
network, negotiate managed care contracts and perform quality and utilization
management functions. Physicians' Specialty anticipates working with specialty
group practices in:
- developing capitated contract proposals;
- evaluating and assembling provider networks;
- negotiating contract rate schedules and exclusions;
- utilization and quality management; and
- developing provider compensation methodologies.
Physicians' Specialty also anticipates eventually tracking outcomes to
demonstrate the cost effectiveness of care being delivered in connection with
its managed care contracts. Physicians' Specialty believes the principal benefit
from including affiliated as well as non-affiliated physicians in Physicians'
Specialty's provider networks will be the expansion and diversification of
provider networks available to managed care enrollees, as increasingly required
by managed care companies.
CAPITATED AGREEMENTS WITH THIRD PARTY PAYORS
Under participation agreements between Physicians' Specialty and the
physicians providing services to managed care enrollees, the physicians must
follow administrative procedures established by Physicians' Specialty and the
managed care companies, such as:
- referring enrollees to participating providers;
- obtaining prior authorization for certain procedures; and
- participating in quality and utilization management programs.
Quality management includes the process established by Physicians'
Specialty and the payor to improve the quality of covered services. Utilization
management includes the process established to review whether certain health
care services provided to enrollees are in accordance with the requirements
established by Physicians' Specialty and the payor. Under the participation
agreements, the physicians are also required to obtain and maintain malpractice
and general liability insurance. The participation agreements may generally be
terminated by Physicians' Specialty without cause upon 60 to 90 days notice or
with cause upon 30 to 60 days notice and by a physician, with or without cause,
upon 60 days notice. The participation agreements also automatically terminate
upon the termination of the relevant capitated managed care contract.
The Company's subsidiaries hold capitated managed care contracts with
United HealthCare of Georgia, Cigna HealthCare of Georgia and United HealthCare
of Alabama which were entered into in 1991, 1992 and 1997, respectively. The
contract with United HealthCare of Georgia expires in November 1999. The
contract with Cigna HealthCare of Georgia provides for automatic annual
renewals. The contract with United HealthCare of Alabama expires in October 2000
and provides for automatic annual
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renewals. The managed care contracts with Cigna and United HealthCare may be
terminated by either party for cause, including a material breach of the
contract, generally upon 30 to 60 days notice by the terminating party or
without cause upon 90 to 120 days notice by the terminating party generally
following the initial term of the agreement. In March 1999, Physicians'
Specialty received notification from Cigna that Cigna was terminating its
relationship with The Morgan Health Group and was assuming The Morgan Health
Group's responsibility under the agreement for certain of the enrollees covered
by Cigna effective May 1, 1999 and that future payments for such enrollees to be
received by Physicians' Specialty under the contract would be paid by Cigna.
Additionally, Physicians' Specialty terminated its contract with The Morgan
Health Group effective June 16, 1999.
GOVERNMENT REGULATION
The health care industry is highly regulated and Physicians' Specialty
cannot predict whether the regulatory environment in which Physicians' Specialty
operates will change significantly or adversely in the future. The regulation of
the health care industry, including scrutiny of the methods and levels of
payment to health care providers, is increasing on both the federal and state
levels. Physicians' Specialty believes that health care legislation, regulations
and interpretations will continue to change. Physicians' Specialty expects to
modify its agreements and operations from time to time as the business and
regulatory environments change. While Physicians' Specialty believes it will be
able to structure its agreements and operations in accordance with applicable
law, the lack of definitive interpretations of many statutory and regulatory
provisions means that there can be no assurance that Physicians' Specialty's
arrangements are in compliance with such provisions or will not be successfully
challenged.
Government Reimbursement Programs. Under the federal Medicare program,
payment for physician services, other than under Medicare risk contracts and
Medicare+Choice plans, is based on an annually adjusted fixed fee schedule known
as the Resource-Based Relative Value Scale ("RBRVS"). The Balanced Budget Act of
1997 modified the RBRVS system to adjust the per patient payments from the
Medicare program for certain physician services, and Physicians' Specialty
anticipates further modifications in the RBRVS system in the future.
Additionally, the Balanced Budget Act created the Medicare+Choice plan which
provides Medicare beneficiaries with the option to receive services through
managed care entities including HMOs and preferred provider organizations, and
payment for physician services under the Medicare+Choice plan may be on a
capitated basis as opposed to the RBRVS system.
This change of payment method may result in an overall decrease in
compensation for physician services under the Medicare program. Because
Physicians' Specialty anticipates that approximately 10% of its revenues will be
derived from government-funded health care programs, principally, Medicare and
Medicaid, Physicians' Specialty does not believe that such reductions will
result in a material adverse change in its results of operations. The Medicaid
program is a partially federal-funded, partially state-funded and state
administered program for the indigent. Payment to physicians under state
Medicaid programs is generally based upon fee schedules. However, some states
have authorized Medicaid HMOs, and payments for physician services under these
programs may be on a capitated basis.
Stark Legislation, Fraud and Abuse Laws and Similar Laws
Physicians' Specialty and its affiliated physicians are subject to a
variety of laws and regulations governing the referral of patients for certain
health services to entities with which the referring physician has a financial
relationship. Significant prohibitions against physician referrals were enacted
by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as "Stark II," amended prior physician
self-referral legislation known as "Stark I" by dramatically enlarging the field
of physician-owned or physician-interested entities to which the referral
prohibitions apply. The Stark Law prohibits, subject to certain exceptions, a
physician, or a member of the physician's immediate family, from referring
Medicare or Medicaid patients or patients in federally funded health care
programs for "designated health services" to an entity with which the physician
has a financial relationship. The designated health services include clinical
laboratory services, radiology services, radiation therapy services, physical
and occupational therapy services, durable medical equipment, parenteral and
enteral nutrients,
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equipment and supplies, prosthetics, orthotics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services. The Stark
laws further imposes reporting requirements on any entity providing covered
items or services for which payment may be made under Medicare or Medicaid. An
entity is required to report information concerning the entity's ownership,
investment and compensation arrangements. The penalties for violating the Stark
laws include:
- substantial civil or criminal penalties;
- denial of payment; and
- exclusion from participation in the Medicare, Medicaid and federally
funded health care programs.
The Stark laws are broad and ambiguous; however, Physicians' Specialty
believes that its activities are not in violation of the Stark laws.
In addition, a number of states, including certain states in which
Physicians' Specialty operates or may operate in the future, have enacted
similar laws which apply to referrals made for services reimbursed by all
payors, and not simply Medicare, Medicaid or federally funded health care
programs. Physicians' Specialty believes that its activities are not in
violation of these laws. However, Physicians' Specialty cannot predict whether
future interpretations of these laws will require structural and organizational
modification of its affiliation structure in those states. Future legislation or
regulations could require Physicians' Specialty to modify the form of its
relationships with physician organizations. Moreover, the violation of the Stark
laws or similar state laws by Physicians' Specialty's affiliated physician
organizations could result in significant fines and loss of reimbursement which
could materially adversely affect the Company's operations and financial
condition.
Physicians' Specialty and its affiliated physicians are also subject to
federal and state fraud and abuse laws. These laws include the federal
anti-kickback statute, which prohibits, among other things, the offer, payment,
solicitation or receipt of any remuneration, directly or indirectly in return
for:
- the referral of patients for items or services that are paid for in whole
or in part by Medicare, Medicaid or federally funded programs; or
- arranging for the furnishing of items and services that are paid for in
whole or in part by Medicare, Medicaid or federally-funded programs.
The courts and the Office of Inspector General of The Department of Health
and Human Services have stated that the anti-kickback statute is violated if one
purpose, as opposed to a primary or sole purpose, of the arrangement is to
induce referrals. In April 1998, the Office of Inspector General of the
Department of Health and Human Services issued an advisory opinion which states
that a percentage fee based management arrangement between a physician practice
management company and a physician group could violate the federal anti-kickback
statute if one of the purposes of the arrangement is to compensate the
management company for its efforts to arrange for referrals for the group
through its services provided to the group, including marketing and advertising.
Violations of the anti-kickback statute are punishable by criminal or civil
penalties and/or exclusion of the provider from future participation in the
Medicare, Medicaid and federally-funded programs. The federal government has
published exemptions, or "safe harbors," for business transactions that will be
deemed not to violate the anti-kickback statute. Although satisfaction of the
requirements of these safe harbors provides protection from enforcement action
under the anti-kickback legislation, failure to meet the safe harbors does not
necessarily mean that the activity violates the statutory prohibitions. Rather,
the legality of a particular business arrangement will be assessed by comparing
the particular facts of the transaction to the proscriptions of the statute. In
addition, a number of states have enacted similar laws, which vary from state to
state, prohibiting remuneration or fee-splitting arrangements between health
care providers for the referral of patients to a particular provider, regardless
of the payor source.
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Under separate statutes, including the Federal False Claims Act, submission
of claims for payment that are "not provided as claimed" may lead to:
- civil monetary penalties;
- criminal fines and imprisonment; and/or
- exclusion from participation in the Medicare, Medicaid and
federally-funded health care programs.
Under the Federal False Claims Act, any person may bring suit alleging
false or fraudulent Medicare or Medicaid claims or other violations of the
statute and share in any amounts paid by the entity to the government in fines
or settlement. Such qui tam actions have increased significantly in recent years
and have increased the risk that a health care company will have to defend a
false claims action, pay fines or be excluded from participation in the Medicare
and/or Medicaid programs as a result of an investigation arising out of such an
action. Congress also enacted the Health Insurance Portability and
Accountability Act of 1996, which includes an expansion of certain fraud and
abuse provisions to health care programs. Due to the breadth of the statutory
provisions of the fraud and abuse laws and the absence of definitive regulations
or court decisions addressing the type of arrangements by which Physicians'
Specialty and its affiliated entities conduct and will conduct its business,
from time to time certain of the Company's practices may be subject to challenge
under these laws.
Physicians' Specialty has attempted to structure its business relationships
to comply with the Stark laws, the fraud and abuse laws and all other applicable
federal and state health care laws and regulations. However, there can be no
assurance that such laws and regulations will be interpreted in a manner
consistent with the Company's practices. There can be no assurance that
challenges under such laws or regulations or new laws or regulations will not
require Physicians' Specialty or its affiliated entities to change its or their
practices or will not have a material adverse effect on the Company's operations
and financial condition. Furthermore, the addition of ancillary services may
require Physicians' Specialty or its affiliated practices to alter its or their
operations to comply with applicable federal or state health care laws and
regulations.
Health Care Reform. Political, economic and regulatory influences are
continuously subjecting the health care industry in the United States to
fundamental change. On August 5, 1997, President Clinton signed the Balanced
Budget Act which contemplates savings of $115 billion in Medicare spending and
$13 billion in Medicaid spending over the five-year period from 1998 to 2002.
The savings will result primarily from reductions in reimbursements to providers
due to several factors, including but not limited to, alterations in the
methodology for calculating physician fee schedule payments, application of a
budget neutrality adjustment to prevent physician fees from increasing above a
certain aggregate amount, and expansion of options for Medicare delivery
including provider-sponsored organizations, HMOs, preferred provider
organizations and private fee-for-service plans. The Balanced Budget Act also
establishes more stringent sanctions for convictions of health care related
crimes including permanent exclusion from participation in the Medicare Program
after conviction of three health care related crimes and imposition of civil
monetary penalties for violations of the federal anti-kickback statute. Due to
the enactment of this health care reform and uncertain interpretation of these
reform measures by regulatory authorities, it is difficult to determine the
impact that this reform will have upon Physicians' Specialty and its affiliated
physicians, and there can be no assurances that these reform measures will not
have a material adverse effect on the Company's operations and financial
condition. In addition to federal health care reform, some states in which
Physicians' Specialty operates or may operate in the future are also considering
various health care reform proposals. Physicians' Specialty anticipates that
both federal and state governments will continue to review and assess
alternative health care delivery systems and payment methodologies, and that
additional reforms will likely occur in the future. Due to uncertainties
regarding the additional reforms and their enactment and implementation,
Physicians' Specialty cannot predict which, if any, reform proposals will be
adopted, when they may be adopted or what impact they may have on the Company,
and there can be no assurance that the adoption of reform proposals will not
have a material adverse effect on the Company's operations and financial
condition. In addition, the actual announcement by competitors
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and third party payors of their strategies to respond to such initiatives or
reforms, could produce volatility in the trading and market price of the
Physicians' Specialty Common Stock.
Other Licensing Requirements. Every state imposes licensing requirements
on individual physicians, and some regulate facilities operated and services
provided by physicians. In addition, many states require physicians to obtain
regulatory approval, including certificates of need, before establishing certain
types of health care facilities, offering certain services, or making certain
capital expenditures in excess of statutory thresholds for health care
equipment, facilities or services. To date, only one affiliated entity,
Computerized Tomography Center, Inc., is subject to certificate of need
requirements, and it currently holds a valid certificate of need which permits
it to operate a diagnostic imaging center. However, the addition of ancillary
services by one or more of the other affiliated healthcare providers or changes
in law or regulations could require licensure, certificates of need, or both.
There is no assurance that such required state regulatory approvals could be
obtained, or even if initially obtained, would not thereafter be withdrawn or
restricted. In connection with the expansion of its operations into new markets
and contracting with managed care companies, Physicians' Specialty and its
affiliated practices may become subject to compliance with additional
regulations. In addition, Physicians' Specialty and its affiliated practices are
subject to federal, state and local laws dealing with issues such as
occupational safety, employment, medical leave, insurance regulation, civil
rights and discrimination, medical waste and other environmental issues.
Increasingly, federal, state and local governments are expanding the regulatory
requirements for businesses, including medical practices. The imposition of
these regulatory requirements may have the effect of increasing operating costs
and reducing the profitability of the Company's operations.
Restrictions on Corporate Practice of Medicine and Unlawful Fee
Splitting. The laws of certain states in which Physicians' Specialty operates
or may operate in the future prohibit non-physician entities from practicing
medicine or from exercising control over the professional judgments or decisions
of physicians concerning the treatment and diagnosis of patients. Although
Physicians' Specialty has structured its affiliations with physician groups so
that the associated physicians maintain exclusive authority regarding the
delivery of medical care and exercise their independent professional judgment in
rendering medical decisions, there can be no assurance that these laws will be
interpreted in a manner consistent with the Company's practices or that other
laws or regulations will not be enacted in the future that could have a material
adverse effect on the Company's business.
In addition, the laws of certain states in which Physicians' Specialty
operates or may operate in the future prohibit certain practices such as
splitting fees with physicians or receiving fees for the referral of patients.
In Florida, the Board of Medicine issued a declaratory statement (the
"Declaratory Statement") interpreting Florida fee splitting statutes. The
Declaratory Statement, which was recently affirmed by a Florida district court
of appeals, is broadly drafted and could be construed as prohibiting physician
management companies from being compensated based on a percentage of the managed
practice's revenues or profits. In addition, the Declaratory Statement could be
construed as restricting the manner in which the management company provides
marketing services to a managed practice. An adverse interpretation of this
Declaratory Statement could require Physicians' Specialty to revise its
contracts with its affiliated practices in a manner that could have adverse
effects on the Company. Although Physicians' Specialty has endeavored to
structure its affiliations with physician groups to comply with applicable state
fee splitting laws and anti-referral laws, there can be no assurance that these
laws will be interpreted in a manner consistent with the Company's practices or
that other laws or regulations will not be enacted in the future which could
have a material adverse effect on the Company's business. If a corporate
practice of medicine law or fee splitting statute is interpreted in a manner
that is inconsistent with Physicians' Specialty's practices, Physicians'
Specialty would be required to restructure or terminate its relationship with
the applicable physician group in order to bring its activities into compliance
with such law. The termination of, or failure by Physicians' Specialty to
successfully restructure, any such relationship could result in fines or a loss
of revenue that could have a material adverse effect on Physicians' Specialty's
operations and financial condition.
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LIABILITY AND INSURANCE
The provision of health care services entails the risk of potential claims
of medical malpractice and similar claims. Physicians' Specialty does not engage
in the practice of medicine or have responsibility for compliance with
regulatory requirements directly applicable to physicians and requires
affiliated physicians performing medical services at its facilities to maintain
medical malpractice insurance. Nevertheless, Physicians' Specialty cannot
predict whether malpractice claims will be asserted against it directly in the
event that services or procedures performed at one of its facilities are alleged
to have resulted in injury or other adverse effects. In addition, in connection
with the acquisition of assets of affiliated practices, Physicians' Specialty
has assumed certain of the stated liabilities of such practices. Claims may be
asserted against Physicians' Specialty for events related to affiliated
practices that occurred prior to the Company's affiliation. Although Physicians'
Specialty maintains liability insurance that it believes will be adequate as to
both risk and amounts, successful malpractice claims could exceed the limits of
the Company's insurance and could have a material adverse effect on its
operations and financial condition. Moreover, a malpractice claim asserted
against Physicians' Specialty could be costly to defend, could consume
management resources and could adversely affect the Company's reputation and
business, regardless of the merit or eventual outcome of such claim. In
addition, Physicians' Specialty cannot predict whether it will be able to obtain
such insurance on commercially reasonable terms in the future or that any such
insurance will provide adequate coverage against potential claims.
In addition to the liability insurance maintained by it, Physicians'
Specialty is named as an additional insured on the professional liability
insurance policies held by Physicians' Specialty's affiliated physicians. Such
insurance would provide coverage, subject to policy limits in the event
Physicians' Specialty were held liable as a co-defendant in a lawsuit for
professional malpractice against an affiliated physician. In addition,
Physicians' Specialty is indemnified under the management services agreements by
the affiliated physician groups for liabilities resulting from the performance
of medical services.
EMPLOYEES
As of March 31, 1999, Physicians' Specialty had approximately 520 full-time
employees, including two physicians and 79 allied health care professionals.
None of Physicians' Specialty's employees are represented by a labor union and
Physicians' Specialty believes its relations with Physicians' Specialty's
employees are good.
PROPERTIES
Physicians' Specialty leases approximately 5,000 square feet of office
space for its executive offices in Atlanta, Georgia. The lease provides for
annual rent of approximately $90,000, subject to specified annual increases, and
expires in July 2002. Physicians' Specialty also leases the 60 facilities
currently used by the physicians at its affiliated practices. These leases have
varying remaining terms ranging from approximately one month to 13 years and
aggregate annual rent of approximately $3.0 million. Physicians' Specialty
believes that these facilities are suitable for its current and anticipated
needs and the current and anticipated needs of its affiliated practices.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Physicians' Specialty provides comprehensive management services to
physician practices and health care providers specializing in the treatment and
management of ENT diseases and disorders, including specialists practicing in
the related fields of allergy, audiology, oral surgery, plastic surgery and
sleep medicine. Physicians' Specialty is currently affiliated with 95
physicians, one dentist and 85 allied health care professionals operating 60
clinical locations in Alabama, Florida, Georgia, Illinois, New Jersey, New York
and Ohio. Physicians' Specialty is also affiliated with a sleep diagnostic
laboratory company operating 12 sleep diagnostic laboratories and a diagnostic
imaging center, and Physicians' Specialty owns minority equity interests in
Atlanta Surgery Center, which operates three multi-specialty ambulatory surgery
centers containing 14 operating rooms, and Marietta Outpatient Surgery, which
owns an ambulatory surgery center containing eight operating rooms.
The Company's revenue is derived:
- from patient service revenue generated by physicians who are affiliated
or employed by the Company;
- from the Company's capitated managed care contracts;
- from earnings related to ambulatory surgery centers in which the Company
owns a minority interest; and
- from transitional management fees earned in conjunction with integration
of the Company's acquired affiliated practices.
Patient service revenue consists of gross charges, less allowances for bad
debts and contractual adjustments, generated by or on behalf of physicians
affiliated with Physicians' Specialty or practicing at Physicians' Specialty's
wholly-owned subsidiary, PSC Alabama Corp. Capitation revenue consists of fixed
monthly payments received by Physicians' Specialty directly from HMOs or payors
subcontracting with HMOs. Additionally, Physicians' Specialty records its
allocable share of earnings for its minority interests in Atlanta Surgery Center
and PSC Marietta Ambulatory Surgery Center, Inc. on the equity basis of
accounting.
MANAGEMENT SERVICES AGREEMENTS
The management services agreements delineate the responsibilities and
obligations of Physicians' Specialty and its affiliated practices. Under the
management services agreements, the affiliated practice assigns to Physicians'
Specialty all of its non-governmental accounts receivable and all of its right
and interest in the proceeds of its governmental accounts receivable and grants
to Physicians' Specialty the right to collect and retain the proceeds of the
accounts receivable for the Company's account to be applied under the terms of
the agreement. Physicians' Specialty is responsible for the payment of practice
expenses which include:
- operating expenses of the affiliated practice, including salaries and
benefits of non-medical employees of the practice, lease obligations of
office space and equipment, and medical and office supplies; and
- the non-operating expenses of the affiliated practice.
Physicians' Specialty pays for all such expenses directly out of the
proceeds of the accounts receivable, or revenue, assigned to it by the
affiliated practice. In addition, under the Company's management services
agreements, the Company retains, as a part of its management fee, a stipulated
percentage (generally between 12.5% and 15%) of all revenue (after adjustment
for contractual allowances) generated by or on behalf of physicians practicing
at such practice. Contractual allowances are
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the differences between the amounts customarily charged by physicians practicing
at such practice and the amounts received pursuant to negotiated fee schedules
from payors under managed care, governmental and indemnity arrangements.
Physicians' Specialty believes that such contractual allowances are not
currently expected to materially adversely affect its revenue. In New York, in
order to comply with state law, Physicians' Specialty is reimbursed for practice
expenses and is paid a fixed management fee of approximately $2.5 million per
year subject to annual increases after the fifth anniversary of the date of the
management services agreement, consistent with the annual percentage increase in
the consumer price index. Physicians' Specialty's management fees under future
management services agreements will be determined based upon negotiations
between Physicians' Specialty and future affiliating practices and may vary
significantly in the future.
CAPITATED MANAGEMENT CONTRACTS
Physicians' Specialty's managed care contracts require it to contract for
the provision of substantially all of the ENT medical and surgical professional
services required by the enrollees under the managed care contracts. Physicians'
Specialty has contracted with physicians, including those at Physicians'
Specialty's affiliated practices in Atlanta, North Georgia and Birmingham,
Alabama, to provide a substantial portion of the medical professional services
in exchange for compensation on a discounted fee-for-service or contract
capitation basis.
Physicians' Specialty incurs direct costs or provider claims based on
medical services provided by the participating physicians to the managed care
company's enrollees. As a result, if capitation amounts received by Physicians'
Specialty are reduced by the managed care companies or if enrollees covered by
capitated contracts require more frequent or more extensive care than is
anticipated, operating margins may be reduced or the revenue derived from such
contracts may be insufficient to cover the direct costs of the professional
services provided by associated physicians to enrollees under the contracts. As
a result, Physicians' Specialty may be required to adjust its rates paid to
participating physicians, and Physicians' Specialty's business, financial
condition and results of operations may be adversely affected, particularly if
Physicians' Specialty is unable to renegotiate compensation levels paid to
participating physicians under the participation agreements on a timely or
favorable basis or negotiate capitated managed care contracts on terms favorable
to it.
Prior to entering into a capitated managed care contract, Physicians'
Specialty analyzes the costs of managing such contracts including a study of the
number of lives to be covered, the geographic region to be covered and the
historical utilization patterns and the associated costs of enrollees.
Physicians' Specialty then determines the capitation fee necessary to generate
acceptable returns under the contract and negotiates the capitation rate with
the managed care company. Capitation fees are generally a fixed amount per
enrollee per month. Capitated managed care contracts frequently provide for
periodic renegotiation of capitation fees and adjustments based upon changes in
the number of enrollees under the contracts, changes in the types of
professional services to be provided under the contracts, and changes in the
geographic areas to be covered under the contracts.
To assist in monitoring and controlling direct costs or provider claims
under capitated managed care contracts held by it, Physicians' Specialty
utilizes its management information system, a comprehensive capitation
administration and utilization management system. Physicians' Specialty believes
the system enables it to effectively analyze clinical and cost data necessary to
monitor and control expenses and manage profitability under capitated
arrangements and to accurately anticipate the costs participating physicians
will incur in providing services under such contracts so that Physicians'
Specialty undertakes contracts which Physicians' Specialty can expect to realize
adequate profit margins or otherwise meet its objectives.
During the years ended December 31, 1997 and 1998, approximately 14.8% and
8% of Physicians' Specialty's net revenue, respectively, was derived from
capitated arrangements.
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<PAGE> 85
RESULTS OF OPERATIONS
Comparison of First Quarter Results
Revenue. Net patient service revenue increased to $19,511,000 for the
three months ended March 31, 1999 as compared with $10,800,000 for the same
period in 1998, an increase of $8,711,000 or 81%. The increase in patient
service revenue is primarily attributable to an increase in the number of
physicians affiliated with Physicians' Specialty to 92 physicians at March 31,
1999 as compared with 48 physicians at March 31, 1998 reflecting the acquisition
of five practices in 1998. Patient service revenue generated by physicians who
were affiliated with Physicians' Specialty for both periods ended March 31, 1998
and 1999 increased on average approximately 6% per physician. Capitation
revenues increased to $1,362,000 for the three months ended March 31, 1999 as
compared with $1,165,000 for the same period in 1998, an increase of $197,000 or
17%. The increase in capitation revenues was primarily attributable to an
increase in the aggregate number of enrollees to approximately 400,000 at March
31, 1999 as compared to approximately 332,000 at March 31, 1998, an increase of
approximately 68,000 enrollees or 20%. Management fees increased to $343,000 for
the three months ended March 31, 1999 as compared with $39,000 for the same
period in 1998 primarily as a result of transitional management fees earned in
conjunction with integration of Physicians' Specialty's acquired affiliated
practices. For the three months ended March 31, 1999, Physicians' Specialty
recorded as revenue earnings from its equity interest in Atlanta Surgery Center
in the amount of $295,000. As a result of the foregoing factors, Physicians'
Specialty's net revenue increased to $21,511,000 for the three months ended
March 31, 1999 as compared with $12,004,000 for the same period in 1998, an
increase of $9,507,000 or 80%.
Provider Claims, Wages and Benefits. Provider claims, wages and benefits,
which includes physician compensation, increased to $14,082,000 for the three
months ended March 31, 1999, as compared with $7,924,000 for the same period in
1998, an increase of $6,158,000 or 78%. The dollar increase in provider claims,
wages and benefits is primarily attributable to the increase in the number of
affiliated physicians managed by Physicians' Specialty and the addition of
non-medical personnel at Physicians' Specialty's affiliated practices required
to support the increase in the number of affiliated physicians. As a percent of
net revenue, provider claims, wages and benefits decreased slightly to 65% for
the three months ended March 31, 1999 as compared to 66% for the same period in
1998.
General and Administrative. General and administrative expenses increased
to $3,965,000 for the three months ended March 31, 1999 as compared with
$2,257,000 for the same period in 1998, an increase of $1,708,000 or 76%. This
increase is primarily attributable to the addition of personnel and greater
support costs associated with the Company's rapid expansion during 1998. As a
percent of net revenue, general and administrative expenses decreased slightly
to 18% for the three months ended March 31, 1999 as compared to 19% for the same
period in 1998.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $686,000 for the three months ended March 31, 1999 as compared with
$283,000 for the same period in 1998, an increase of $403,000 or 142%. The
increase was primarily the result of the increases in intangible assets, or
goodwill, resulting from additional acquisitions and resulting increases in
amortization of intangible assets associated with these acquisitions, as well as
investments in equipment, leasehold improvements and management information
systems and resulting increases in depreciation of these assets. As a percent of
net revenue, depreciation and amortization expense increased to 3% for the three
months ended March 31, 1999 from 2% for the same period in 1998.
Other Income (Expense). Other expense for the three months ended March 31,
1999 was $14,700 representing interest expense related primarily to the
subordinated seller notes and borrowings in conjunction with Physicians'
Specialty's $45,000,000 senior credit facility, which was offset by interest
income earned on interest bearing promissory notes and the short term investment
of excess cash and cash equivalents. Other income for the three months ending
March 31, 1998 was $29,000 and was derived from interest income earned on the
short term investment of cash and cash equivalents net of amounts of interest
paid primarily on the subordinated seller notes.
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<PAGE> 86
Income Taxes. Income taxes were provided for at 39% effective tax rates
for the three month periods ended March 31, 1999 and 1998 respectively.
Net Income. As a result of the foregoing factors, net income increased to
$1,685,000 for the three months ended March 31, 1999 as compared to $957,000 for
the same period in 1998, an increase of $728,000 or 76%.
Comparison of Year ended December 31, 1998 with Year ended December 31, 1997.
Overview. Physicians' Specialty was incorporated in July 1996 and did not
conduct any significant operations prior to the closing of its initial public
offering and initial acquisitions in March 1997. Accordingly, only nominal
revenues were recognized and general and administrative expenses were incurred
during the period from inception to March 1997. However, Physicians' Specialty
did incur various legal, accounting and auditing costs in connection with its
initial public offering and acquisitions during the period from inception
through December 31, 1996. In addition, the Company's results of operations for
its year ended December 31, 1997 represent less than a full year of business
operations.
In March 1998, the Emerging Issues Task Force of the FASB issued its
Consensus on Issue 97-2. EITF 97-2 addresses certain specific matters pertaining
to the physician practice management industry. EITF 97-2 is effective for
Physicians' Specialty for its year ended December 31, 1998. EITF 97-2 addresses
the ability of physician practice management companies to consolidate the
results of operations of physician practices with which it has an existing
contractual relationship. Physicians' Specialty has determined that its
contracts met the criteria of EITF 97-2 for consolidating the results of
operations of the related physician practices, and Physicians' Specialty has
adopted EITF 97-2 in its consolidated statement of operations for Physicians'
Specialty's year ended December 31, 1998. In addition, Physicians' Specialty has
adjusted its consolidated statement of operations for its year ended December
31, 1997 to conform with such consolidation.
The following table shows the percentage of net revenue represented by
various expense categories reflected in Physicians' Specialty's consolidated
statement of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998
---------- ------------
<S> <C> <C>
Net Revenues................................................ 100.0% 100.0%
Operating expenses:
Provider claims, wages and benefits....................... 68.4 62.2
General and administrative................................ 17.9 21.4
Depreciation and amortization............................. 1.5 3.0
----- -----
Total operating expenses.......................... 87.8 86.6
----- -----
Operating Income:........................................... 12.2 13.4
Other income (expense) -- net............................. 1.8 (0.1)
----- -----
Income before income taxes.................................. 14.0 13.3
Provision for income taxes.................................. 5.6 5.2
----- -----
Net Income........................................ 8.4% 8.1%
===== =====
</TABLE>
In the following discussions, most percentages and dollar amounts have been
rounded to aid presentation. As a result, all such figures are approximations.
Revenue. Net patient service revenue increased from $20.7 million in 1997
to $54.9 million in 1998, an increase of $34.2 million, or 165%. The increase in
patient service revenue was primarily attributable to an increase in the number
of physicians affiliated with Physicians' Specialty to 82 physicians at December
31, 1998 as compared with 46 physicians at December 31, 1997. Patient service
revenue generated by physicians who were affiliated with Physicians' Specialty
for both 1997 and 1998 increased on average 12% per physician. Capitation
revenues increased from $3.6 million in 1997 to $4.9 million in 1998, an
increase of $1.3 million, or 36%. The increase in capitation revenues was
primarily attributable to
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<PAGE> 87
an increase in the aggregate number of enrollees to approximately 431,000 at
December 31, 1998 as compared to approximately 315,000 at December 31, 1997, an
increase of approximately 116,000 enrollees, or 37%. Management fees increased
from $169,000 in 1997 to $1.2 million in 1998 primarily as a result of
transitional management fees earned in conjunction with integration of
Physicians' Specialty's acquired affiliated practices. For 1998, Physicians'
Specialty recorded as revenue earnings from its 17.5% equity interest in Atlanta
Surgery Center, which Physicians' Specialty acquired in September 1998, in the
amount of $630,000.
As a result of the foregoing factors, Physicians' Specialty's net revenue
increased to $61.6 million in 1998 as compared with $24.5 million in 1997, an
increase of $37.1 million or 152%.
Provider Claims, Wages and Benefits. Provider claims, wages and benefits,
which includes physician compensation, increased to $38.3 million in 1998 from
$16.7 million in 1997, an increase of $21.6 million or 129%. The dollar increase
in provider claims, wages, and benefits was primarily attributable to the
addition of non-medical personnel at Physicians' Specialty's affiliated
practices required to support the increase in the number of affiliated physician
groups managed by it. As a percent of net revenue, provider claims, wages and
benefits decreased to 62% in 1998 from 68% in 1997.
General and Administrative. General and administrative expenses increased
to $13.1 million in 1998 from $4.4 million in 1997, an increase of $8.7 million
or 198%. This increase was primarily attributable to the addition of personnel
and greater support costs associated with Physicians' Specialty's rapid
expansion since March 1997. As a percent of net revenue, general and
administrative expenses increased to 21% in 1998 as compared to 18% in 1997.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $1.8 million in 1998 from $377,000 in 1997, an increase of $1.4
million or 377%. The increase was primarily the result of the increases in
intangible assets, or goodwill, resulting from additional acquisitions and
resulting increases in amortization of intangible assets associated with these
acquisitions, as well as investments in equipment, leasehold improvements and
management information systems and resulting increases in depreciation of these
assets. As a percent of net revenue, depreciation and amortization expense
increased to 3% in 1998 from 1.5% in 1997.
Other Income (Expense). Other expense for 1998 was $54,000 representing
interest expense related primarily to the subordinated seller notes and
borrowings and the commitment fee in conjunction with Physicians' Specialty's
$45 million senior credit facility which was offset by interest income earned on
the short term investment of excess cash and cash equivalents. Other income for
1997 was $429,000 and was derived from interest income earned on the short term
investment of cash and cash equivalents of Physicians' Specialty's initial
public offering proceeds, net of amounts of immaterial interest.
Income Taxes. Income taxes were provided for at 39% and 40% effective tax
rates for 1998 and 1997, respectively.
Net Income. As a result of the foregoing factors, net income increased to
$5.0 million in 1998 as compared to $2.1 million in 1997, an increase of $2.9
million or 138%.
Quarterly Results.
The following table presents certain unaudited quarterly financial data for
each of the quarters during the years ended December 31, 1997 and 1998. This
information has been prepared on the same basis as Physicians' Specialty's
consolidated financial statements appearing elsewhere in this Proxy Statement
and include, in Physicians' Specialty's opinion, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the quarterly
results when read in conjunction with Physicians' Specialty's consolidated
financial statements and the notes thereto. Physicians' Specialty has
historically experienced and expects to continue to experience quarterly
fluctuations in net revenue and net income
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<PAGE> 88
primarily relating to the timing of acquisitions and seasonable variations. As a
result, the operating results for any quarter are not necessary indicative of
results for any future period or for the full year.
<TABLE>
<CAPTION>
1997 1998
-------------------------------- -------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ------ ------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................. $ 634 $6,263 $7,785 $9,806 $12,004 $14,213 $16,613 $18,771
Operating income............. 20 720 962 1,291 1,539 1,718 2,306 2,708
Net income................... 20 512 664 864 957 1,124 1,357 1,572
Basic net income per share... $0.02 $ 0.09 $ 0.11 $ 0.14 $ 0.15 $ 0.15 $ 0.15 $ 0.18
Diluted net income per
share...................... $0.02 $ 0.09 $ 0.11 $ 0.13 $ 0.14 $ 0.14 $ 0.15 $ 0.17
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Physicians' Specialty utilized capital primarily:
- to acquire assets or equity of physician practices;
- to acquire equipment utilized by Physicians' Specialty's affiliated
practices;
- to fund corporate capital expenditures including management information
systems; and
- to fund ongoing corporate working capital requirements.
At March 31, 1999, Physicians' Specialty had working capital of $17,194,000
compared to $18,388,000 at December 31, 1998, a decrease of $1,194,000. The
decrease in working capital was due primarily to the decrease in cash and cash
equivalents at March 31, 1999 relating to the cash consideration paid on
acquisitions completed by Physicians' Specialty during the three month period
ended March 31, 1999.
For the three month period ended March 31, 1999 net cash provided by
operating activities was $548,000 compared to $80,000 for the same period in
1998. Net cash provided by operating activities for the period ended March 31,
1999 consists of Physicians' Specialty's net income, increased by non-cash
expenses such as depreciation and amortization and decreased by non-cash
earnings from Physicians' Specialty's equity interest in Atlanta Surgery Center,
and adjusted by changes in the components of working capital, primarily accounts
receivable, prepayments, accounts payable and income taxes.
Net cash used in investing activities was $3,718,000 for the three month
period ended March 31, 1999 compared to $650,000 for the same period in 1998.
Physicians' Specialty's uses of cash in investing activities related exclusively
to physician practice acquisitions and capital expenditures in both the 1999 and
1998 periods. For the three month period ended March 31, 1999 Physicians'
Specialty received a distribution from its equity interest in Atlanta Surgery
Center of approximately $277,000.
On July 31, 1998, Physicians' Specialty closed on a four year $45 million
amended and restated senior credit facility syndicated by Nationsbanc Montgomery
Securities LLC. Syndicate lenders include NationsBank, N.A., PNC Bank and
Rabobank Nederland (the "Credit Facility"). The Credit Facility replaced
Physicians' Specialty's $20 million senior credit facility. Borrowings under the
Credit Facility (i) are secured by the assignment to the banks of Physicians'
Specialty's stock in all of its subsidiaries and its accounts receivable,
including the accounts receivable assigned to it by affiliated practices
pursuant to management services agreements, (ii) are guaranteed by all
subsidiaries (including future subsidiaries) and (iii) restrict it from pledging
its assets to any other party. Advances under the Credit Facility will be used
to fund acquisitions and working capital, will be governed by a borrowing base
related primarily to Physicians' Specialty's earnings before interest, taxes,
depreciation and amortization ("EBITDA") and will bear interest, at Physicians'
Specialty's option, based upon either a prime-based or LIBOR-based rate. EBITDA
is used by Physicians' Specialty as an indicator of its ability to incur and
service debt. EBITDA should not be considered an alternative to operating
income, net income, cash flows or any other measure of performance as determined
in accordance with generally accepted accounting principles, as an indicator of
operating performance, or as a measure of liquidity. The Credit Facility
contains affirmative and
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<PAGE> 89
negative covenants which, among other things, require Physicians' Specialty to
maintain certain financial ratios (including maximum indebtedness to pro forma
EBITDA, maximum indebtedness to capital, minimum net worth, minimum current
ratio and minimum fixed charges coverage), limit the amounts of additional
indebtedness, dividends, advances to Physicians' Specialty's officers,
shareholders and physicians, acquisitions, investments and advances to
subsidiaries, and restrict changes in management and Physicians' Specialty's
business. As of May 13, 1999, Physicians' Specialty had approximately $3.7
million of borrowings under the Credit Facility.
During the six month period ended June 30, 1999, Physicians' Specialty
acquired substantially all of the assets (other than certain excluded assets
such as employment agreements and patient charts, records and files) and assumed
certain contractual liabilities of (i) E.N.T. Medical Associates, Inc., P.C.
("ENT Medical"), and (ii) Advanced Surgical Arts, Inc. ("ASA"). In addition
Physicians' Specialty acquired substantially all of the business assets and
assumed certain contractual liabilities of Preferred Diagnostic Services, Inc.
("PDS") and Computerized Tomography Center, Inc. ("CTC"). In connection with the
ENT Medical, ASA, PDS and CTC transactions completed by it during the six month
period ended June 30, 1999, Physicians' Specialty (i) paid an aggregate of
$3,737,100 in cash, (ii) issued an aggregate of 4,600 shares of Common Stock
(valued at an aggregate of approximately $37,000), (iii) agreed to issue an
aggregate of 1,637 shares of Common Stock (valued at an aggregate of
approximately $13,000), (iv) issued subordinated promissory notes in the
aggregate principal amounts of $1,360,000 which accrue interest at a rate of 6%
per annum paid quarterly beginning in May 1999 with principal payments beginning
in February 2000 and (iv) issued a subordinated promissory note in the aggregate
principal amount of $125,000 which accrues interest at a rate of 6% per annum
paid quarterly beginning in September 1999 with principal payments beginning in
June 2000. In connection with these acquisitions, Physicians' Specialty paid
approximately $207,000 to PHC, an affiliated entity, for advisory services
rendered.
In January 1999, Physicians' Specialty loaned $1,475,000 to the Cleveland
ENT physicians. This loan bears interest at a rate of 6% per annum and matures
on the earlier of January 14, 2000, the termination of the management services
agreement, or the termination of the employment of three or more of the
physicians. In addition, Physicians' Specialty granted the physicians the right
and option (the "Put Option") to require it to purchase from the physicians all
of the outstanding shares of common stock of Ohio Nasal Sinus Center, Inc.
("NSC"), the sole assets of which are two corporate domain names. The Put Option
may be exercised by the physicians commencing January 10, 2000 and expiring on
March 1, 2000. In the event the physicians exercise the Put Option, Physicians'
Specialty would be required to purchase the NSC common stock for approximately
$2 million in cash and issue a subordinated promissory note in the principal
amount of $520,000 (collectively, the "Put Purchase Price"). The subordinated
promissory note would bear interest at a rate of 6% per annum and would be
payable in four equal annual installments commencing on the first anniversary of
the date of issuance of the note. In the event the Put Option is exercised by
the physicians, the cash portion of the Put Purchase Price would be reduced by
any amounts owed under the loan or any other monetary obligations owed by the
physicians to Physicians' Specialty. Pursuant to the terms of the transaction,
Physicians' Specialty has agreed to indemnify the physicians for certain matters
arising out of the transaction.
Also, in January 1999 Atlanta ENT issued a secured promissory note in the
amount of $2,152,000 to PSC Georgia Corp., a wholly owned subsidiary of
Physicians' Specialty and the general partner of PSC Ambulatory Surgery, Ltd.,
as consideration for an additional 39% equity interest in PSC Ambulatory Surgery
Ltd. This note bears a fluctuating rate of interest equal to the prime rate (as
defined in the note), and is payable on a monthly basis commencing February,
1999 and continues for 119 consecutive months at which time all accrued interest
and principal is due and payable. The note is secured by Atlanta ENT's acquired
interest in PSC Ambulatory Surgery, Ltd.
YEAR 2000
The Year 2000 issue is the result of using only the last two digits to
indicate the year in computer hardware and software programs and embedded
technology such as micro-controllers. As a result, these
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<PAGE> 90
programs do not properly recognize a year that begins with "20" instead of the
familiar "19." If uncorrected, such programs will be unable to interpret dates
beyond the year 1999, which could cause computer system failure or
miscalculations which could disrupt Physicians' Specialty's operations and
adversely affect its cash flows and results of operations.
Physicians' Specialty recognizes the importance of the Year 2000 issue and
has given it high priority. Physicians' Specialty's objective is to ensure an
uninterrupted transition to the year 2000 by assessing, testing and modifying
products and information technology ("IT") systems and non-IT systems so that
such systems and software will perform as intended, and information and dates
can be processed with expected results. The scope of Physicians' Specialty's
compliance efforts include (i) identification and assessment of risks, including
the risks of non-compliance by third parties, (ii) development of remediation
and contingency plans, (iii) implementation and (iv) testing.
There are three major IT system applications that Physicians' Specialty
relies upon to process transactions and provide information for managing its
operations. These applications have been identified as follows:
- accounting and financial reporting system;
- practice management billing and accounts receivable systems; and
- capitated claims processing and reporting system.
Accounting and financial reporting system. During 1998 Physicians'
Specialty fully implemented the Great Plains accounting and financial reporting
software applications at all of its affiliated practices, its subsidiaries and
its corporate locations. The Great Plains accounting package has been modified
and tested and Physicians' Specialty believes it is Year 2000 compliant.
Practice management billing and accounts receivable systems. Physicians'
Specialty's affiliated practices currently utilize software packages which were
developed by large third party software development companies such as Medic,
Medical Manager, Verysis and Reynolds & Reynolds. Physicians' Specialty has been
in contact with all of these companies, is in the process of testing and
implementing all Year 2000 compliant modified programs and believes it will
complete the process during the third quarter of 1999.
Capitated claims processing and reporting system. Physicians' Specialty
has internally developed a proprietary capitated claims processing and reporting
system which Physicians' Specialty believes is Year 2000 compliant.
Physicians' Specialty is also highly dependent on receiving payments from
third party payors for capitated fees and for insurance reimbursement for claims
submitted by its affiliated practices, and as such, the ability of such payors
to process claims submitted by affiliated practices accurately and timely,
constitutes a significant risk to Physicians' Specialty's cash flow and could
materially adversely affect its operations. Physicians' Specialty and its
affiliated practices have been or will be in communication with these payors to
ensure that these payors will be Year 2000 compliant and will be able to process
claims uninterrupted. However, there can be no assurance that such third party
payors will be Year 2000 compliant.
Like virtually every company, Physicians' Specialty is at risk for the
failure of major infrastructure providers to adequately address potential Year
2000 problems. Physicians' Specialty is highly dependent on a variety of public
and private infrastructure providers to conduct its business. Failures of
banking systems, basic utility providers, telecommunication providers and other
services to achieve Year 2000 compliance, could have a material adverse effect
on Physicians' Specialty's ability and its affiliated practices' ability to
conduct business. While Physicians' Specialty is aware of these risks, a
complete assessment of all such risks is beyond the scope of Physicians'
Specialty's Year 2000 project.
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<PAGE> 91
Through March 31, 1999, Physicians' Specialty has incurred costs of
approximately $125,000 related to the Year 2000 issue. Physicians' Specialty
does not anticipate that Physicians' Specialty will incur any additional
material costs associated with addressing Year 2000 issues.
Physicians' Specialty's current estimates of the amount of time and costs
necessary to remediate and test its computer systems are based on the facts and
circumstances existing at this time. The estimates were made using assumptions
of future events including the continued availability of certain resources, Year
2000 modification plans, implementation success by key third-parties, and other
factors. New developments may occur that could affect Physicians' Specialty's
estimates of the amount of time and costs needed to modify and test its IT and
non-IT systems for Year 2000 compliance. These developments include, but are not
limited to:
- the availability and cost of personnel trained in this area;
- the ability to locate and correct all relevant date-sensitive codes in
both IT and non-IT systems;
- unanticipated failures in Physicians' Specialty's IT and non-IT systems;
and
- the planning and Year 2000 compliance success that third-parties attain.
Physicians' Specialty cannot determine the impact of these potential
developments on the current estimate of probable costs of making its IT and
non-IT systems Year 2000 compliant. Accordingly, Physicians' Specialty is not
able to estimate its possible future costs beyond the current estimate of costs.
As new developments occur, these cost estimates may be revised to reflect the
impact of these developments on the costs to Physicians' Specialty of making its
IT and non-IT systems Year 2000 compliant. Such revisions in costs could have a
material adverse impact on Physicians' Specialty's results of operations in the
quarterly period in which they are recorded. Although Physicians' Specialty
considers it unlikely, such revisions could also have a material adverse effect
on the business, financial condition or results of Physicians' Specialty's
operations. If Year 2000 compliance is not achieved, Physicians' Specialty has
developed a contingency plan which includes:
- increasing normal inventories of critical supplies for Physicians'
Specialty's affiliated practices prior to December 31, 1999;
- ensuring an adequate line of bank credit if third party payor payments
are disrupted; and
- ensuring that all critical staff are available or scheduled to work prior
to, during and immediately after December 31, 1999.
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<PAGE> 92
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by (i) each stockholder known to the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock, (ii) each director and named executive officer of the Company, (iii) all
executive officers and directors of the Company as a group and (iv) TA
Associates and each of the other members of the TA Investors and the Management
Sponsors based upon the number of outstanding shares of common stock as of June
30, 1999.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(2)
-------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT
- --------------------------------------- --------- -------
<S> <C> <C>
Ramie A. Tritt, M.D.(3)..................................... 1,839,441 19.9%
Gerald R. Benjamin(4)....................................... 356,448 3.9
Richard D. Ballard(5)....................................... 192,476 2.1
Lawrence P. Kraska(6)....................................... 101,244 1.1
Robert A. DiProva(7)........................................ 117,485 1.3
Edward R. Casas, M.D.(8).................................... 12,500 *
Steven L. Posar, M.D.(8).................................... 12,500 *
Sidney Kirschner(8)......................................... 12,500 *
Steven H. Sacks, M.D.(9).................................... 2,500 *
BankAmerica Corporation..................................... 566,900 6.2
100 North Tryon St.
Charlotte, NC 28255(10)
Fleet Financial Group, Inc.................................. 532,410 5.8
One Federal Street
Boston, MA 02110(11)
All executive officers and directors of the Company as a
group (9 persons)(12)..................................... 2,647,094 27.1
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address is c/o Physicians' Specialty Corp.,
1150 Lake Hearn Drive, Suite 640, Atlanta, Georgia 30342. Except for the
shares that are subject to the Voting Agreement and as otherwise indicated,
each of the parties listed above has sole voting and investment power over
the shares owned.
(2) In computing the number and percentage ownership of shares beneficially
owned by a person, shares of Common Stock subject to options held by that
person that are exercisable within 60 days are deemed outstanding. Such
shares, however, are not deemed outstanding for purposes of computing the
percentage ownership of stockholders other than such person.
(3) Includes
- 1,761,257 shares of Common Stock owned directly by Dr. Tritt;
- 75,000 shares of Common Stock issuable upon exercise of options that are
exercisable within 60 days; and
- 3,184 shares of Common Stock held by members of Dr. Tritt's family.
Excludes 175,000 shares of Common Stock issuable upon exercise of options
which are not exercisable within 60 days.
(4) Includes
- 57,500 shares of Common Stock issuable upon exercise of options that are
exercisable within 60 days; and
- 293,948 shares of Common Stock owned by Bock, Benjamin & Co. Partners,
L.P. Mr. Benjamin is a principal of Bock, Benjamin & Co., the general
partner of Bock, Benjamin & Co. Partners, L.P.
Excludes 132,500 shares of Common Stock issuable upon exercise of options
which are not exercisable within 60 days.
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<PAGE> 93
(5) Represents shares of Common Stock issuable upon exercise of options that
are exercisable within 60 days. Excludes 177,492 shares of Common Stock
issuable upon exercise of options which are not exercisable within 60 days.
(6) Represents shares of Common Stock issuable upon exercise of options that
are exercisable within 60 days. Excludes 133,748 shares of Common Stock
issuable upon exercise of options which are not exercisable within 60 days.
(7) Represents shares of Common Stock issuable upon exercise of options that
are exercisable within 60 days. Excludes 82,495 shares of Common Stock
issuable upon exercise of options which are not exercisable within 60 days.
(8) Represents shares of Common Stock issuable upon exercise of options that
are exercisable within 60 days. Excludes 5,000 shares of Common Stock
issuable upon exercise of options which are not exercisable within 60 days.
(9) Represents shares of Common Stock issuable upon exercise of options that
are exercisable within 60 days.
(10) Based on information provided by BankAmerica Corporation in a Schedule 13G
filed under the Securities Exchange Act of 1934 dated January 29, 1999.
Represents shares of Common Stock held by subsidiaries of BankAmerica.
BankAmerica may be deemed to possess indirect beneficial ownership of
shares beneficially owned directly by its subsidiaries. Similarly, higher
tier BankAmerica subsidiaries may be deemed to posses indirect beneficial
ownership of shares beneficially owned directly by lower tier BankAmerica
subsidiaries. The power to vote and to dispose of shares may be deemed to
be shared between entities due to their corporate relationships.
(11) Based on information provided by Fleet Financial Group, Inc., in a Schedule
13G filed under the Securities Exchange Act of 1934 dated February 12,
1999. Includes shares of Common Stock held by subsidiaries of Fleet
Financial Group.
(12) Includes 583,705 shares of Common Stock issuable upon exercise of options
that are exercisable within 60 days. Excludes 716,235 shares of Common
Stock issuable upon exercise of options which are not exercisable within 60
days.
CERTAIN INFORMATION CONCERNING MERGERCO
AND THE INVESTOR GROUP
MERGERCO
MergerCo is a newly formed Delaware corporation organized at the direction
of the TA Investors, each of which is a private investment partnership or an
affiliate thereof. MergerCo is not expected to have any significant assets or
liabilities (other than those arising in connection with the Merger and related
transactions) or engage in any activities (other than those incident to its
formation and the Merger). The principal executive offices of MergerCo are
located at c/o TA Associates, Inc., 125 High Street, Suite 2500, Boston,
Massachusetts 02110.
TA INVESTORS
TA/Advent VIII L.P., a Delaware limited partnership, TA/Atlantic and
Pacific IV L.P., a Delaware limited partnership, TA Executives Fund LLC, a
Delaware limited liability company, and TA Investors LLC, a Delaware limited
liability company, are principally engaged in the business of investing in other
companies. The sole general partner of TA/Advent VIII, L.P. is TA Associates
VIII LLC, a Delaware limited liability company. The sole general partner of
TA/Atlantic and Pacific IV, L.P. is TA Associates AP IV, L.P., a Delaware
limited partnership. The sole general partner of TA Associates AP IV, L.P., and
the manager of TA Associates VIII LLC, TA Executives Fund LLC, and TA Investors
LLC is TA Associates, Inc., a Delaware corporation.
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<PAGE> 94
Set forth below is the name of each director and executive officer of TA
Associates, Inc. and the present principal occupation or employment of each such
person and a brief description of his principal occupation and business
experience during at least the last five years. Each person listed below is a
citizen of the United States.
C. Kevin Landry. Mr. Landry has been the President and Chief Executive
Officer, a Managing Director and Chairman of the Board of Directors of TA
Associates, Inc. since January 1, 1994.
P. Andrews McLane. Mr. McLane has been the Senior Managing Director of TA
Associates, Inc. since January 1, 1997 and a member of the Board of Directors
since January 1, 1994. From January 1, 1994 to January 1, 1997, Mr. McLane was a
Managing Director of TA Associates, Inc.
Jeffrey T. Chambers. Mr. Chambers has been a member of the Board of
Directors and a Managing Director of TA Associates, Inc. since January 1, 1994.
Jacqueline C. Morby. Ms. Morby has been a member of the Board of Directors
and a Managing Director of TA Associates, Inc. since January 1, 1994.
Katherine S. Cromwell. Ms. Cromwell has been a Managing Director and the
Chief Financial Officer, Treasurer and Secretary of TA Associates, Inc. since
January 1, 1994.
Richard Tadler. Mr. Tadler has been a Managing Director of TA Associates,
Inc. since January 1, 1994.
TA Associates, Inc. will not have a direct equity interest in the Surviving
Corporation and is therefore not included in the references in this proxy
statement to the TA Investors' equity interest in the Surviving Corporation.
The principal executive offices of TA Associates, Inc. and all related
entities and the business address for each of the individuals listed above is
125 High Street, Suite 2500, Boston, Massachusetts 02110.
MANAGEMENT SPONSORS
The Management Sponsors are the following executive officers of Physicians'
Specialty:
Ramie A. Tritt, M.D. Dr. Tritt has served as Chairman of the Board and
President of Physicians' Specialty since its inception in July 1996. Dr. Tritt
serves as President of Atlanta Ear, Nose and Throat Associates, P.C., a
multi-site otolaryngology group practice which is a successor to a practice
founded by Dr. Tritt in 1979. Dr. Tritt also serves as President and Medical
Director of the ENT Center of Atlanta, Inc., Atlanta ENT Center for Physicians,
Inc., and Atlanta AHP, Inc., three otolaryngology provider networks established
to contract with HMOs in greater Atlanta, each of which is a wholly-owned
subsidiary of Physicians' Specialty. Dr. Tritt was a founding member and
currently serves as President of Georgia Multi-Specialty Group, L.L.C., a
consortium of 15 specialty group practices, encompassing approximately 650
physicians, which contracts with payors for specialty medical services
throughout the metropolitan Atlanta area. Dr. Tritt also serves on our Medical
Advisory Board. Dr. Tritt received his M.D. degree from McGill University.
Richard D. Ballard. Mr. Ballard has served as Chief Executive Officer and
a director of Physicians' Specialty since November 1996. Prior to joining
Physicians' Specialty, Mr. Ballard served as Vice President of Recruiting for
Physicians' Online, Inc., an internet physician recruiting service. Prior to
joining Physicians' Online, Inc. in September 1995, Mr. Ballard served as
Executive Vice President, President and Chief Executive Officer of Allegiant
Physician Services, Inc. (formerly Premier Anesthesia, Inc.), an anesthesia
contracting and physician practice management company. Prior to joining Premier
Anesthesia in 1988, Mr. Ballard served for six years as Executive Vice President
of Jackson & Coker Inc., a national physician recruiting firm and for seven
years as director of national recruiting for Spectrum Emergency Care, Inc.
Gerald R. Benjamin. Mr. Benjamin has served as Vice Chairman and Secretary
of Physicians' Specialty since its inception in July 1996 and Treasurer since
June 1998. Mr. Benjamin serves as Chief
85
<PAGE> 95
Executive Officer of Premier HealthCare, a division of Bock, Benjamin & Co., a
boutique health care investment banking concern which Mr. Benjamin co-founded in
1993. Prior to founding Bock, Benjamin & Co., Mr. Benjamin served as Chief
Executive Officer of Premier HealthCare, Inc., a health care venture development
and management firm which Mr. Benjamin co-founded in 1991. Prior to co-founding
Premier HealthCare, Inc., Mr. Benjamin served for ten years as Managing Partner
and Director of Corporate Finance Services for Williams, Benjamin, Benator &
Libby, an Atlanta, Georgia-based Certified Public Accounting firm. Prior to
joining Williams, Benjamin, Benator & Libby in 1982, Mr. Benjamin was a member
of the Atlanta office of Ernst & Young. Mr. Benjamin is a Certified Public
Accountant and received his B.S. degree in accounting from the University of
Kentucky, where he was named a Coopers & Lybrand scholar.
Lawrence P. Kraska. Mr. Kraska has served as Chief Operating Officer and
Executive Vice President of Physicians' Specialty since April 1999, following
one year terms as Executive Vice President -- Operations and Vice
President -- Operations, respectively. Prior to joining Physicians' Specialty,
Mr. Kraska served as Administrator of Atlanta ENT. Prior to joining Atlanta ENT
in June 1994, Mr. Kraska provided hospital administration, physician recruiting
and practice management services as the Regional Director of Professional
Relations for the Atlanta division of National Medical Enterprises from July
1993 to May 1994, for Charter Medical Corporation -- Charter Peachford Hospital
from September 1992 to June 1993 and as the Administrator for The Center For
Psychiatry, a large multi-specialty mental health group practice, from March
1990 to August 1992. Mr. Kraska received his M.B.A. from Kennesaw State
University.
Robert A. DiProva. Mr. DiProva has served as Executive Vice President and
Chief Financial Officer of Physicians' Specialty since March 1997. Mr. DiProva
served as Vice President -- Administration, Chief Financial Officer, Secretary
and Treasurer of A.D.A.M. Software, Inc., a publicly traded medical software
company, from September 1995 to February 1997. Prior to joining A.D.A.M.
Software in 1995, Mr. DiProva served for six years as Vice President, Chief
Financial Officer and Treasurer of DATEQ Information Network, Inc., a publicly
traded data management company. Mr. DiProva is a Certified Public Accountant and
received his M.B.A. from Emory University.
The business address for each Management Sponsor is the principal executive
offices of Physicians' Specialty, 1150 Lake Hearn Drive, Suite 640, Atlanta,
Georgia 30342. Each Management Sponsor is a citizen of the United States.
PURCHASES OF COMMON STOCK BY CERTAIN PERSONS
The following table sets forth certain information concerning purchases of
Common Stock since January 1, 1997 by the Company, the Management Sponsors, the
TA Investors and TA Associates.
<TABLE>
<CAPTION>
NUMBER PRICE PER
OF SHARE OR WHERE AND HOW
SHARES RANGE OF TRANSACTION
NAME DATE PURCHASED PRICES PAID EFFECTED
- ---- ------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Ramie A. Tritt, M.D. 3/26/97 1,455,312 $8 Stock exchanged for Atlanta ENT
assets and The ENT Networks
Gerald R. Benjamin 7/27/98 5,000 $6 NASDAQ Open Market Purchase
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets as of December 31, 1998 and December 31,
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows of Physicians' Specialty for the period from inception
(July 31, 1996) to December 31, 1996 and for each of the two years ended
December 31, 1997 and 1998 and the financial statements of Ear, Nose and Throat
Associates, P.C., as of December 31, 1997 and 1996 and for the year then ended,
included in this Proxy Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports appearing
86
<PAGE> 96
herein. A representative of Arthur Andersen LLP will be at the Special Meeting
to answer appropriate questions from stockholders and will have the opportunity
to make a statement, if so desired.
STOCKHOLDER PROPOSALS
If the Merger is not consummated for any reason, proposals of stockholders
intended to be presented at the Company's next annual meeting must be received
by the Company at its principal executive offices within a reasonable time
before the Company begins to print and mail its proxy materials to be eligible
for inclusion in the Company's Proxy Statement and form of proxy relating to
that meeting. In addition, the Company's bylaws provide that a stockholder
proposal may only be acted upon at an annual meeting of stockholders if the
stockholder gives notice not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder must be received not later than the
close of business on the tenth day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. If the
Merger is not consummated for any reason, the persons named as proxies for the
next annual meeting will have discretionary voting authority with respect to any
stockholder proposal submitted to the Company to be considered at such meeting
otherwise then in conformity with such requirements of the Company's bylaws.
OTHER MATTERS
Management knows of no other business to be presented at the Special
Meeting. If other matters do properly come before the meeting, or any
adjournment or adjournments thereof, it is the intention of the persons named in
the proxy to vote on such matters according to their best judgment unless the
authority to do so is withheld in such proxy.
WHERE YOU CAN FIND MORE INFORMATION
Physicians' Specialty files annual, quarterly, and current reports, proxy
statements, and other information with the Commission. You may read and copy any
reports, statements, or other information that Physicians' Specialty files at
the Commission's public reference rooms in Washington, D.C., New York, New York,
and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Physicians' Specialty's public
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the Commission at
http:/www.sec.gov. Reports, proxy statements, and other information concerning
Physicians' Specialty Corp. also may be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, D.C.
20006.
The Commission allows Physicians' Specialty to "incorporate by reference"
information into this document, which means that Physicians' Specialty can
disclose important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be a part of this document, except for any information superseded by
information contained directly in this document. This document incorporates by
reference certain documents that Physicians' Specialty has previously filed with
the Commission. These documents contain important business information about
Physicians' Specialty and its financial condition.
Physicians' Specialty may have sent to you some of the documents
incorporated by reference, but you can obtain any of them through Physicians'
Specialty or the Commission or the Commission's Internet World Wide Web site
described above. Documents incorporated by reference are available from
Physicians' Specialty without charge, excluding all exhibits unless specifically
incorporated by reference as
87
<PAGE> 97
an exhibit to this document. Stockholders may obtain documents incorporated by
reference in this document upon written or oral request to the following address
or telephone number:
Physicians' Specialty Corp.
1150 Lake Hearn Drive
Suite 640
Atlanta, Georgia 30342
Telephone: (770) 254-7535
Attention: Robert A. DiProva
Executive Vice President and Chief Financial Officer
Physicians' Specialty will send any document so requested to the requesting
stockholder by first class mail or other equally prompt means within one day of
receiving such request. You should note that Robert A. DiProva, as well as the
other executive officers of Physicians' Specialty, are participants in the
Merger.
THE COMPANY, MERGERCO, THE TA INVESTORS, TA ASSOCIATES AND THE MANAGEMENT
SPONSORS HAVE FILED A SCHEDULE 13E-3 WITH THE COMMISSION WITH RESPECT TO THE
MERGER. AS PERMITTED BY THE COMMISSION, THIS PROXY STATEMENT OMITS CERTAIN
INFORMATION CONTAINED IN THE SCHEDULE 13E-3. THE SCHEDULE 13E-3, INCLUDING ANY
AMENDMENTS AND EXHIBITS FILED OR INCORPORATED BY REFERENCE AS A PART THEREOF, IS
AVAILABLE FOR INSPECTION OR COPYING AS SET FORTH ABOVE. STATEMENTS CONTAINED IN
THIS PROXY STATEMENT AS TO THE CONTENTS OF ANY CONTRACT OR OTHER DOCUMENT
REFERRED TO HEREIN OR THEREIN ARE NOT NECESSARILY COMPLETE AND IN EACH INSTANCE
REFERENCE IS MADE TO SUCH CONTRACT OR OTHER DOCUMENT FILED AS AN EXHIBIT TO THE
SCHEDULE 13E-3 OR SUCH OTHER DOCUMENT, AND EACH SUCH STATEMENT SHALL BE DEEMED
QUALIFIED IN ITS ENTIRETY BY SUCH REFERENCE.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM PHYSICIANS' SPECIALTY, PLEASE
DO SO AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN
ORDER TO RECEIVE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the Special Meeting.
Physicians' Specialty has not authorized anyone to provide you with information
that is different from what is contained in this document. This document is
dated , 1999. You should not assume that the information contained
in this document is accurate as of any date other than that date, and the
mailing of this document to stockholders does not create any implication to the
contrary. This Proxy Statement does not constitute a solicitation of a proxy in
any jurisdiction where, or to or from any person to whom, it is unlawful to make
such proxy solicitation in such jurisdiction.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Physicians'
Specialty (SEC File No. 001-12759) are incorporated by reference in this Proxy
Statement:
(i) Physicians' Specialty's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, as amended;
(ii) Physicians' Specialty's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999;
(iii) Physicians' Specialty's Current Report on Form 8-K, filed on
January 13, 1999; and
(iv) Physicians' Specialty's Current Report on Form 8-K, filed on June
18, 1999.
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<PAGE> 98
All documents filed by Physicians' Specialty with the Commission pursuant
to Sections 13(a), 13(c), 14, and 15(d) of the Exchange Act after the date
hereof and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein and shall be a part hereof from the date of
filing of such documents. Any statements contained in a document incorporated by
reference herein or contained in this Proxy Statement shall be deemed to be
modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document which also is
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
89
<PAGE> 99
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS OF PHYSICIANS' SPECIALTY CORP.
March 31, 1999 Unaudited Condensed Consolidated Financial
Statements:
Unaudited Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998................... F-2
Unaudited Consolidated Statement of Operations for the
Three Months Ended March 31, 1999 and 1998............. F-3
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998............. F-4
Notes to Unaudited Consolidated Financial Statements...... F-5
December 31, 1998 Consolidated Financial Statements:
Report of Independent Public Accountants.................. F-12
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-13
Consolidated Statements of Operations for the period from
inception (July 31, 1996) to December 31, 1996 and for
the years ended December 31, 1997 and 1998............. F-14
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1997, and 1996.......... F-15
Consolidated Statements of Cash Flows for the period from
inception (July 31, 1996) to December 31, 1996 and for
the years ended December 31, 1997 and 1998............. F-16
Notes to Consolidated Financial Statements................ F-17
FINANCIAL STATEMENTS OF EAR, NOSE & THROAT ASSOCIATES, P.C.
(a medical practice whose shareholders own more than 50%
of the equity of Physicians' Domain, which was acquired by
Physicians' Specialty Corp. on May 27, 1998)
Financial Statements of the Business Acquired:
Report of Independent Public Accountants.................. F-32
Balance Sheets at December 31, 1997 and 1996.............. F-33
Statements of Operations for the Years Ended December 31,
1997 and 1996.......................................... F-34
Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997 and 1996....................... F-35
Statements of Cash Flows for the Years ended December 31,
1997 and 1996.......................................... F-36
Notes to Financial Statements............................. F-37
Balance Sheet at March 31, 1998 (Unaudited)............... F-44
Statement of Operations for the Three Months Ended March
31, 1998 (Unaudited)................................... F-45
</TABLE>
F-1
<PAGE> 100
PHYSICIANS' SPECIALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,756,288 $ 4,925,501
Accounts receivable, net of allowance for doubtful
accounts of $1,672,802 and $1,700,016 in 1999 and 1998,
respectively........................................... 17,878,267 16,166,944
Notes receivable.......................................... 1,554,000 80,000
Prepayments and other..................................... 1,249,042 1,779,070
----------- -----------
Total current assets.............................. 22,437,597 22,951,515
PROPERTY AND EQUIPMENT, net................................. 9,918,007 8,861,850
INTANGIBLE ASSETS, net...................................... 29,118,351 26,267,950
PROMISSORY NOTE RECEIVABLE.................................. 2,152,000 --
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY..................... 3,262,843 5,396,609
OTHER ASSETS................................................ 313,760 207,231
----------- -----------
Total Assets...................................... $67,202,558 $63,685,155
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable............................................. $ 272,000 $ --
Due to physicians......................................... 296,791 --
Accounts payable and accrued expenses..................... 4,667,887 4,563,773
Deferred income taxes..................................... 6,838 --
----------- -----------
Total current liabilities......................... 5,243,516 4,563,773
SUBORDINATED SELLER NOTES................................... 8,651,701 7,563,701
BORROWING UNDER CREDIT AGREEMENT............................ 3,750,000 3,750,000
----------- -----------
Total liabilities................................. 17,645,217 15,877,474
=========== ===========
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares
authorized and issued: 9,172,025 in 1999 and 9,152,160
in 1998................................................ 9,172 9,152
Additional paid-in capital................................ 41,147,388 41,083,033
Retained earnings......................................... 8,400,781 6,715,496
----------- -----------
Total shareholders' equity........................ 49,557,341 47,807,681
----------- -----------
Total liabilities and shareholders' equity........ $67,202,558 $63,685,155
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 101
PHYSICIANS' SPECIALTY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Net patient service revenues.............................. $19,510,709 $10,800,140
Capitation revenues....................................... 1,362,170 1,165,306
Management fees........................................... 343,300 38,619
Earnings in unconsolidated subsidiary..................... 295,000 --
----------- -----------
Net revenues...................................... 21,511,179 12,004,065
----------- -----------
EXPENSES:
Provider claims, wages, benefits.......................... 14,082,477 7,924,461
General and administrative................................ 3,964,749 2,257,354
Depreciation and amortization............................. 686,432 282,789
----------- -----------
Operating expenses................................ 18,733,658 10,464,604
----------- -----------
Operating income............................................ 2,777,521 1,539,461
Other income (expense)...................................... (14,767) 28,900
----------- -----------
Pretax income............................................... 2,762,754 1,568,361
Provision for income taxes.................................. 1,077,477 611,620
----------- -----------
Net income........................................ $ 1,685,277 $ 956,741
=========== ===========
Earnings per share:
Basic earnings per share.................................. $ 0.18 $ 0.15
Diluted earnings per share................................ $ 0.18 $ 0.14
Weighted average shares outstanding:
Basic..................................................... 9,164,710 6,511,466
Diluted................................................... 9,405,764 7,033,786
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 102
PHYSICIANS' SPECIALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,685,277 $ 956,741
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities, net of acquisitions:
Depreciation and amortization............................. 686,432 282,789
Provision for deferred income taxes....................... (282,162) 0
Compensation expense...................................... 14,372 0
Earnings in unconsolidated subsidiary..................... (295,000) 0
Increase in accounts receivable........................... (1,137,715) (1,729,511)
Change in prepayments and other........................... 438,500 (101,580)
Change in accounts payable and accrued liabilities........ (561,243) 671,312
----------- -----------
Total adjustments................................. (1,136,816) (876,990)
----------- -----------
Net cash provided by operating activities................... 548,461 79,751
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net of cash acquired............ (3,384,000) (122,624)
Distributions from unconsolidated subsidiary.............. 276,766 0
Purchase of property and equipment........................ (610,443) (459,989)
Increase in other assets.................................. 0 (67,454)
----------- -----------
Net cash used in investing activities............. (3,717,677) (650,067)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, from stock option plan.......... 3 0
Borrowing under short-term debt........................... 0 0
Deferred offering costs................................... 0 (42,268)
----------- -----------
Net cash provided by (used in) financing
activities...................................... 3 (42,268)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (3,169,213) (612,584)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 4,925,501 5,351,639
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 1,756,288 $ 4,739,055
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 103
PHYSICIANS' SPECIALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 1. ORGANIZATION
Physicians' Specialty Corp. (the "Company") was organized in July 1996 to
provide comprehensive physician practice management services to physician
practices and health care providers specializing in the treatment and management
of diseases and disorders of the ear, nose, throat, head and neck ("ENT") and
related specialties. The Company commenced its business activities upon
consummation of the reorganization, as described in Note 3, and its initial
public offering ("IPO") on March 26, 1997. The Company provides financial and
administrative management, enhancement of clinical operations, network
development and payor contracting services, including the negotiation and
administration of capitated arrangements. The Company has operations in greater
Atlanta, Georgia; Chicago, Illinois; Birmingham, Alabama; the South Florida
area; Southern New York and Northern New Jersey and in metropolitan Cleveland,
Ohio.
NOTE 2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries and its investment in an unconsolidated
subsidiary and have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and in accordance with
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of normal recurring items) necessary for a fair presentation of the results for
the interim periods presented. These financial statements and footnote
disclosures should be read in conjunction with the audited financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998.
NOTE 3. REORGANIZATION
The Company acquired substantially all of the assets (other than certain
excluded assets such as employment agreements and patient charts, records, and
files) and certain liabilities of (i) Atlanta Ear, Nose & Throat Associates,
P.C. ("Atlanta ENT"), (ii) ENT & Allergy Associates, Inc., (iii) Metropolitan
Ear, Nose & Throat, P.C., (iv) Atlanta Head and Neck Surgery, P.C., and (v) Ear,
Nose & Throat Associates, P.C. (collectively, the "Initial Practices"), and all
of the outstanding shares of common stock of three corporations holding managed
care contracts (the "ENT Networks") in March 1997 (the "Reorganization"). In
connection with the acquisition of assets of the Initial Practices and the
common stock of the ENT Networks, the Company issued an aggregate of 3,104,755
shares of its common stock. The Reorganization was accounted for as a promoter
transaction under Staff Accounting Bulletin No. 48 at historical cost.
NOTE 4. ACQUISITIONS
1998 ACQUISITIONS
During 1998, the Company acquired substantially all of the assets (other
than certain excluded assets such as employment agreements and patient charts,
records, and files) and assumed certain contractual liabilities of five ENT
physician practices.
In connection with these acquisitions, the Company (i) paid an aggregate of
approximately $1.4 million in cash, (ii) issued an aggregate of 65,273 shares of
common stock (valued at approximately $495,000), (iii) agreed to issue an
aggregate of 78,038 additional shares of common stock (valued at the time of
issuance at approximately $615,000) to four of the affiliated practices
beginning in February 1999,
F-5
<PAGE> 104
(iv) issued a subordinated convertible promissory note in the principal amount
of $250,000 that is convertible into shares of common stock valued at the
average closing price of such common stock for the ten trading days preceding
the date of delivery of such shares, and (v) issued a $150,000 noninterest
bearing contingent promissory note which is payable at the Company's option in
cash or the Company's common stock upon the holder achieving certain performance
targets.
In addition, in May 1998, the Company acquired (i) substantially all of the
tangible assets and assumed certain contractual liabilities of Physicians'
Domain, Inc., a White Plains, New York-based ENT physician practice management
company ("Physicians' Domain") and (ii) the stock of three corporations that are
successors to three ENT physician practices affiliated with Physicians' Domain
(collectively "PDI"). In connection with the PDI transaction, the Company (i)
paid approximately $5.4 million in cash, (ii) discharged approximately $3.8
million of liabilities of PDI, and (iii) issued a subordinated long-term
promissory note in the principal amount of approximately $6.4 million. If the
PDI practices achieve stipulated performance targets, the Company will pay an
additional $500,000, in cash or shares of common stock, at the Company's option.
The Company also entered into a management services agreement in connection
with the PDI transaction. The management services agreement provides for a fixed
annual management fee of approximately $2.1 million, plus reimbursement of
practice operating expenses. Pursuant to the management services agreement, the
fixed management fee is subject to annual increases after May 27, 2003
consistent with the annual percentage increase in the consumer price index for
the prior year. The management services agreement also provides for mutually
agreed-on increases in the fixed management fee upon (i) the management buy the
Company of ancillary business developed or acquired or (ii) the acquisition of
additional physician practices which are merged into the existing PDI practices.
The Company used a portion of the net proceeds received from the Company's
public offering in May 1998 to pay the cash component of and to discharge the
indebtedness of PDI assumed by the Company in connection with the PDI
transaction.
In addition, PSC Ambulatory Surgery, Ltd., a Georgia limited partnership
(the "PSC Partnership"), of which the Company is the sole general partner, and
Atlanta ENT, one of the Company's affiliated practices, is the sole limited
partner, acquired in the aggregate a 17.5% limited partnership interest in
Atlanta Surgery Center, Ltd., a Georgia limited partnership ("Atlanta Surgery
Center"). The aggregate purchase price of approximately $4.8 million was paid in
cash by the Company. Pursuant to the terms of the transaction, the Company and
Atlanta ENT own 99% and 1%, respectively, of the partnership interest in the PSC
Partnership provided that Atlanta ENT had an option to purchase up to 40% of the
partnership interest from the Company based upon the Company's cost. Atlanta
Surgery Center operates three multispecialty ambulatory surgery centers in the
metropolitan Atlanta area. In January 1999 Atlanta ENT issued a secured
promissory note in the amount of $2,252,000 as consideration for an additional
39% equity interest in the PSC Partnership.
Also during 1998, the Company acquired the assets of Cleveland Ear, Nose,
and Throat Center, Inc. ("Cleveland ENT") which had previously been affiliated
with MedPartners, Inc. ("MedPartners"). In connection with the transaction, the
Company entered into a clinic services agreement with Cleveland ENT maintaining
the percentage of net income management fee structure which existed in the
original agreement with MedPartners. Under the terms of the transaction, the
Company granted Cleveland ENT a one-time option to unwind the transaction with
the Company and repurchase all Cleveland ENT nonmedical assets acquired by the
Company. Cleveland ENT's option to unwind the transaction expired on December
15, 1998. In connection with the acquisition of the assets of this practice, the
Company (i) paid approximately $4.2 million in cash and (ii) issued a $150,000
noninterest bearing contingent promissory note which is payable at the Company's
option in cash or the Company's common stock upon the holder achieving certain
performance targets.
In January 1999, the Company amended the Clinic Services Agreement with
Cleveland ENT and provides that effective January 1, 1999, the Company receives
a management fee equal to 12.5% of all net clinic revenue (after adjustment for
contractual allowances) generated by Cleveland ENT. Cleveland ENT
F-6
<PAGE> 105
also agreed to pay the Company an additional $300,000 for management services
provided during the period from October 1, 1998 through December 31, 1998. See
Note 7.
ACQUISITIONS FROM JANUARY 1, 1999 THROUGH MARCH 31, 1999
During the three month period ended March 31, 1999, the Company acquired
substantially all of the assets (other than certain excluded assets such as
employment agreements and patient charts, records and files) and assumed certain
contractual liabilities of (i) E.N.T. Medical Associates, Inc., P.C. ("ENT
Medical"), and (ii) Advanced Surgical Arts, Inc. ("ASA"). In addition the
Company acquired substantially all of the business assets and assumed certain
contractual liabilities of Preferred Diagnostic Services, Inc. ("PDS"). In
connection with the ENT Medical, ASA, and PDS transactions completed by the
Company during the three month period ended March 31, 1999, the Company (i) paid
an aggregate of $1,910,000 in cash, (ii) issued an aggregate of 4,600 shares of
Common Stock (valued at an aggregate of approximately $37,000, (iii) agreed to
issue an aggregate of 1,637 shares of Common Stock (valued at an aggregate of
approximately $13,000 and (iv) issued subordinated promissory notes in the
aggregate principal amounts of $1,360,000 which accrue interest at a rate of 6%
per annum payable quarterly beginning in May 1999 with principal payments
beginning in February 2000. In connection with these acquisitions, the Company
paid approximately $207,000 to Premier HealthCare, an affiliated entity, for
advisory services rendered.
F-7
<PAGE> 106
NOTE 5. PUBLIC OFFERINGS
On March 26, 1997, the Company completed its IPO of 2,200,000 shares of its
common stock. The net proceeds of the IPO were approximately $14,275,000, a
portion of which was used for repayment of indebtedness of the acquired
practices, repayment of indebtedness of the Company, payment of a consulting
fee, and for general corporate purposes and working capital requirements.
On May 12, 1998, the Company registered under the Securities Act of 1933,
as amended, an aggregate of 3,146,514 shares of common stock of which (i)
2,750,000 shares may be issued from time to time by the Company in connection
with potential future affiliation transactions with ENT physicians or related
specialty practices or the merger with or acquisition by the Company of other
related businesses or assets, (ii) 220,000 shares are issuable upon exercise of
warrants issued to the representatives of the underwriters in the IPO which may
be sold from time to time by the holders of the warrants after issuance, and
(iii) 176,514 shares which were issued in December 1998 in connection with a
practice asset acquisition completed in December 1997, may be sold from time to
time by the physician stockholders.
On May 15, 1998, the Company completed a public offering of 2,050,263
shares of its common stock (i) of which 2,000,000 shares were sold by the
Company and (ii) 50,263 shares were sold by certain stockholders of the Company.
On May 19, 1998, the Company's underwriters exercised their option to purchase
307,540 additional shares of common stock from the Company to cover
over-allotments. The net proceeds to the Company from this offering and the
exercise of the over-allotment shares were approximately $16,520,000, with
approximately $5,400,000 and $3,800,000, respectively, used to pay the cash
portion of the purchase price of the PDI transaction and to repay outstanding
indebtedness of PDI.
NOTE 6. INTANGIBLE ASSETS
The Company's physician practice acquisitions involve the purchase of
tangible and intangible assets and the assumption of certain liabilities of the
acquired practices. As part of the purchase price allocation, the Company
allocates the purchase price to the tangible and identifiable intangible assets
acquired and liabilities assumed based on estimated fair market values. Costs of
acquisitions in excess of the net estimated fair value of tangible and
identifiable intangible assets acquired and liabilities assumed are amortized
using the straight line method over a period of 25 years. At March 31, 1999, the
amount of such intangible assets was approximately $29,118,000, with accumulated
amortization totaling approximately $1,152,000.
NOTE 7. NOTES RECEIVABLE
In January 1999, the Company loaned $1,475,000 to the Cleveland ENT
physicians. This loan bears interest at a rate of 6% per annum and matures on
the earlier of January 14, 2000, the termination of the management services
agreement, or the termination of the employment of three or more of the
physicians. In addition, the Company granted the physicians the right and option
(the "Put Option") to require the Company to purchase from the physicians all of
the outstanding shares of common stock of Ohio Nasal Sinus Center, Inc.
("ONSC"), the sole asset of which is a corporate domain name. The Put Option may
be exercised by the physicians commencing January 10, 2000 and expiring on March
1, 2000. In the event the physicians exercise the Put Option, the Company would
be required to purchase the ONSC common stock for approximately $2 million in
cash and the issuance of a subordinated promissory note in the principal amount
of $520,000 (collectively, the "Put Purchase Price"). The subordinated
promissory note would bear interest at a rate of 6% per annum and would be
payable in four equal annual installments commencing on the first anniversary of
the date of issuance of the note. In the event the Put Option is exercised by
the physicians, the cash portion of the Put Purchase Price would be reduced by
any amounts owed under the loan or any other monetary obligations owed by the
physicians to the Company. Pursuant to the terms of the transaction, the Company
has agreed to indemnify the physicians for certain matters arising out of the
transaction.
Also, in January 1999 Atlanta ENT issued a secured promissory note in the
amount of $2,152,000 to PSC Georgia Corp., a wholly owned subsidiary of the
Company and the general partner of PSC
F-8
<PAGE> 107
Ambulatory Surgery, Ltd., as consideration for an additional 39% equity interest
in PSC Ambulatory Surgery, Ltd. This note bears a fluctuating rate of interest
equal to the prime rate (as defined in the note) and is payable on a monthly
basis commencing February 1999 and continues for 119 consecutive months at which
time all accrued interest and principal are due and payable. The note is secured
by Atlanta ENT's acquired interest in PSC Ambulatory Surgery, Ltd.
NOTE 8. NET PATIENT REVENUE
Net patient service revenue is based on established billing rates, less
estimated allowances for patients covered by Medicare and other contractual
reimbursement programs, and discounts from established billing rates. Amounts
received by the Company for treatment of patients covered by Medicare and other
contractual reimbursement programs, which may be based on cost of services
provided or predetermined rates, are generally less than the established billing
rates of the Company's practices.
In March 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board (the "FASB") issued its Consensus on Issue 97-2 ("EITF 97-2").
EITF 97-2 addresses certain specific matters pertaining to the physician
practice management industry. EITF 97-2 was effective for the Company for the
year ended December 31, 1998. EITF 97-2 addresses the ability of physician
practice management companies to consolidate the results of physician practices
with which it has an existing contractual relationship. The Company has
determined that its contracts met the criteria of EITF 97-2 for consolidating
the results of operations of the related physician practices, and the Company
has adopted EITF 97-2 in its consolidated statement of operations effective for
the year ended December 31, 1998. The Company has adjusted the statement of
operations for the three months ended March 31, 1998 to conform with such
consolidation. EITF 97-2 also has addressed the accounting method for future
combinations with individual physician practices. The Company believes that,
based on the criteria set forth in EITF 97-2, any future acquisitions of
individual physician practices will be accounted for under the purchase method
of accounting.
NOTE 9. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting of comprehensive income in a company's financial statements.
Comprehensive income includes all changes in a company's equity during the
period that result from transactions and other economic events other than
transactions with its stockholders. SFAS No. 130 was effective for the year
beginning January 1, 1998. For the three month period ended March 31, 1999,
comprehensive income equals net income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which requires that an enterprise
disclose certain information about operating segments. SFAS No. 131 was
effective for the Company's financial statements for the year ended December 31,
1998. The Company considers its entire business as one reporting segment:
providing comprehensive physician practice management services to physician
practices and health care providers specializing in the treatment and management
of diseases and disorders of the ear, nose, throat, head, and neck and related
specialties.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
About Pensions and Other Postretirement Benefits," which requires disclosure of
additional information about the cost and financial status of pension and
postretirement plans. SFAS No. 132 was effective for financial statements for
the year ended December 31, 1997. SFAS No. 132 did not require any significant
disclosures or revision of prior disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for reporting
and disclosing information about derivative instruments. SFAS No. 133 is
effective for financial statements for the Company's fiscal quarter beginning
July 1, 1999. The Company does not expect SFAS No. 133 will have a significant
effect on its current financial reporting.
F-9
<PAGE> 108
NOTE 10. EARNINGS PER SHARE
The Company has calculated its basic and diluted earnings per share in
accordance with SFAS No. 128, "Earnings Per Share". Basic earnings per share are
calculated by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the periods presented.
Diluted earnings per share reflect the potential dilution that could occur if
securities and other contracts to issue common stock where exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
A reconciliation of the number of weighted average shares used in
calculating basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Weighted average number of common shares
outstanding -- basic...................................... 9,164,710 6,511,466
Effect of potentially dilutive shares outstanding........... 112,845 431,148
Effect of convertible debt.................................. 128,209 91,172
--------- ---------
Weighted average number of common shares
outstanding -- diluted.................................... 9,405,764 7,033,786
========= =========
</TABLE>
NOTE 11. CREDIT AGREEMENT
On July 31, 1998, the Company closed on a four year $45 million amended and
restated senior credit facility syndicated by Nationsbanc Montgomery Securities
LLC. Syndicate lenders include NationsBank, N.A., PNC Bank and Rabobank
Nederland (the "Credit Facility"). The Credit Facility replaced the Company's
$20 million senior credit facility. Borrowings under the Credit Facility (i) are
secured by the assignment to the banks of the Company's stock in all of its
subsidiaries and the Company's accounts receivable, including the accounts
receivable assigned to the Company by affiliated practices pursuant to
management services agreements, (ii) are guaranteed by all subsidiaries
(including future subsidiaries) and (iii) restrict the Company from pledging its
assets to any other party. Advances under the Credit Facility will be used to
fund acquisitions and working capital, will be governed by a borrowing base
related primarily to the Company's earnings before interest, taxes, depreciation
and amortization ("EBITDA") and will bear interest, at the Company's option,
based upon either a prime-based or LIBOR-based rate. EBITDA is used by the
Company as an indicator of a company's ability to incur and service debt. EBITDA
should not be considered an alternative to operating income, net income, cash
flows or any other measure of performance as determined in accordance with
generally accepted accounting principles, as an indicator of operating
performance, or as a measure of liquidity. The Credit Facility contains
affirmative and negative covenants which, among other things, require the
Company to maintain certain financial ratios (including maximum indebtedness to
pro forma EBITDA, maximum indebtedness to capital, minimum net worth, minimum
current ratio and minimum fixed charges coverage), limit the amounts of
additional indebtedness, dividends, advances to officers, shareholders and
physicians, acquisitions, investments and advances to subsidiaries, and restrict
changes in management and the Company's business. As of May 13, 1999, the
Company had approximately $3.7 million of borrowings under the Credit Facility.
NOTE 12. SUBSEQUENT EVENTS
On June 14, 1999, the Company announced the signing of a definitive merger
agreement between the Company and a new company organized at the direction of TA
Associates ("MergerCo"). Under the terms of the merger agreement, each
outstanding share of Physicians' Specialty Corp. common stock, other than shares
as to which appraisal rights are properly perfected and not withdrawn, shares
held by the Company or any of its subsidiaries or by MergerCo, certain shares
held by management and their affiliates, certain affiliated physicians and
certain shares held by employee option holders, will be converted into the right
to receive $10.50 per share and certain indebtedness of the Company will be
refinanced. In addition, certain shares held by the Company's Chairman and
President, other members of Company management
F-10
<PAGE> 109
and their affiliates, and certain affiliated physicians will be converted into
shares of the surviving corporation and management will retain an equity
interest in the surviving corporation. Company management and affiliated
physicians holding approximately 3.6 million shares of Company common stock
(representing 40% of the outstanding shares) have entered into a Voting
Agreement, under which they agreed to vote their shares in favor of the proposed
merger. TA Associates, Inc., First Union National Bank and Allied Capital
Corporation have agreed, subject to the satisfaction of certain terms and
conditions, to provide financing in connection with the merger.
On June 29, 1999, the Company announced that the Company, certain of its
directors and TA Associates have been named as defendants in a lawsuit filed as
a purported class action in the Chancery Court for New Castle County, Delaware.
This suit alleges, that members of the Board of Directors suffer from conflicts
of interest that made it impracticable for the Board to conduct a "bona fide"
market check or auction of the Company prior to approval of the Merger. The
lawsuit also alleges that the announcement of the Merger was timed to place an
artificial lid on the market price of Physician's Specialty Common Stock. The
suit seeks, among other things, injunctive relief prohibiting consummation of
the merger or, in the event that the transaction is consummated, rescission,
compensatory damages and costs and disbursements.
The Company believes the suit has no merit and intends to vigorously defend
the lawsuit.
F-11
<PAGE> 110
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Physicians' Specialty Corp.:
We have audited the accompanying consolidated balance sheets of PHYSICIANS'
SPECIALTY CORP. (a Delaware corporation) AND SUBSIDIARIES as of December 31,
1997 and 1998 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the period from inception (July 31,
1996) to December 31, 1996 and for each of the two years ended December 31, 1997
and 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Physicians' Specialty Corp.
and subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for the period from inception (July 31, 1996) to
December 31, 1996 and for each of the two years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 10, 1999
F-12
<PAGE> 111
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,351,639 $ 4,925,501
Accounts receivable, net of allowance for doubtful
accounts of $261,714 and $1,700,016 at December 31,
1997 and 1998, respectively............................ 9,273,565 16,166,944
Notes receivable.......................................... 81,682 80,000
Prepayments and other..................................... 335,650 1,730,825
Deferred income taxes..................................... 0 48,245
----------- -----------
Total current assets.............................. 15,042,536 22,951,515
EQUIPMENT, NET.............................................. 3,431,707 8,861,850
INTANGIBLE ASSETS, NET...................................... 11,793,777 26,267,950
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY..................... 0 5,396,609
OTHER ASSETS................................................ 330,338 207,231
----------- -----------
Total assets...................................... $30,598,358 $63,685,155
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 397,185 $ 2,012,658
Due to physicians......................................... 1,177,009 0
Accrued expenses.......................................... 1,701,667 1,978,868
Accrued income taxes...................................... 321,302 0
Provider claims payable................................... 637,726 572,247
Deferred income taxes..................................... 338,218 0
----------- -----------
Total current liabilities......................... 4,573,107 4,563,773
----------- -----------
SUBORDINATED SELLER NOTES AND DEBENTURE..................... 911,715 7,563,701
BORROWING UNDER CREDIT AGREEMENT............................ 0 3,750,000
----------- -----------
Total long-term debt.............................. 911,715 11,313,701
----------- -----------
Total liabilities................................. 5,484,822 15,877,474
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 10,000 shares
authorized, no shares issued and outstanding at
December 31, 1997 and 1998, respectively............... 0 0
Common stock, $0.001 par value; 50,000,000 shares
authorized, 6,503,098 and 9,152,160 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 6,503 9,152
Additional paid-in capital............................. 23,401,657 41,083,033
Retained earnings......................................... 1,705,376 6,715,496
----------- -----------
Total stockholders' equity........................ 25,113,536 47,807,681
----------- -----------
Total liabilities and stockholders' equity........ $30,598,358 $63,685,155
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-13
<PAGE> 112
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE YEARS ENDED
(JULY 31, 1996) DECEMBER 31,
TO DECEMBER 31, -------------------------
1996 1997 1998
--------------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Net patient service revenue......................... $ 0 $20,699,486 $54,889,930
Management fees..................................... 51,240 169,128 1,164,418
Capitation revenue.................................. 0 3,619,408 4,916,424
Earnings in unconsolidated subsidiary............... 0 0 630,415
--------- ----------- -----------
Net revenue................................. 51,240 24,488,022 61,601,187
--------- ----------- -----------
OPERATING EXPENSES:
Provider claims, wages, and benefits................ 46,582 16,747,582 38,339,351
General and administrative.......................... 357,340 4,370,611 13,140,889
Depreciation and amortization....................... 1,919 377,286 1,849,864
--------- ----------- -----------
Total operating expenses.................... 405,841 21,495,479 53,330,104
--------- ----------- -----------
OPERATING INCOME (LOSS)............................... (354,601) 2,992,543 8,271,083
OTHER INCOME (EXPENSE), NET........................... 0 429,254 (54,169)
--------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES..................... (354,601) 3,421,797 8,216,914
PROVISION FOR INCOME TAXES............................ 0 1,361,820 3,206,794
--------- ----------- -----------
NET INCOME (LOSS)..................................... $(354,601) $ 2,059,977 $ 5,010,120
========= =========== ===========
EARNINGS (LOSS) PER SHARE:
Basic............................................... $ (0.64) $ 0.42 $ 0.62
========= =========== ===========
Diluted............................................. $ (0.64) $ 0.42 $ 0.60
========= =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................ 552,894 4,868,035 8,021,914
========= =========== ===========
Diluted.......................................... 552,894 4,966,778 8,434,583
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-14
<PAGE> 113
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, INCEPTION (JULY 31, 1996) 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock.................. 599,893 600 711 0 1,311
Compensation expense...................... 0 0 343,000 0 343,000
Net loss.................................. 0 0 0 (354,601) (354,601)
--------- ------ ----------- ---------- -----------
BALANCE, DECEMBER 31, 1996.................. 599,893 600 343,711 (354,601) (10,290)
Issuance of common stock, net of offering
costs................................... 2,200,000 2,200 14,272,859 0 14,275,059
Issuance of common stock -- practice
acquisitions............................ 3,703,205 3,703 8,737,087 0 8,740,790
Compensation expense...................... 0 0 48,000 0 48,000
Net income................................ 0 0 0 2,059,977 2,059,977
--------- ------ ----------- ---------- -----------
BALANCE, DECEMBER 31, 1997.................. 6,503,098 6,503 23,401,657 1,705,376 25,113,536
Issuance of common stock, net of offering
costs................................... 2,307,540 2,308 16,517,458 0 16,519,766
Issuance of common stock -- practice
acquisitions............................ 341,522 341 1,109,935 0 1,110,276
Compensation expense...................... 0 0 53,983 0 53,983
Net income................................ 0 0 0 5,010,120 5,010,120
--------- ------ ----------- ---------- -----------
BALANCE, DECEMBER 31, 1998.................. 9,152,160 $9,152 $41,083,033 $6,715,496 $47,807,681
========= ====== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-15
<PAGE> 114
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JULY 31, 1996)
TO FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,
--------------- -------------------------
1996 1997 1998
--------------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $(354,601) $2,059,977 $ 5,010,120
--------- ---------- ------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization.................. 1,919 377,286 1,849,864
Provision for deferred income taxes............ 0 338,218 (367,468)
Compensation expense........................... 343,000 48,000 53,983
Earnings in unconsolidated subsidiary.......... 0 0 (630,415)
Changes in operating assets and liabilities,
net of effects from acquisitions of
businesses:
Accounts receivable, net..................... (26,976) (4,648,359) (1,882,029)
Prepayments and other........................ (1,100) (318,721) (1,304,647)
Accounts payable and accrued liabilities..... 118,270 853,751 (1,357,210)
--------- ---------- ------------
Total adjustments......................... 435,113 (3,349,825) (3,637,922)
--------- ---------- ------------
Net cash provided by (used in) operating
activities.............................. 80,512 (1,289,848) 1,372,198
--------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net of cash acquired.... 0 (4,933,104) (19,759,897)
Purchase of property and equipment, net of
equipment sold................................. (21,706) (870,526) (2,335,215)
Decrease in other assets.......................... 0 135,078 0
Distributions from unconsolidated subsidiary...... 0 0 320,117
--------- ---------- ------------
Net cash used in investing activities..... (21,706) (5,668,552) (21,774,995)
--------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of offering costs... 1,311 14,275,059 16,519,766
Borrowings under short-term debt.................. 505,000 170,000 0
Repayment of debt................................. 0 (2,258,560) (170,000)
Borrowing under credit facility, net of issuance
costs.......................................... 0 0 3,626,893
Deferred offering costs........................... (441,577) 0 0
--------- ---------- ------------
Net cash provided by financing
activities.............................. 64,734 12,186,499 19,976,659
--------- ---------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS............. 123,540 5,228,099 (426,138)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 0 123,540 5,351,639
--------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 123,540 $5,351,639 $ 4,925,501
========= ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-16
<PAGE> 115
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. ORGANIZATION
Physicians' Specialty Corp. (the "Company") was organized in July 1996 to
provide comprehensive physician practice management services to physician
practices and health care providers specializing in the treatment and management
of diseases and disorders of the ear, nose, throat, head, and neck ("ENT") and
related specialties. The Company commenced its business activities upon
consummation of the reorganization, as described in Note 3, and its initial
public offering ("IPO") on March 26, 1997. The Company provides financial and
administrative management, enhancement of clinical operations, network
development, and payor contracting services, including the negotiation and
administration of capitated arrangements. The Company has operations in greater
Atlanta, Georgia; Chicago, Illinois; Birmingham, Alabama; the South Florida
area; southern New York; and northern New Jersey and in metropolitan Cleveland,
Ohio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the Company's
financial statements and the accompanying notes. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on deposit with financial institutions and all
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.
EQUIPMENT
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of depreciable assets for
financial statement reporting purposes. Maintenance and repairs are charged to
expenses as incurred. The cost of renewals and betterments is capitalized and
depreciated over the applicable estimated useful lives. The cost and accumulated
depreciation of assets sold, retired, or otherwise disposed of are removed from
the accounts, and the related gain or loss is credited or charged to operations.
F-17
<PAGE> 116
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciable assets at December 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1997 1998 USEFUL LIVES
---------- ----------- --------------------
<S> <C> <C> <C>
Equipment................................ $1,132,111 $ 5,362,937 Three to seven years
Computer system and software............. 432,157 1,135,673 Three years
Furniture and fixtures................... 1,678,971 2,924,911 Seven years
Automobiles.............................. 57,548 0 Five years
Leasehold improvements................... 495,144 882,076 Three to five years
---------- -----------
Total cost..................... 3,795,931 10,305,597
Less accumulated depreciation.......... (364,224) (1,443,747)
---------- -----------
$3,431,707 $ 8,861,850
========== ===========
</TABLE>
INTANGIBLE ASSETS
The Company's physician practice acquisitions involve the purchase of
tangible and intangible assets and the assumption of certain liabilities of the
acquired practices. As part of the purchase price allocation, the Company
allocates the purchase price to the tangible and identifiable intangible assets
acquired and liabilities assumed based on estimated fair market values. Costs of
acquisitions in excess of the net estimated fair value of tangible and
identifiable intangible assets acquired and liabilities assumed are amortized
using the straight-line method over a period of 25 years. The Company
continually evaluates whether later events and circumstances have occurred that
indicate the remaining balance of goodwill may not be recoverable. In evaluating
possible impairment, the Company uses the most appropriate method of evaluation
given the circumstances surrounding the particular acquisition, which has
generally been an estimate of the related practice's undiscounted operating
income before interest and taxes over the remaining life of the goodwill.
At December 31, 1997 and 1998, the amount of such intangible assets was
approximately $11,884,000 and $27,143,000, respectively, with accumulated
amortization totaling approximately $90,000 and $875,000, respectively.
Amortization expense was approximately $0, $90,000, and $785,000 during 1996,
1997, and 1998, respectively.
NET PATIENT SERVICE REVENUE
Net patient service revenue is based on established billing rates, less
estimated allowances for patients covered by Medicare and other contractual
reimbursement programs, and discounts from established billing rates. Amounts
received by the Company for treatment of patients covered by Medicare and other
contractual reimbursement programs, which may be based on cost of services
provided or predetermined rates, are generally less than the established billing
rates of the Company's practices.
In March 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board (the "FASB") issued its Consensus on Issue 97-2 ("EITF 97-2").
EITF 97-2 addresses certain specific matters pertaining to the physician
practice management industry. EITF 97-2 is effective for the Company for the
year ended December 31, 1998. EITF 97-2 addresses the ability of physician
practice management companies to consolidate the results of physician practices
with which it has an existing contractual relationship. The Company has
determined that its contracts met the criteria of EITF 97-2 for consolidating
the results of operations of the related physician practices, and the Company
has adopted EITF 97-2 in its consolidated statement of operations for the year
ended December 31, 1998. In addition, the Company has adjusted the statement of
operations for the year ended December 31, 1997 to conform with such
consolidation. EITF 97-2 also has addressed the accounting method for future
combinations with individual physician practices. The Company believes that,
based on the criteria set forth in EITF
F-18
<PAGE> 117
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
97-2, any future acquisitions of individual physician practices will be
accounted for under the purchase method of accounting.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company grants credit without collateral to its patients, most of whom
are insured under third-party payor arrangements. The provision for bad debts
that relates to patient service revenue is based on an evaluation of potentially
uncollectible accounts. The provision for bad debt expense was $0, $133,794, and
$805,510 during 1996, 1997, and 1998, respectively. The allowance for doubtful
accounts represents the estimate of the uncollectible portion of accounts
receivable.
CAPITATED CONTRACTS
Revenue is recognized over the applicable coverage period on a per-member
basis for covered members. Deferred revenue is recorded when premium payments
are received in advance of the applicable coverage period.
The Company establishes accruals for costs incurred in connection with its
capitated contracts based on historical trends. Any contracts that would have a
realized loss would be immediately accrued for and the loss would be charged to
operations.
During the years ended December 31, 1997 and 1998, approximately 14.8% and
8%, respectively, of the Company's net revenues were derived from capitated
arrangements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
subordinated seller notes and debenture, and short-term debt approximated their
fair values as of December 31, 1997 and 1998 due to the relatively short
maturity of these instruments.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting of comprehensive income in a company's financial statements.
Comprehensive income includes all changes in a company's equity during the
period that result from transactions and other economic events other than
transactions with its stockholders. SFAS No. 130 was effective for the year
beginning January 1, 1998. For the Company, comprehensive income equals net
income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which requires that an enterprise
disclose certain information about operating segments. SFAS No. 131 was
effective for the Company's financial statements for the year ended December 31,
1998. The Company considers its entire business as one reporting segment:
providing comprehensive physician practice management services to physician
practices and health care providers specializing in the treatment and management
of diseases and disorders of the ear, nose, throat, head, and neck and related
specialties.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
About Pensions and Other Postretirement Benefits," which requires disclosure of
additional information about the cost and financial status of pension and
postretirement plans. SFAS No. 132 was effective for financial statements for
the year ended December 31, 1997. SFAS No. 132 did not require any significant
disclosures or revision of prior disclosures.
F-19
<PAGE> 118
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for reporting
and disclosing information about derivative instruments. SFAS No. 133 is
effective for financial statements for the Company's fiscal quarter beginning
July 1, 1999. The Company does not expect SFAS No. 133 will have a significant
effect on its current financial reporting.
EARNINGS PER SHARE
The Company has calculated its basic and diluted earnings per share in
accordance with SFAS No. 128, "Earnings Per Share." Basic earnings per share are
calculated by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the years presented.
Diluted earnings per share reflect the potential dilution that could occur if
securities and other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Interest expense, net of tax, of approximately
$0, $8,000, and $31,000 related to the subordinated seller notes was added to
net income in computing diluted earnings per share in 1996, 1997, and 1998,
respectively.
A reconciliation of the number of weighted average shares used in
calculating basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997 1998
------- --------- ---------
<S> <C> <C> <C>
Weighted average number of common shares outstanding --
basic................................................ 552,894 4,868,035 8,021,914
Effect of potentially dilutive shares outstanding...... 0 83,294 304,638
Effect of convertible debt............................. 0 15,449 108,031
------- --------- ---------
Weighted average number of common shares outstanding --
diluted.............................................. 552,894 4,966,778 8,434,583
======= ========= =========
</TABLE>
INCOME TAXES
The Company follows the practice of providing for income taxes based on
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires recognition
of deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
INDUSTRY RISKS
The health care industry is subject to numerous laws and regulations at all
levels of government. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse. Recently, government
activity has increased with respect to investigations and allegations concerning
possible violations of fraud and abuse statutes and regulations by health care
providers. Violations of these laws could result in significant fines and
penalties as well as significant payments for services previously billed. The
Company is subject to similar regulatory reviews. A determination of liability
under any such laws could have a material effect on the Company's financial
position, results of operations, stockholders' equity, and cash flows.
F-20
<PAGE> 119
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1997 1998
---- ----------- -----------
<S> <C> <C> <C>
Cash paid during the period for interest.................... $0 $ 87,474 $ 345,006
Cash paid during the period for income taxes, net of
refunds................................................... 0 2,233,550 3,700,980
Liabilities issued or assumed in connection with businesses
acquired.................................................. 0 (5,758,144) (6,651,986)
Common stock issued (value at time of issuance)............. 0 7,090,000 1,110,000
</TABLE>
RECLASSIFICATIONS
Certain amounts in the December 31, 1996 and 1997 financial statements have
been reclassified to conform to the current year presentation.
3. REORGANIZATION
The Company acquired substantially all of the assets (other than certain
excluded assets such as employment agreements and patient charts, records, and
files) and certain liabilities of (i) Atlanta Ear, Nose & Throat Associates,
P.C. ("AtlantaENT"), (ii) ENT & Allergy Associates, Inc., (iii) Metropolitan
Ear, Nose & Throat, P.C., (iv) Atlanta Head and Neck Surgery, P.C., and (v) Ear,
Nose & Throat Associates, P.C. (collectively, the "Initial Practices"), and all
of the outstanding shares of common stock of three corporations holding managed
care contracts (the "ENT Networks") in March 1997 (the "Reorganization"). In
connection with the acquisition of assets of the Initial Practices and the
common stock of the ENT Networks, the Company issued an aggregate of 3,104,755
shares of its common stock. The Reorganization was accounted for as a promoter
transaction under Staff Accounting Bulletin No. 48 at historical cost.
4. ACQUISITIONS
1997 ACQUISITIONS
During 1997, the Company acquired (a) substantially all of the assets
(other than certain excluded assets such as employment agreements and patient
charts, records, and files) and assumed certain contractual liabilities of six
ENT physician practices and (b) the stock of six professional associations owned
by seven ENT physicians and a partnership owned and operated by the professional
associations in Palm Beach and Broward Counties, Florida.
In connection with these acquisitions, the Company (i) paid an aggregate of
approximately $5 million in cash, (ii) issued an aggregate of 598,450 shares of
common stock (valued at approximately $4.5 million), (iii) agreed to issue an
aggregate of 276,249 additional shares of common stock (valued at the time of
issuance at approximately $2.6 million) to two of the affiliated practices
beginning in September 1998 all of which have been issued as of December 31,
1998, (iv) issued subordinated convertible promissory notes in the aggregate
principal amount of approximately $912,000 that are convertible into shares of
common stock at a conversion price of $10 per share, and (v) issued noninterest
bearing contingent subordinated promissory notes in the aggregate principal
amount of approximately $3 million. The payment of these notes is contingent
upon the physicians or practice holding such notes reaching certain performance
targets. Substantially all of these contingent notes are payable by the Company,
at the Company's option, in shares of common stock, valued at the average
closing price of the common stock for the ten trading days preceding the date of
delivery of such shares.
F-21
<PAGE> 120
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998 ACQUISITIONS
During 1998, the Company acquired substantially all of the assets (other
than certain excluded assets such as employment agreements and patient charts,
records, and files) and assumed certain contractual liabilities of five ENT
physician practices.
In connection with these acquisitions, the Company (i) paid an aggregate of
approximately $1.4 million in cash, (ii) issued an aggregate of 65,273 shares of
common stock (valued at approximately $495,000), (iii) agreed to issue an
aggregate of 78,038 additional shares of common stock (valued at the time of
issuance at approximately $615,000) to four of the affiliated practices
beginning in February 1999, (iv) issued a subordinated convertible promissory
note in the principal amount of $250,000 that is convertible into shares of
common stock valued at the average closing price of such common stock for the
ten trading days preceding the date of delivery of such shares, and (v) issued a
$150,000 noninterest bearing contingent promissory note which is payable at the
Company's option in cash or the Company's common stock upon the holder achieving
certain performance targets.
In addition, the Company acquired (i) substantially all of the tangible
assets and assumed certain contractual liabilities of Physicians' Domain, Inc.,
a White Plains, New York-based ENT physician practice management company
("Physicians' Domain") and (ii) the stock of three corporations that are
successors to three ENT physician practices affiliated with Physicians' Domain
(collectively "PDI"). In connection with the PDI transaction, the Company (i)
paid approximately $5.4 million in cash, (ii) discharged approximately $3.8
million of liabilities of PDI, and (iii) issued a subordinated long-term
promissory note in the principal amount of approximately $6.4 million. If the
PDI practices achieve stipulated performance targets, the Company will pay an
additional $500,000, in cash or shares of common stock, at the Company's option.
The Company also entered into a management services agreement in connection
with the PDI transaction. The management services agreement provides for a fixed
annual management fee of approximately $1.9 million, plus reimbursement of
practice operating expenses. Pursuant to the management services agreement, the
fixed management fee is subject to annual increases after May 27, 2003
consistent with the annual percentage increase in the consumer price index for
the prior year. The management services agreement also provides for mutually
agreed-on increases in the fixed management fee upon (i) the management by the
Company of ancillary business developed or acquired or (ii) the acquisition of
additional physician practices which are merged into the existing PDI practices.
The Company used a portion of the net proceeds received from the Company's
public offering in May 1998 to pay the cash component of and to discharge the
indebtedness of PDI assumed by the Company in connection with the PDI
transaction.
In addition, PSC Ambulatory Surgery, Ltd., a Georgia limited partnership
(the "PSC Partnership"), of which the Company is the sole general partner, and
Atlanta ENT, one of the Company's affiliated practices, is the sole limited
partner, acquired in the aggregate a 17.5% limited partnership interest in
Atlanta Surgery Center, Ltd., a Georgia limited partnership ("Atlanta Surgery
Center"). The aggregate purchase price of approximately $4.8 million was paid in
cash by the Company. Pursuant to the terms of the transaction, the Company and
Atlanta ENT own 99% and 1%, respectively, of the partnership interest in the PSC
Partnership provided that Atlanta ENT has an option to purchase up to 40% of the
partnership interest from the Company for an amount equal to the percentage of
the PSC Partnership acquired by Atlanta ENT multiplied by the purchase price of
$4.8 million. Atlanta Surgery Center operates three multispecialty ambulatory
surgery centers in the metropolitan Atlanta area.
Also during 1998, the Company acquired the assets of Cleveland Ear, Nose,
and Throat Center, Inc. ("Cleveland ENT") which had previously been affiliated
with MedPartners, Inc. ("MedPartners"). In connection with the transaction, the
Company entered into a clinic services agreement with Cleveland
F-22
<PAGE> 121
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENT maintaining the percentage of net income management fee structure which
existed in the original agreement with MedPartners. Under the terms of the
transaction, the Company granted Cleveland ENT a one-time option to unwind the
transaction with the Company and repurchase all Cleveland ENT nonmedical assets
acquired by the Company. Cleveland ENT's option to unwind the transaction
expired on December 15, 1998. In connection with the acquisition of the assets
of this practice, the Company (i) paid approximately $4.2 million in cash and
(ii) issued a $150,000 noninterest bearing contingent promissory note which is
payable at the Company's option in cash or the Company's common stock upon the
holder achieving certain performance targets.
The Company amended the clinic services agreement with Cleveland ENT to
provide that, effective January 1, 1999, the Company would receive a management
fee equal to 12.5% of all net clinic revenue (after adjustment for contractual
allowances) generated by Cleveland ENT.
5. PUBLIC OFFERINGS
On March 26, 1997, the Company completed its IPO of 2,200,000 shares of its
common stock. The net proceeds of the IPO were approximately $14,275,000, a
portion of which was used for repayment of indebtedness of the acquired
practices, repayment of indebtedness of the Company, payment of a consulting
fee, and for general corporate purposes and working capital requirements.
On May 12, 1998, the Company registered under the Securities Act of 1933,
as amended, an aggregate of 3,146,514 shares of common stock of which (i)
2,750,000 shares may be issued from time to time by the Company in connection
with potential future affiliation transactions with ENT physicians or related
specialty practices or the merger with or acquisition by the Company of other
related businesses or assets, (ii) 220,000 shares of common stock are issuable
upon exercise of warrants issued to the representatives of the underwriters in
the IPO which may be sold from time to time by the holders of the warrants after
issuance, and (iii) 176,514 shares of common stock which were issued in December
1998 in connection with a practice asset acquisition completed in December 1997,
which may be sold from time to time by the physician stockholders after
issuance.
On May 15, 1998, the Company completed a public offering of 2,050,263
shares of its common stock (i) 2,000,000 of which shares were sold by the
Company and (ii) 50,263 of which were sold by certain stockholders of the
Company. On May 19, 1998, the Company's underwriters exercised their option to
purchase 307,540 additional shares of common stock from the Company to cover
over-allotments. The net proceeds to the Company from this offering and the
exercise of the over-allotment shares were approximately $16,520,000, with
approximately $5,400,000 and $3,800,000, respectively, used to pay the cash
portion of the purchase price of the PDI transaction and to repay outstanding
indebtedness of PDI.
F-23
<PAGE> 122
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
As of December 31, 1997 and 1998, long-term debt, consisting of borrowings
under the credit agreement and subordinated seller notes and debenture, is
summarized as follows:
<TABLE>
<CAPTION>
1997 1998
-------- -----------
<S> <C> <C>
Credit agreement due July 2002; interest rate at LIBOR
(6.84% at December 31, 1998).............................. $ 0 $ 3,750,000
Subordinated convertible promissory notes payable to
physicians; due October 2000; interest rate of 5.61%...... 911,715 911,715
Subordinated promissory note payable to physicians; due
April 2000; interest rate of 6%........................... 0 250,000
Subordinated promissory note payable to physicians; due May
2003; interest rate of 6%................................. 0 6,401,986
-------- -----------
Total long-term debt.............................. $911,715 $11,313,701
======== ===========
</TABLE>
Principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1999................................................... $ 0
2000................................................... 1,161,715
2001................................................... 0
2002................................................... 3,750,000
2003................................................... 6,401,986
Thereafter............................................. 0
-----------
$11,313,701
===========
</TABLE>
On July 31, 1998, the Company closed on a four-year, $45 million amended
and restated senior credit agreement (the "Credit Agreement") syndicated by
Nationsbanc Montgomery Securities LLC. The Credit Agreement replaced the
Company's $20 million senior credit agreement. At December 31, 1998, the Company
had $41.25 million available for borrowing under the Credit Agreement.
Borrowings under the Credit Agreement (i) are secured by the assignment to the
banks of the Company's stock in all of its subsidiaries and the Company's
accounts receivable, including the accounts receivable assigned to the Company
by affiliated practices pursuant to management services agreements, (ii) are
guaranteed by all subsidiaries (including future subsidiaries), and (iii)
restrict the Company from pledging its assets to any other party.
The Credit Agreement contains certain restrictive covenants which, among
other things, require the Company to maintain certain financial ratios, limit
the amounts of additional indebtedness, dividends, advances to officers,
shareholders and physicians, acquisitions, investments and advances to
subsidiaries, and restrict changes in management of the Company's business. The
Company was in compliance with all debt covenants at December 31, 1998.
Interest expense was $0, $78,874, and $523,227 during 1996, 1997, and 1998,
respectively.
F-24
<PAGE> 123
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
For all periods presented, the accompanying financial statements reflect
provisions for income taxes computed in accordance with the requirements of SFAS
No. 109.
The following summarizes the components of the income tax provision:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---------- ----------
<S> <C> <C> <C>
Current:
Federal............................................... $0 $ 868,153 $3,097,528
State................................................. 0 155,449 476,734
Deferred:
Federal............................................... 0 279,108 (319,052)
State................................................. 0 59,110 (48,416)
-- ---------- ----------
Provision for income taxes $0 $1,361,820 $3,206,794
== ========== ==========
</TABLE>
The provision for income taxes differs from the amounts computed by
applying federal statutory rates due to the following:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Provision computed at the federal statutory rate... $(120,564) $1,163,411 $2,795,676
State income taxes, net of federal income tax
benefit.......................................... (14,042) 142,573 282,690
Amortization of intangibles........................ 0 18,116 108,512
Nondeductible compensation expense................. 130,260 0 0
Other, net......................................... (1,674) 43,740 19,916
Change in valuation allowance...................... 6,020 (6,020) 0
--------- ---------- ----------
Provision for income taxes......................... $ 0 $1,361,820 $3,206,794
========= ========== ==========
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Accrued shareholder compensation.......................... $ 129,433 $ 167,917
Allowance for doubtful accounts........................... 10,745 358,605
Other..................................................... 0 7,415
--------- ---------
Total deferred tax assets......................... 140,178 533,937
--------- ---------
Deferred income tax liabilities:
Acquired accounts receivable.............................. (418,458) (122,018)
Depreciation and amortization............................. (59,938) (363,674)
--------- ---------
Total deferred tax liabilities.................... (478,396) (485,692)
--------- ---------
Valuation allowance......................................... 0 0
--------- ---------
Net deferred income tax (liabilities) assets...... $(338,218) $ 48,245
========= =========
</TABLE>
The Company had no income tax net operating loss carryforwards as of
December 31, 1998.
8. STOCKHOLDERS' EQUITY
The Company has authorized 10,000 shares of preferred stock with $1 par
value. No shares have been issued, and therefore, there were no shares
outstanding at December 31, 1997 and 1998. The board of
F-25
<PAGE> 124
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
directors has the authority to issue these shares and to fix dividends, voting
and conversion rights, redemption provisions, liquidation preferences, and other
rights and restrictions. During the period ended December 31, 1996, the Company
declared a .6875-to-1 reverse stock split. All financial information has been
restated to reflect for the stock split. In connection with certain stock
issuances during 1996, 1997, and 1998, the Company recorded a charge to
compensation of approximately $343,000, $48,000, and $54,000, respectively.
9. STOCK PLANS
STOCK OPTION PLANS
In November 1996, the Company adopted two stock option plans, the 1996
Stock Option Plan (the "1996 Plan") and the 1996 Health Care Professionals Stock
Option Plan (the "Health Care Professionals Plan").
In March and November 1998, the board of directors adopted amendments to
the 1996 Plan to increase the aggregate number of shares of common stock
authorized under the 1996 Plan to 2,000,000 shares of the Company's authorized
but unissued common stock authorized for issuance pursuant to the grant by the
Company of options to officers, directors, employees, consultants, and
independent contractors of the Company.
The Company may grant options for up to 2,275,000 shares under two plans,
the 1996 Plan and the Health Care Professionals Plan. The Company has granted
options for up to 439,940 and 993,000 shares through December 31, 1997 and 1998,
respectively, under the 1996 Plan and has granted options for up to 35,000 and
63,000 shares under the Health Care Professionals Plan through December 31, 1997
and 1998, respectively. The 1996 Plan and the Health Care Professionals Plan
options vest over periods ranging from three to five years, and both expire
after ten years. A summary of the status of the Company's two stock option plans
at December 31, 1997 and 1998 is presented in the table below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION PRICE EXERCISE
SHARES (PER SHARE) PRICE
--------- ------------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1996................... 247,460 $ 6.80 $6.80
Granted.......................................... 227,480 $6.00-$12.875 7.42
Exercised........................................ 0 $ 0.00 0.00
Canceled......................................... (3,000) $ 8.00 8.00
--------- ------------- -----
Outstanding as of December 31, 1997................ 471,940 $6.00-$12.875 7.09
Granted.......................................... 1,056,000 $ 5.75-$11.50 8.51
Exercised........................................ 0 $ 0.00 0.00
Canceled......................................... (4,000) $8.00-$12.875 8.70
--------- ------------- -----
Outstanding as of December 31, 1998................ 1,523,940 $5.75-$12.875 $8.08
========= ============= =====
</TABLE>
F-26
<PAGE> 125
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about the Company's outstanding
stock options at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING
AVERAGE CONTRACTUAL
SHARES EXERCISE PRICE LIFE
--------- -------------- -----------
<S> <C> <C> <C>
Range of exercise prices:
$ 0.00-$8.00...................................... 1,014,440 $7.32 8.57
$ 8.01-$12.00..................................... 497,500 9.53 6.97
$12.01-$20.00..................................... 12,000 12.41 8.20
--------- ----- ----
Total..................................... 1,523,940 $8.08 8.04
========= ===== ====
</TABLE>
The following table summarizes information about the Company's exercisable
stock options at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
Range of exercise prices:
$ 0.00-$8.00.............................................. 394,010 $7.16
$ 8.01-$12.00............................................. 110,000 9.37
$12.01-$20.00............................................. 4,750 12.64
------- -----
Total............................................. 508,760 $7.68
======= =====
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans. If the Company had elected to recognize compensation cost for
these plans based on the fair value at the grant dates for awards under the
plans consistent with the method prescribed by SFAS No. 123, net income (loss)
and earnings (loss) per share would have been changed to the pro forma amounts
indicated below at December 31, 1996, 1997, and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Net (loss) income:
As reported...................................... $(354,601) $2,059,977 $5,010,120
Pro forma........................................ (634,924) 1,464,400 2,959,650
(Loss) earnings per share:
Basic:
As reported................................... $ (0.64) $ 0.42 $ 0.62
Pro forma..................................... (1.15) 0.30 0.37
Diluted:
As reported................................... (0.64) 0.42 0.60
Pro forma..................................... (1.15) 0.30 0.35
</TABLE>
The fair value of the Company's stock options used to compute pro forma net
income (loss) and earnings (loss) per share disclosures is the estimated present
value at grant date using the Black-Scholes option pricing model with the
following weighted average assumptions for 1996 and 1997: a dividend yield of
0%, an expected volatility of 44%, and a risk-free interest rate range of 6% to
6.9%, and an expected holding period of seven years; and for 1998: a dividend
yield of 0%, an expected volatility of 67.5%, and a risk-free interest rate
range of 4.73% - 5.72%, and an expected holding period of seven years.
F-27
<PAGE> 126
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan")
was approved by the board of directors in November 1997 and approved by the
Company's stockholders in June 1998. The Stock Purchase Plan is intended to
qualify as an employee stock purchase plan under Section 423 of the Internal
Revenue Code of 1986, as amended, in order to provide employees of the Company
with an opportunity to purchase common stock through payroll deductions. An
aggregate of 250,000 shares of the Company's common stock have been reserved for
issuance under the Stock Purchase Plan and are available for purchase
thereunder, and as of December 31, 1998, no shares have been purchased.
10. RETIREMENT PLAN
On March 15, 1998, the Company established a defined contribution 401(k)
retirement plan (the "Plan") covering substantially all employees who qualify
and elect to participate. Participants may make contributions up to a total
annual limit of 15% of annual compensation not to exceed $10,000. The Company
makes a contribution equal to 1.5% of each participant's salary. The Company
contributed approximately $64,000 to the Plan during the year ended December 31,
1998.
11. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company and its affiliated physician groups are insured with respect to
medical malpractice risks on a claims-made basis. In the opinion of management,
the amount of potential liability with respect to these claims will not
materially affect the Company's financial position or results of operations.
No legal proceedings are currently pending against the Company, and the
Company is not aware of any outstanding claims against any of its affiliated
practices that would have a material adverse effect on the Company's business,
financial condition, or results of operations. The Company and its affiliated
practices may be involved from time to time in litigation incidental to their
respective businesses.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain executive
officers of the Company. The agreements, which are substantially similar,
provide for compensation to the officers in the form of annual base salaries.
The employment agreements also provide for severance benefits upon the
occurrence of certain events, including a change in control, as defined.
LEASES
The Company leases equipment and certain medical office facilities under
noncancelable operating lease agreements which expire in various years through
2010. Rental expenses under these leases amounted to approximately $0,
$1,157,000, and $2,993,000 in 1996, 1997, and 1998, respectively.
F-28
<PAGE> 127
PHYSICIANS' SPECIALTY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 11, 1999, the Company acquired substantially all of the assets
(other than certain excluded assets such as employment agreements and patient
charts, records, and files) and assumed certain contractual liabilities of
E.N.T. Medical Associates, Inc., P.C., a solo ENT practice located in the
Middleberg Heights suburbs of greater Cleveland, Ohio. In addition, on February
1, 1999, the Company acquired substantially all of the business assets and
assumed certain contractual liabilities of Preferred Diagnostic Services, Inc.,
an Atlanta, Georgia-based provider of sleep diagnostic laboratory services. In
connection with the acquisition of the assets of this practice and the
laboratory, the Company (i) paid an aggregate of approximately $840,000 in cash,
(ii) issued 4,600 shares of common stock (valued at the time of issuance at
approximately $37,000), (iii) agreed to issue 1,637 additional shares of common
stock (valued at the time of issuance at approximately $13,000) in February
2000, and (iv) issued a subordinated promissory note in the aggregate principal
amount of approximately $200,000 that accrues interest at 6% per annum paid
quarterly beginning in May 1999, with five annual equal payments of principal
beginning on February 1, 2000. In connection with these acquisitions, the
Company paid approximately $85,000 to Premier HealthCare for advisory services
rendered.
F-29
<PAGE> 128
EAR, NOSE & THROAT ASSOCIATES, P.C.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH
AUDITORS' REPORT
F-30
<PAGE> 129
GENERAL INFORMATION
Ear, Nose & Throat, Associates, P.C. represents more than 50% of the
Physicians' Domain, Inc. Acquisition. The financial statements and financial
data of Ear, Nose & Throat, Associates, P.C. are included in this filing as
required under the Exchange Act of 1934, as amended.
F-31
<PAGE> 130
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Ear, Nose & Throat
Associates, P.C.:
We have audited the accompanying balance sheets of EAR, NOSE & THROAT
ASSOCIATES, P.C. (a New York corporation) as of December 31, 1997 and 1996 and
the related statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ear, Nose & Throat
Associates, P.C. as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 13, 1998
F-32
<PAGE> 131
EAR, NOSE & THROAT ASSOCIATES, P.C.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 116,371 $ 692
Accounts receivable, net of allowance for doubtful
accounts of $466,172 and $150,354 at December 31, 1997
and 1996, respectively................................. 2,431,055 1,809,818
Notes receivable for employee............................. -- 129,852
---------- ----------
Total current assets.............................. 2,547,426 1,940,362
EQUIPMENT, net.............................................. 981,318 979,531
DUE FROM RELATED PARTIES.................................... 1,383,313 133,049
DEFERRED INCOME TAXES....................................... -- 140,952
INTANGIBLE ASSETS, net...................................... 657,265 553,186
OTHER ASSETS, net........................................... 22,761 11,092
---------- ----------
Total assets...................................... $5,592,083 $3,758,172
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 298,816 $ 574,679
Due to related party...................................... 188,543 --
Accrued expenses.......................................... 442,585 189,204
Accrued shareholder compensation.......................... 1,310,053 1,275,300
Current portion of long-term debt and capital lease
obligations............................................ 2,855,801 678,333
---------- ----------
Total current liabilities......................... 5,095,798 2,717,516
DEFERRED INCOME TAXES....................................... 6,538 --
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT
PORTION................................................... 101,239 1,163,036
---------- ----------
Total liabilities................................. 5,203,575 3,880,552
---------- ----------
COMMITMENTS AND CONTINGENCIES(NOTE 10)
STOCKHOLDERS' EQUITY:
Common stock, no par value; 200 shares authorized, 126 and
112 shares issued and outstanding at December 31, 1997
and 1996, respectively................................. -- --
Additional paid-in capital................................ 293,687 2,233
Retained earnings (deficit)............................... 94,821 (124,613)
---------- ----------
Total stockholders' equity (deficit).............. 388,508 (122,380)
---------- ----------
Total liabilities and stockholders' equity........ $5,592,083 $3,758,172
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-33
<PAGE> 132
EAR, NOSE & THROAT ASSOCIATES, P.C.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
NET PATIENT SERVICE REVENUE................................. $12,519,142 $7,758,807
----------- ----------
OPERATING EXPENSE:
Salaries, wages, and benefits............................. 4,189,254 2,530,982
Compensation to stockholder-physicians.................... 3,564,287 2,334,316
General and administrative expense........................ 2,799,251 3,113,258
Physician practice management expense..................... 944,415 --
Depreciation and amortization............................. 405,777 326,433
----------- ----------
Total operating expenses.......................... 11,902,984 8,304,989
----------- ----------
INCOME (LOSS) FROM OPERATIONS............................... 616,158 (546,182)
INTEREST EXPENSE............................................ (249,234) (122,076)
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................... 366,924 (668,258)
(PROVISION) BENEFIT FOR INCOME TAXES........................ (147,490) 19,316
----------- ----------
NET INCOME (LOSS)................................. $ 219,434 $ (648,942)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE> 133
EAR, NOSE & THROAT ASSOCIATES, P.C.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
--------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995..................... 84 $-- $ 2,233 $ 524,329 $ 526,562
Stock dividend............................... 28 -- -- -- --
Net loss..................................... -- -- -- (648,942) (648,942)
--- -- -------- --------- ---------
BALANCE, DECEMBER 31, 1996..................... 112 -- 2,233 (124,613) (122,380)
Issuance of common stock-- practice
acquisition............................... 14 -- 291,454 -- 291,454
Net income................................... -- -- -- 219,434 219,434
--- -- -------- --------- ---------
BALANCE, DECEMBER 31, 1997..................... 126 $0 $293,687 $ 94,821 $ 388,508
=== == ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE> 134
EAR, NOSE & THROAT ASSOCIATES, P.C.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 219,434 $ (648,942)
----------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Noncash expense........................................ 127,000 --
Depreciation and amortization.......................... 398,167 326,433
Provision (benefit) for deferred taxes................. 147,490 (19,316)
Changes in operating assets and liabilities, net of
effect from acquisitions:
Accounts receivable.................................. (457,207) 272,268
Prepayments and other................................ 33,790 905
Due from related party
Accrued shareholder compensation..................... 34,753 (47,796)
Accounts payable and accrued liabilities............. 149,061 477,649
----------- ----------
Total adjustments................................. 433,054 1,010,143
----------- ----------
Net cash provided by operating activities......... 652,488 361,201
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to related party, net................................ (1,250,264) --
Repayment of employee and shareholder loans, net.......... 2,852 193,937
Payment for acquisitions, net............................. (185,000) (470,000)
Purchase of property and equipment, net................... (220,068) (629,134)
----------- ----------
Net cash used in investing activities............. (1,652,480) (905,197)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings from capital leases, net.......... (379,159) 102,705
Repayments of note payable................................ (1,814,215) (508,749)
Repayments of loans to physicians......................... (135,955) (55,227)
Borrowings from physicians................................ 60,000 298,102
Proceeds from issuance of note payable.................... 3,385,000 706,668
----------- ----------
Net cash provided by financing activities......... 1,115,671 543,499
----------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 115,679 (497)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 692 1,189
----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 116,371 $ 692
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE> 135
EAR, NOSE & THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION
Ear, Nose & Throat Associates, P.C. ("ENT") was incorporated on December
18, 1973 to provide treatment and management of diseases and disorders of the
ear, nose, throat, head, and neck. ENT has operations in Westchester and Putnam
Counties, New York.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in ENT's financial
statements and the accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
ENT considers cash on deposit with financial institutions and all highly
liquid investments with original maturities of three months or less to be cash
and cash equivalents.
EQUIPMENT
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of depreciable assets for
financial statement reporting purposes. Maintenance and repairs are charged to
expense as incurred. The cost of renewals and betterments is capitalized and
depreciated over the applicable estimated useful lives. The cost and accumulated
depreciation of assets sold, retired, or otherwise disposed of are removed from
the accounts, and the related gain or loss is credited or charged to income.
INTANGIBLE ASSETS
ENT's physician practice acquisitions involve the purchase of tangible and
intangible assets and the assumption of certain liabilities of the acquired
practices. As part of the purchase price allocation, ENT allocates the purchase
price to the tangible and identifiable intangible assets acquired and
liabilities assumed based on estimated fair market values. Costs of acquisitions
in excess of the net estimated fair value of tangible and identifiable
intangible assets acquired and liabilities assumed are amortized using the
straight-line method over a period of 25 years. At December 31, 1997 and 1996,
the amount of such intangible assets was approximately $673,000 and $438,000
with related accumulated amortization totaling $45,000 and $15,000,
respectively.
Also included in intangible assets is a noncompete agreement ENT entered
into in conjunction with a buyout of a former shareholder. The noncompete
agreement stipulated that the former shareholder could not engage in the
practice of medicine specializing in the treatment and management of diseases
and disorders of the ear, nose, throat, head and neck within a certain radius of
his former office for a period of 48 months. At December 31, 1997 and 1996, the
gross amount of this noncompete agreement was $402,000 and the related
accumulated amortization was approximately $373,000 and $272,000, respectively.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at estimated net realizable amounts
from patients, third-party payors, and others for services rendered. Revenue
under third-party payor agreements is subject to audit
F-37
<PAGE> 136
EAR, NOSE & THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and retroactive adjustment. Provisions for estimated third-party settlements are
provided in the period the related services are rendered. Differences between
estimated amounts accrued and final settlements are reported in the year of
settlement. ENT recognizes revenue as services are performed.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
ENT provides an allowance for doubtful accounts equal to the estimated
losses expected to be incurred in the collection of accounts receivable. Bad
debt expense during 1997 and 1996 was $315,818 and $16,695, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
ENT estimates that the carrying amounts of financial instruments, including
cash and cash equivalents, accounts receivable, and accounts payable,
approximated their fair values as of December 31, 1997 and 1996 due to the
relatively short maturity of these instruments. Notes payable and capital leases
approximated their fair values based on borrowings currently available to ENT
for similar terms and average maturities.
INCOME TAXES
ENT follows the practice of providing for income taxes based on Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns.
INDUSTRY RISKS
The health care industry is subject to numerous laws and regulations at all
levels of government. These laws and regulations include, but are not
necessarily limited to, such matters as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse. Recently, government
activity has increased with respect to investigations and allegations concerning
possible violations of fraud and abuse statutes and regulations by health care
providers. Violations of these laws could result in significant fines and
penalties as well as significant payments for services previously billed. ENT is
subject to similar regulatory reviews. A determination of liability under any
such laws could have a material effect on ENT's financial position, results of
operations, stockholders' equity, and cash flows.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash paid during the year for interest...................... $238,167 $122,076
Liabilities assumed in connection with business acquired.... 17,000 56,666
</TABLE>
3. ACQUISITIONS
During 1997 and 1996, ENT acquired substantially all of the assets (other
than certain excluded assets, such as employment agreements and patient charts,
records and files) and assumed certain contractual liabilities of four physician
practices.
In connection with the acquisition of assets or equity of these practices,
ENT paid an aggregate of $655,000 in cash and issued 14 shares of common stock
(valued at the time of issuance at approximately $291,000). Upon completion of
these acquisitions, ENT entered into employment agreements with the
F-38
<PAGE> 137
EAR, NOSE & THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
former owners for employment periods ranging from three to five years. The
acquisitions were accounted for under the purchase method of accounting.
4. EQUIPMENT
Equipment at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 USEFUL LIVES
---------- ---------- -------------------
<S> <C> <C> <C>
Medical equipment........................... $1,643,756 $1,366,837 Seven years
Computer system and software................ 148,160 148,160 Three years
Furniture and fixtures...................... 215,337 215,334 Seven years
Automobiles................................. 47,952 47,952 Five years
Leasehold improvements...................... 524,060 524,060 Three to five years
---------- ----------
Total cost........................ 2,579,265 2,302,343
Less accumulated depreciation............... (1,597,947) (1,322,812)
---------- ----------
$ 981,318 $ 979,531
========== ==========
</TABLE>
Depreciation expense was approximately $275,000 and $214,000 in 1997 and
1996, respectively.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company's long-term debt and capital lease obligations as of December
31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Notes payable with interest payable monthly at rates varying
from 6.5% to 9.65%; varying monthly principal payments;
maturing on various dates from December 31, 1997 through
January 2002; secured by substantially all assets and
contract rights of the Company................... $ -- $1,161,587
$92,000 note payable to a physician dated October 15, 1994;
payable in monthly installments of $1,855, including
interest at 8%, through November 15, 1998........ 19,616 39,442
$150,000 note payable to a physician dated April 30, 1996;
payable in monthly installments of $2,083, including
interest at 9.25%, through May 1, 2000 with a lump-sum
payment of $50,000 due May 1, 2000............... 92,915 108,527
$181,111 note payable to a physician dated August 1, 1996;
payable in monthly installments of $8,109, including
interest at the rate of 7%, through August 1, 1998... 63,200 152,654
$60,000 note payable to a physician dated June 1, 1997;
payable in monthly installments of $2,213, including
interest at 8%, through December 1, 1999......... 48,937 --
Capital lease obligations with interest rates ranging from
10.25% to 18.15%, payable monthly at various amounts;
maturing October 1998 through December 2002; secured by
leased assets.................................... -- 379,159
$2,200,000 note payable to bank dated April 24, 1997;
payable in monthly installments of $45,935, including
interest at prime plus .75% (9.25% at December 31, 1997),
through May 2002................................. 1,998,939 --
</TABLE>
F-39
<PAGE> 138
EAR, NOSE & THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
$400,000 note payable to bank dated October 30, 1997;
payable in monthly installments of $8,285, including
interest at prime plus .75% (9.25% at December 31, 1997)
through October 30, 2002.................................. 383,433 --
$350,000 note payable to bank dated April 24, 1997; interest
payable monthly at prime plus .75% (9.25% at December 31,
1997), principal payment due annually on outstanding
balance................................................... 350,000 --
----------- ----------
Total........................................ 2,957,040 1,841,369
Less current maturities..................................... (2,855,801) (678,333)
----------- ----------
Long-term debt.............................................. $ 101,239 $1,163,036
=========== ==========
</TABLE>
On April 24, 1997, ENT entered into a $2,950,000 term loan (the
"Agreement") with Manufacturers and Traders Trust Company. The Agreement
consisted of a $2,200,000 term loan (the "Term Loan"), $350,000 revolving line
of credit (the "Revolver"), and a $400,000 grid term loan (the "Grid Loan"). ENT
used the proceeds from the Term Loan to pay down its existing bank notes payable
and capital leases. The proceeds from the Grid Loan were used to finance the
purchase, installation, and implementation of the new management software system
and hardware for Physicians' Domain, Inc. ("PDI") (as defined), as stipulated by
the bank. The proceeds from the Revolver were used to fund working capital.
Borrowings outstanding under the Agreement primarily incur interest at the
bank's prime rate (8.5% at December 31, 1997) plus .75%. The Agreement is
presently secured by substantially all of ENT's assets, a gross receipts
security pledge, and personal guarantees of the stockholders, limited to their
proportional share of ENT.
The Agreement stipulates monthly interest and principal payments amortized
over 60 months on both the Grid Loan and the Term Loan. The Revolver payments
are monthly interest payments only, with an annual renewal period required.
The Agreement contains certain restrictive covenants, including, among
other things, limitations on additional indebtedness, transfers of assets, and
mergers and acquisitions. In addition, ENT must maintain certain financial
covenants, including, among others, a minimum tangible net worth and a debt
service ratio. ENT was in default of one of its debt covenants at December 31,
1997 and therefore, the Term Loan and Grid Loan have been classified as current
liabilities in the accompanying balance sheet.
The aggregate future maturities of long-term debt as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998........................................................ $2,855,801
1999........................................................ 44,215
2000........................................................ 57,024
----------
$2,957,040
==========
</TABLE>
6. INCOME TAXES
For all periods presented, the accompanying financial statements reflect
provisions for income taxes computed in accordance with the requirements of SFAS
No. 109.
F-40
<PAGE> 139
EAR, NOSE & THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the components of the income tax provision
(benefit):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current:
Federal................................................... $ -- $ --
State..................................................... -- --
Deferred:
Federal................................................... 114,255 (16,071)
State..................................................... 33,235 (3,245)
-------- --------
Total income tax provision (benefit) $147,490 $(19,316)
======== ========
</TABLE>
The provision (benefit) for income taxes differs from the amounts computed
by applying federal statutory rates due to the following:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Provision (benefit) computed at the federal statutory
rate...................................................... $124,754 $(227,207)
State income taxes, net of federal income tax benefit..... 21,134 (38,492)
Other permanent differences................................. 16,021 39,136
(Decrease) increase in valuation allowance.................. (14,419) 207,247
-------- ---------
Total income tax provision (benefit).............. $147,490 $ (19,316)
======== =========
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities....................................... $ 894,655 $ 814,450
Book over tax depreciation................................ 83,211 58,767
Net operating loss carryforward........................... 228,023 242,442
---------- ----------
Total deferred income tax assets.................. 1,205,889 1,115,659
---------- ----------
Deferred tax liabilities:
Accounts receivable....................................... 970,963 722,841
Tax over book amortization of goodwill.................... 13,441 9,424
---------- ----------
Total deferred income tax liabilities............. 984,404 732,265
---------- ----------
Valuation allowance......................................... (228,023) (242,442)
---------- ----------
Net deferred tax (liabilities) assets....................... $ (6,538) $ 140,952
========== ==========
</TABLE>
ENT had income tax net operating loss carryforwards totaling approximately
$571,000 and $607,000 as of December 31, 1997 and 1996, respectively which
expire in 2010.
The increase in valuation allowance in 1996 is the result of the ENT's
valuation allowance for net operating loss carryforwards generated during 1996.
The decrease in valuation allowance in 1997 is a result of the 1996 loss
carryforwards utilized in 1997.
7. EMPLOYEE BENEFIT PLAN
401(k) PLAN
ENT initiated a 401(k) plan covering all of its eligible employees and
stockholders on May 1, 1997. Under the plan, employees generally may contribute
up to 15% of their pretax compensation. ENT makes
F-41
<PAGE> 140
EAR, NOSE & THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
a discretionary contribution to each employee's account in an amount equal to
25% of the employee's contribution, up to 4% of the employee's compensation. ENT
contributed $19,845 to the plan during 1997.
PROFIT-SHARING PLAN
ENT also initiated a Profit-Sharing Plan ("Sharing Plan") covering all of
its eligible employees and stockholders. Under the Sharing Plan, ENT makes a
discretionary contribution to each employee's account based on a percentage of
the employee's compensation. This percentage can range from 1% to 15% of
eligible compensation, with a 1997 percentage of 3.75%. ENT contributed $222,154
to the Sharing Plan during 1997.
8. RELATED-PARTY TRANSACTIONS
During June 1995, an executive employee of ENT entered into an employee
agreement with the agreement stipulating an employee loan from ENT. The original
amount of the loan was for $50,000 with interest payable annually at a rate of
6%. During 1996, ENT paid for certain expenses of the employee and, accordingly,
increased the loan balance outstanding. At December 31, 1996, the balance
outstanding was approximately $127,000. During 1997, ENT established a reserve
of $127,000 against the outstanding balance which was included as expense in the
accompanying statement of operations.
In April 1997, ENT entered into a five-year management service agreement
(the "MSA") with PDI. The stockholders of ENT are more than 50% owners of PDI.
The MSA stipulates that PDI will provide financial and administrative
management, enhancement of clinical operations, network development, billing and
collection, negotiation, establishment, supervision, and maintenance of
contracts and relationships related to managed care contracts. In return, ENT
pays a management fee based on the number of full-time physicians and an
additional annual amount payable in monthly installments. ENT is also
responsible for all the operating and nonoperating expenses incurred by PDI on
behalf of managing ENT.
During 1997, ENT incurred charges of approximately $955,000 related to the
MSA.
Upon completion of the debt financing during April 1997 (Note 5), ENT
allocated a portion of the repayments to PDI. This allocation is based on cost
incurred by ENT in assisting the start-up of PDI. This amount as well as other
start-up related charges not included in debt financing allocation are included
on the accompanying balance sheet.
9. STOCK DIVIDEND
ENT declared a stock dividend to all stockholders of record on June 1,
1996. The stock dividend was a dividend of 4 shares for every 12 shares owned by
the stockholders.
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
ENT and its affiliated physician groups are insured with respect to medical
malpractice risks on a claims-made basis. In the opinion of management, the
amount of potential liability with respect to these claims will not materially
affect ENT's financial position or results of operations.
EMPLOYMENT AGREEMENTS
ENT has entered into employment agreements with the shareholders of ENT and
certain nonshareholder physicians. The agreements, which are substantially
similar, provide for compensation to the shareholders in the form of a monthly
salary based on respective collections. The employment agreements also contain
restrictive covenants relating to the treatment and management of diseases and
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<PAGE> 141
EAR, NOSE & THROAT ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
disorders of the ear, nose, throat, head and neck within 24 months after the
employment agreements expire. The employment agreements with the nonshareholder
physicians are similar to the shareholder agreements, except for the monthly
salary which is based on annual compensation, as defined. The physician
employment agreements range from three to five years.
OPERATING LEASES
ENT leases certain medical office facilities under noncancelable operating
lease agreements which expire in various years through 2006. Rental expenses
under these leases amounted to approximately $618,000 and $486,000 in 1997 and
1996, respectively.
Future minimum rental commitments under all noncancelable operating lease
agreements, excluding lease agreements that expire within one year, are as
follows as of December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 665,799
1999........................................................ 566,052
2000........................................................ 528,160
2001........................................................ 435,932
2002........................................................ 179,544
Thereafter.................................................. 253,070
----------
Total............................................. $2,628,557
==========
</TABLE>
11. SUBSEQUENT EVENT
On March 30, 1997, ENT signed a definitive letter of intent with
Physicians' Specialty Corp. ("PSC"), a physicians' practice management company.
PSC has agreed to acquire substantially all of the tangible assets of ENT and
PDI. Upon final acquisition, a successor practice to ENT will enter into a
management agreement with PSC whereby PSC would manage the practice for a fixed
annual fee, as defined.
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<PAGE> 142
EAR, NOSE & THROAT ASSOCIATES, P.C.
BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 137,249
Accounts receivable, net of allowance for doubtful
accounts of $801,704 at March 31, 1998................. 2,775,450
----------
Total current assets.............................. 2,912,699
EQUIPMENT, net.............................................. 915,226
DUE FROM RELATED PARTY, net................................. 1,387,186
INTANGIBLE ASSETS, net...................................... 657,265
OTHER ASSETS, net........................................... 22,761
----------
Total assets...................................... $5,895,137
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 239,957
Accrued expenses.......................................... 461,021
Accrued shareholder compensation.......................... 1,310,053
Current portion of long-term debt and capital lease
obligations............................................ 2,834,520
----------
Total current liabilities......................... 4,845,551
DEFERRED INCOME TAXES....................................... 6,538
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS CURRENT
PORTION................................................... 0
----------
Total liabilities................................. 4,852,089
----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 200 shares authorized, 126
shares issued and outstanding at March 31, 1998........ --
Additional paid-in capital................................ 293,687
Retained earnings......................................... 749,361
----------
Total stockholders' equity........................ 1,043,048
----------
Total liabilities and stockholders' equity........ $5,895,137
==========
</TABLE>
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<PAGE> 143
EAR, NOSE & THROAT ASSOCIATES, P.C.
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
NET PATIENT SERVICE REVENUE................................. $3,398,524
----------
OPERATING EXPENSE:
Salaries, wages, and benefits............................. 1,033,588
Compensation to stockholder-physicians.................... 543,818
General and administrative expense........................ 656,906
Physician practice management expense..................... 385,999
Depreciation and amortization............................. 66,090
----------
Total operating expenses.......................... 2,686,401
INCOME (LOSS) FROM OPERATIONS............................... 712,123
INTEREST EXPENSE............................................ 57,582
----------
INCOME BEFORE INCOME TAXES.................................. 654,541
PROVISION FOR INCOME TAXES.................................. 0
----------
NET INCOME.................................................. $ 654,541
==========
</TABLE>
F-45
<PAGE> 144
APPENDIX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
TA MERGERCO, INC.,
PHYSICIANS' SPECIALTY CORP.,
TA/ADVENT VIII, L.P.,
TA/ATLANTIC AND PACIFIC IV, L.P.,
TA INVESTORS LLC
AND
TA EXECUTIVES FUND LLC
DATED AS OF JUNE 14, 1999
A-1
<PAGE> 145
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER........................................................ 2
1.1 The Merger.................................................. 2
1.2 Effective Time.............................................. 2
1.3 Stock Purchase.............................................. 2
1.4 Closing..................................................... 2
1.5 Directors and Officers...................................... 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS..................................................... 2
2.1 Effect on Capital Stock..................................... 2
2.2 Conversion of Securities.................................... 3
2.3 Company Stock Options and Related Matters................... 3
2.4 Employee Stock Purchase Plan................................ 3
ARTICLE III
PAYMENT FOR SHARES; DISSENTING SHARES............................. 4
3.1 Payment for Shares of Old Common............................ 4
3.2 Dissenting Shares........................................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGERCO AND THE GUARANTORS.....
5
4.1 Representations and Warranties of MergerCo.................. 5
4.2 Representations and Warranties of the Guarantors............ 6
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... 7
5.1 Existence; Good Standing; Authority; Compliance With Law.... 7
5.2 Authorization, Validity and Effect of Agreements............ 8
5.3 Capitalization.............................................. 8
5.4 Subsidiaries................................................ 9
5.5 Other Interests............................................. 9
5.6 No Violation; Consents...................................... 9
5.7 SEC Documents............................................... 10
5.8 Investigations: Litigation.................................. 10
5.9 Absence of Certain Changes.................................. 11
5.10 Taxes....................................................... 11
5.11 Books and Records........................................... 11
5.12 Properties.................................................. 12
5.13 Intellectual Property....................................... 12
5.14 Environmental Matters....................................... 12
5.15 Employee Benefit Plans...................................... 13
5.16 Labor Matters............................................... 15
5.17 No Brokers.................................................. 15
5.18 Opinion of Financial Advisor................................ 15
5.19 Year 2000................................................... 15
5.20 Insurance................................................... 16
5.21 Contracts and Commitments................................... 16
5.22 Vote Required............................................... 16
</TABLE>
A-2
<PAGE> 146
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.23 Related Party Transactions.................................. 16
5.24 Absence of Undisclosed Liabilities.......................... 16
5.25 Customers and Suppliers..................................... 17
5.26 Change of Control Provisions................................ 17
5.27 Healthcare Compliance....................................... 17
5.28 Healthcare Billings......................................... 17
5.29 Conduct..................................................... 18
5.30 Certain Relationships....................................... 18
5.31 Practices................................................... 19
5.32 Physician and Practice Qualification........................ 19
5.33 Managed Care Contracts...................................... 19
5.34 Disclosure.................................................. 19
5.35 Definition of the Company's Knowledge....................... 19
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER............................ 20
6.1 Conduct of Business by the Company.......................... 20
ARTICLE VII
ADDITIONAL AGREEMENTS............................................. 21
7.1 Stockholders Meeting........................................ 21
7.2 Other Filings............................................... 23
7.3 Additional Agreements....................................... 23
7.4 Fees and Expenses........................................... 23
7.5 No Solicitations............................................ 24
7.6 Officers' and Directors' Indemnification.................... 25
7.7 Access to Information; Confidentiality...................... 26
7.8 Financial and Other Statements.............................. 26
7.9 Public Announcements........................................ 27
7.10 Intentionally Omitted....................................... 27
7.11 Recapitalization Accounting Treatment....................... 27
7.12 Delisting................................................... 27
7.13 Notification of Certain Matters............................. 27
7.14 Transferor's Certificate of Non-foreign Status.............. 27
7.15 Covenants of MergerCo and the Guarantors.................... 27
7.16 Acquisition Agreements...................................... 28
ARTICLE VIII
CONDITIONS TO THE MERGER.......................................... 28
8.1 Conditions to the Obligations of Each Party to Effect the 28
Merger......................................................
8.2 Conditions to Obligations of MergerCo and the Guarantors.... 28
8.3 Conditions to Obligations of the Company.................... 30
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER................................. 30
9.1 Termination................................................. 30
9.2 Effect of Termination....................................... 31
ARTICLE X
GENERAL PROVISIONS................................................ 32
10.1 Notices..................................................... 32
10.2 Interpretation.............................................. 33
</TABLE>
A-3
<PAGE> 147
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
10.3 Non-Survival of Representations, Warranties, Covenants and
Agreements.................................................. 34
10.4 Miscellaneous............................................... 34
10.5 Assignment.................................................. 34
10.6 Severability................................................ 34
10.7 Choice of Law/Consent to Jurisdiction....................... 34
10.8 No Agreement Until Executed................................. 35
10.9 Extension; Waiver........................................... 35
10.10 The Guarantors.............................................. 35
10.11 Amendment................................................... 35
</TABLE>
A-4
<PAGE> 148
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1 Surviving Corporation Certificate of Incorporation and
Bylaws
Exhibit 8.2(k) Employment Agreements
</TABLE>
A-5
<PAGE> 149
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 14, 1999,
by and among TA MergerCo, Inc., a Delaware corporation ("MergerCo"), TA/Advent
VIII L.P., TA/Atlantic and Pacific IV L.P., TA Executives Fund LLC and TA
Investors LLC (each, a "Guarantor," and together, the "Guarantors"), and
Physicians' Specialty Corp., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of MergerCo and the Company
have approved the merger of MergerCo with and into the Company (the "Merger") in
accordance with the Delaware General Corporation Law (the "DGCL") and, upon the
terms and subject to the conditions set forth in this Agreement, holders of
shares of common stock, par value $.001 per share, of the Company (the "Company
Common Stock") issued and outstanding immediately prior to the Effective Time
(as hereinafter defined) will be entitled, subject to the terms and conditions
hereof, to the right to receive cash;
WHEREAS, the Board of Directors of the Company (the "Company Board") has,
in light of and subject to the terms and conditions set forth herein, (i)
determined that (A) the Merger Consideration to be paid for each share of
Company Common Stock in the Merger is fair to the stockholders of the Company
(other than the Voting Agreement Stockholders), and (B) the Merger is otherwise
advisable, fair and in the best interests of the Company and its stockholders,
and (ii) resolved to approve and adopt this Agreement and the transactions
contemplated or required by this Agreement, including the Merger (collectively,
the "Transactions"), and to recommend approval and adoption by the stockholders
of the Company of this Agreement and the Transactions;
WHEREAS, as a condition to the willingness of MergerCo to enter into this
Agreement, certain stockholders of the Company (the "Voting Agreement
Stockholders") have entered into a Voting Agreement (the "Voting Agreement") and
a Roll-over Agreement (the "Roll-over Agreement"), each dated as of the date
hereof, with MergerCo. Pursuant to the Voting Agreement each Voting Agreement
Stockholder has agreed, among other things, to vote his shares of Company Common
Stock in favor of the approval of the Transactions and the approval of any other
matter relating to consummation of the Transactions, upon the terms and subject
to the conditions set forth in the Voting Agreement. Pursuant to the Roll-over
Agreement each Voting Agreement Stockholder has agreed to receive stock in the
Surviving Corporation (as hereinafter defined) in exchange for his shares of
Company Common Stock;
WHEREAS, contemporaneously with the execution of this Agreement, the
Guarantors and the Voting Agreement Stockholders have entered into a Stock
Purchase Agreement, dated as of the date hereof, with the Guarantors (the "Stock
Purchase Agreement") pursuant to which the Guarantors shall purchase from the
Voting Agreement Stockholders, and the Voting Agreement Stockholders shall sell
to the Guarantors immediately prior to the Effective Time, an aggregate of
1,873,919 shares of Company Common Stock (the "Voting Agreement Stockholder
Shares"), and as consideration therefor, the Guarantors shall pay to the Voting
Agreement Stockholders an aggregate of $19,676,149.50 (the "Stock Purchase"),
upon the terms and subject to the conditions set forth in the Stock Purchase
Agreement;
WHEREAS, the Guarantors, MergerCo and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Transactions, and also to prescribe various conditions to the Transactions; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
A-6
<PAGE> 150
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the Guarantors, MergerCo and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company and MergerCo shall consummate the Merger
pursuant to which (a) MergerCo shall be merged with and into the Company and the
separate corporate existence of MergerCo 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. The certificate of
incorporation of the Company (the "Certificate of Incorporation"), as in effect
immediately prior to the Effective Time shall be amended and restated in its
entirety substantially as set forth in Exhibit 1.1 attached hereto and
thereafter shall be the Certificate of Incorporation of the Surviving
Corporation until further amended as provided by law and such Certificate of
Incorporation. The bylaws of the Company (the "Bylaws"), as in effect
immediately prior to the Effective Time shall be amended and restated in their
entirety substantially as set forth in Exhibit 1.1 attached hereto and
thereafter shall be the Bylaws of the Surviving Corporation until further
amended as provided by law, by such Certificate of Incorporation and by such
Bylaws. The Merger shall have the effects specified in the DGCL.
1.2 Effective Time. As promptly as practicable after all of the conditions
set forth in Article VIII shall have been satisfied or, if permissible, waived
by the party entitled to the benefit of the same, MergerCo and the Company shall
duly execute and file a certificate of merger (the "Certificate of Merger") with
the Secretary of State of the State of Delaware in accordance with the DGCL. The
Merger shall become effective as of the time of filing of the Certificate of
Merger (the "Effective Time").
1.3 Stock Purchase. At the Closing and prior to the Effective Time, the
Guarantors and the Voting Agreement Stockholders shall consummate the Stock
Purchase, upon the terms and subject to the conditions set forth in the Stock
Purchase Agreement.
1.4 Closing. The closing of the Merger (the "Closing") shall take place at
such time and 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 VIII hereof (the "Closing Date"), at the offices
of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109,
unless another date or place is agreed to by the parties hereto.
1.5 Directors and Officers. The directors and officers of MergerCo
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of Company
Common Stock or any holder of shares of capital stock of MergerCo:
(a) Capital Stock of MergerCo. Each share of the common stock of
MergerCo (the "MergerCo Common Stock") issued and outstanding immediately
prior to the Effective Time shall be converted into and become one fully
paid and nonassessable share of Common Stock, par value $0.001 per share,
of the Surviving Corporation. Each share of Convertible Participating
Preferred
A-7
<PAGE> 151
Stock and Redeemable Preferred Stock of MergerCo ("Convertible
Participating Preferred Stock" and "Redeemable Preferred Stock,"
respectively) issued and outstanding immediately prior to the Effective
Time shall be converted into and become one share of Convertible
Participating Preferred Stock and one share of Redeemable Preferred Stock,
respectively, of the Surviving Corporation with all of the rights and
privileges set forth in the certificate of incorporation of Surviving
Corporation in accordance with Section 1.1 hereof.
(b) Cancellation of Treasury Stock and MergerCo-Owned Stock. Each
share of Company Common Stock, and all other shares of capital stock of the
Company, that are owned by the Company or any Subsidiary of the Company (as
defined in Section 10.2) (a "Company Subsidiary") and all shares of Company
Common Stock and other shares of capital stock of the Company owned by
MergerCo shall be canceled and retired and shall cease to exist and no
consideration shall be delivered or deliverable in exchange therefor.
2.2 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of MergerCo, the Company or the
holders of any of the shares thereof:
(a) Subject to the other provisions of this Section 2.2, each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares of Company Common Stock owned by the
Company or any of the Company Subsidiaries or by MergerCo and
Recapitalization Shares (as hereinafter defined) and Dissenting Shares (as
defined in Section 3.2) (the "Old Common") shall be converted into the
right to receive Ten Dollars and Fifty Cents ($10.50) per share, net to the
seller in cash, payable to the holder thereof, without any interest thereon
(the "Merger Consideration"), upon surrender and exchange of the
Certificate (as defined in Section 3.1) representing such share of Old
Common.
(b) All such shares of Old Common, when converted as provided in
Section 2.2(a), no longer shall be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each Certificate
previously evidencing such shares shall thereafter represent only the right
to receive the Merger Consideration. The holders of Certificates previously
evidencing shares of Old Common outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to the Old
Common except as otherwise provided herein or by law and upon the surrender
of Certificates in accordance with the provisions of Section 3.1, shall
only represent the right to receive for their shares of Old Common, the
Merger Consideration, without any interest thereon.
(c) Each share of Company Common Stock identified on Schedule 2.2(c)
(a "Recapitalization Share") shall be converted into one (1) fully paid and
nonassessable share of Common Stock, par value $0.001 per share, of the
Surviving Corporation.
2.3 Company Stock Options and Related Matters. The Company shall cause the
holders of at least 81.6% of the outstanding options to purchase Company Common
Stock ("Options") as of the date hereof to execute a Stock Option Exercise and
Termination Agreement in the form attached hereto as Exhibit 2.3. The Company
shall use its reasonable best efforts to cause any holder of Options other than
those holders described in the preceding sentence to execute such Stock Option
Exercise and Termination Agreement. The Company shall take all actions necessary
to ensure that no Options are granted after the date of this Agreement other
than as set forth on Exhibit 2.3.
2.4 Employee Stock Purchase Plan. The Company has taken appropriate action
to provide that (i) the current offering period under the Company's 1997
Employee Stock Purchase Plan, as amended (the "Stock Purchase Plan"), shall be
terminated as of June 30, 1999, (ii) each participant in the Stock Purchase Plan
on the date hereof shall be deemed to have exercised his or her Purchase Right
(as defined in the Stock Purchase Plan) on such date and shall acquire from the
Company (A) such number of whole shares of Company Common Stock as his or her
accumulated payroll deductions on such date will purchase at the Offering
Exercise Price (as defined in the Stock Purchase Plan) (treating the last
business day prior to June 30, 1999 as the "Purchase Date" for all purposes of
the Stock Purchase Plan) and
A-8
<PAGE> 152
(B) cash in the amount of any remaining balance in such participant's account,
and (iii) the Stock Purchase Plan shall be terminated effective as of June 30,
1999.
ARTICLE III
PAYMENT FOR SHARES; DISSENTING SHARES
3.1 Payment for Shares of Old Common.
(a) Prior to the Effective Time, MergerCo shall appoint a bank or
trust company reasonably acceptable to the Company to act as exchange agent
(the "Exchange Agent"). At or prior to the Effective Time, MergerCo shall
deposit, or MergerCo shall otherwise take all steps necessary to cause to
be deposited, with the Exchange Agent in an account (the "Exchange Fund")
the aggregate Merger Consideration to which holders of shares of Old Common
shall be entitled at the Effective Time pursuant to Section 2.2(a).
(b) Promptly after the Effective Time, MergerCo shall cause the
Exchange Agent to mail to each record holder of certificates (the
"Certificates") that immediately prior to the Effective Time represented
shares of Old Common a form of letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent.
(c) In effecting the payment of the Merger Consideration with respect
to shares of Old Common represented by Certificates entitled to payment of
the Merger Consideration pursuant to Section 2.2(a) (the "Cashed Shares"),
upon the surrender of each such Certificate, the Exchange Agent shall pay
the holder of such Certificate the Merger Consideration multiplied by the
number of Cashed Shares, in consideration therefor. Upon such payment such
Certificate shall forthwith be canceled.
(d) From and after the Effective Time until surrendered in accordance
with paragraph (c) above, each Certificate representing shares of Old
Common shall represent solely the right to receive the Merger Consideration
relating thereto. No interest or dividends shall be paid or accrued on the
Merger Consideration. If the Merger Consideration (or any portion thereof)
is to be delivered to any person other than the person in whose name the
Certificate formerly representing shares of Old Common surrendered therefor
is registered, it shall be a condition to such right to receive such Merger
Consideration that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the person
surrendering such shares of Old Common shall pay to the Exchange Agent any
transfer or 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 establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
(e) No dividends or other distributions with respect to shares of Old
Common with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of
Company Common Stock represented thereby.
(f) Promptly following the date which is 180 days after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all
cash, Certificates and other documents in its possession relating to the
Transactions, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a Certificate formerly representing a share of Old Common
may surrender such Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in
consideration therefor the Merger Consideration relating thereto without
any interest or dividends thereon.
(g) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates formerly representing shares of Old
Common are presented to the Surviving Corporation or the Exchange Agent,
they shall be
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surrendered and canceled in return for the payment of the Merger
Consideration relating thereto, as provided in this Article III.
(h) None of MergerCo, the Company or the Exchange Agent shall be
liable to any person in respect of any cash from the Exchange Fund
delivered to a public official in good faith pursuant to any applicable
abandoned property, escheat or similar law.
(i) If any Certificate 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 the
Surviving Corporation, the provision of reasonable and customary indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration due to such person
pursuant to this Agreement.
(j) The Surviving Corporation shall be entitled to deduct and withhold
from the Merger Consideration otherwise payable pursuant to this Agreement
to any holder of shares of Old Common such amounts as the Surviving
Corporation is required to deduct and withhold with respect to the making
of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the shares of Old Common with respect to which such
deduction and withholding was made by the Surviving Corporation.
3.2 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting Shares")
shall not be converted into or represent the right to receive the Merger
Consideration. Such stockholders instead shall be entitled to receive payment of
the appraised value of such shares of Company Common Stock held by them in
accordance with the provisions of such Section 262, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such shares of Company
Common Stock under such Section 262 shall thereupon be deemed to have been
converted into and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, the Merger Consideration
upon surrender in the manner provided in Section 3.1 of the Certificate or
Certificates that, immediately prior to the Effective Time, evidenced such
shares of Company Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
MERGERCO AND THE GUARANTORS
4.1 Representations and Warranties of MergerCo. MergerCo hereby represents
and warrants to the Company as follows:
(a) Organization. MergerCo is a corporation duly organized, validly
existing and in good standing under the laws of the State 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 reasonably be expected to
have a material adverse effect on the business, results of operations or
condition (financial or otherwise) of MergerCo (a "MergerCo Material
Adverse Effect").
(b) Authorization; Validity of Agreement; Necessary Action. MergerCo
has full corporate power and authority to execute and deliver this
Agreement and to consummate the Transactions. The
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execution, delivery and performance by MergerCo of this Agreement and the
consummation of the Transactions have been duly authorized by the Board of
Directors of MergerCo (the "MergerCo Board") and by stockholders of
MergerCo, and no other corporate action on the part of MergerCo is
necessary to authorize the execution and delivery by MergerCo of this
Agreement and the consummation of the Transactions. This Agreement has been
duly executed and delivered by MergerCo and, assuming due and valid
authorization, execution and delivery hereof by the Company, is a valid and
binding obligation of MergerCo enforceable against MergerCo in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
(c) Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under,
and other applicable requirements of, the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the HSR Act (as hereinafter defined),
state securities or state "Blue Sky" laws, none of the execution, delivery
or performance of this Agreement by MergerCo, the consummation by MergerCo
of the Transactions or compliance by MergerCo with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of
the certificate of incorporation or bylaws of MergerCo, (ii) require any
filing with, or permit, authorization, consent or approval of, any
Governmental Entity (as hereinafter defined), (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 MergerCo is a party or by which it
or any of its properties or assets may be bound, or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
MergerCo or any of its 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, reasonably be expected to have
a MergerCo Material Adverse Effect. For purposes of this Agreement,
"Governmental Entity" means any governmental or quasi-governmental
authority including, without limitation, any federal, state, territorial,
county, municipal or other governmental or quasi-governmental agency,
board, branch, bureau, commission, court, department or other
instrumentality or political unit or subdivision, whether domestic or
foreign.
(d) Takeover Laws. MergerCo was not, immediately prior to the
execution of this Agreement, an "interested stockholder" within the meaning
of Section 203 of the DGCL.
(e) Formation of MergerCo; No Prior Activities. MergerCo was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement. As of the date hereof and as of the Effective Time, except for
(i) obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by this
Agreement and (ii) this Agreement and any other agreements or arrangements
contemplated by this Agreement or in furtherance of the transactions
contemplated hereby, MergerCo has not incurred, directly or indirectly,
through any subsidiary or affiliate, any obligations or liabilities or
engaged in any business activities of any type or kind whatsoever or
entered into any agreements or arrangements with any person.
4.2 Representations and Warranties of the Guarantors. Each Guarantor
hereby represents and warrants to the Company severally as to itself as follows:
(a) Organization. Such Guarantor is an entity duly organized, validly
existing and in good standing under the laws of its state of formation, and
has all requisite corporate, partnership 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 reasonably
be expected to have a material adverse effect on the business, results of
operations or condition (financial or otherwise) of such Guarantor (a
"Guarantor Material Adverse Effect").
(b) Authorization; Validity of Agreement; Necessary Action. Such
Guarantor has all requisite power and authority to execute and deliver this
Agreement and to consummate the Transactions. The
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execution, delivery and performance by such Guarantor of this Agreement and
the consummation of the Transactions have been duly authorized by all
necessary action on the part of such Guarantor and no other action on the
part of such Guarantor is necessary to authorize the execution and delivery
by such Guarantor of this Agreement and the consummation of the
Transactions. This Agreement has been duly executed and delivered by such
Guarantor and, assuming due and valid authorization, execution and delivery
hereof by the Company, is a valid and binding obligation of such Guarantor
enforceable against such Guarantor in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
(c) Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under,
and other applicable requirements of, the Exchange Act, the HSR Act (as
hereinafter defined), state securities or state "Blue Sky" laws, none of
the execution, delivery or performance of this Agreement by such Guarantor,
the consummation by such Guarantor of the Transactions or compliance by
such Guarantor with any of the provisions hereof will (i) conflict with or
result in any breach of any provision of the organizational documents of
Guarantor, (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 such Guarantor is a party or by
which it or any of its properties or assets may be bound, or (iv) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to Guarantor or any of its 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, reasonably be
expected to have a Guarantor Material Adverse Effect.
(d) Required Financing. The Guarantors and/or MergerCo have financing
commitments in place which, together with the equity contributions to be
made by the Guarantors in accordance with Section 7.15 hereof, will provide
sufficient funds to consummate the Transactions (collectively, the
"Transaction Costs"), including, without limitation, to (i) pay, with
respect to all shares of Old Common in the Merger, the Merger Consideration
pursuant to Section 2.2(a), (ii) refinance the outstanding indebtedness of
the Company as set forth in Exhibit 8.2(e) hereof and (iii) pay any fees
and expenses in connection with the Transactions or the financing thereof.
The Guarantors have provided to the Company true, complete and correct
copies of all financing commitment letters (the "Commitment Letters"),
including any exhibits, schedules or amendments thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedules delivered at or prior to
the execution hereof to MergerCo, which shall refer to the relevant Sections of
this Agreement (the "Company Disclosure Schedule"), the Company represents and
warrants to MergerCo as follows:
5.1 Existence; Good Standing; Authority; Compliance With Law.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company is
duly licensed or qualified to do business as a foreign corporation and is
in good standing under the laws of any other state of the United States in
which the ownership of its property or the conduct of its business makes
such qualification necessary, except where the failure to be so licensed or
qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect (as
hereinafter defined). For purposes of this Agreement, an event shall be
deemed to have a "Company Material Adverse Effect" if such event would
reasonably be expected to have a material adverse effect on the
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business, results of operations or condition (financial or otherwise) of
the Company and the Company Subsidiaries taken as a whole. The Company has
all requisite corporate power and authority to own, operate, lease and
encumber its properties and carry on its business as now conducted.
(b) Each of the Company Subsidiaries is a corporation, partnership or
limited liability company duly incorporated or organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, has the corporate or other power and authority to own its
properties and to carry on its business as it is now being conducted, and
is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which
such failure to be so qualified or to be in good standing would not
reasonably be expected to have a Company Material Adverse Effect.
(c) The Company and the Company Subsidiaries have obtained all
licenses, permits and other authorizations required to be obtained by them
and have taken all actions required to be taken by them by applicable law
or governmental regulations in connection with their businesses as now
conducted by them, except where the failure to obtain such licenses,
permits and other authorizations or to take such actions would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(d) Copies of the Certificate of Incorporation and Bylaws and the
other charter documents, bylaws, organizational documents and partnership,
and limited liability company agreements (and in each such case, all
amendments thereto) of the Company and each of the Company Subsidiaries
have been provided or made available to MergerCo and are true and correct
in all material respects.
5.2 Authorization, Validity and Effect of Agreements. Each of the Company
and the Company Subsidiaries, as applicable, has the requisite power and
authority to enter into the Transactions and to execute and deliver this
Agreement. The Company Board has approved this Agreement and the Transactions.
In connection with the foregoing, the Company Board has taken such actions and
votes as are necessary on its part under the DGCL to render the provisions of
Section 203 of the DGCL and all other applicable takeover statutes of the State
of Delaware inapplicable to this Agreement and the Transactions. Subject only to
the approval of this Agreement by the holders of the Company Common Stock, the
execution by the Company of this Agreement and consummation of the Transactions
have been duly authorized by all requisite corporate action on the part of the
Company. This Agreement has been duly executed and delivered by the Company and,
subject to approval by holders of the Company's Common Stock, and assuming due
and valid authorization, execution and delivery thereof by MergerCo, constitutes
a valid and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
5.3 Capitalization. The authorized capital stock of the Company consists
of 50,000,000 shares of Company Common Stock and 10,000 shares of preferred
stock, par value $1.00 per share, of the Company (the "Preferred Stock"). As of
the date of this Agreement, (i) 9,143,677 shares of Company Common Stock were
issued and outstanding, (ii) 2,000,000, 275,000 and 200,000 shares of Company
Common Stock have been authorized and reserved for issuance pursuant to the
Company's 1996 Stock Option Plan, as amended (the "1996 Plan"), the 1996 Health
Care Professional Stock Option Plan (the "HCP Plan," and, together with the 1996
Plan, the "Stock Option Plans") and the Stock Purchase Plan, respectively,
subject to adjustment on the terms set forth in the applicable Stock Option
Plans, (iii) 1,421,440 and 103,500 Options were outstanding under the 1996 Plan
and the HCP Plan, respectively, (iv) no shares of Preferred Stock were issued
and outstanding and (v) 28,348 shares of Company Common Stock and no shares of
Preferred Stock were held in the treasury of the Company. As of the date of this
Agreement, except as set forth on Section 5.3 of the Company Disclosure
Schedule, the Company had no shares of Company Common Stock reserved for
issuance other than as described above. All such issued and outstanding shares
of Company Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as set forth on Section 5.3
of the Company Disclosure Schedule, the Company has no outstanding bonds,
debentures, notes or other obligations the holders of
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which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter. Except for the Options, each of which were issued pursuant to the 1996
Plan or the HCP Plan except as set forth on Section 5.3 of the Company
Disclosure Schedule, there are not at the date of this Agreement, except as set
forth on Section 5.3 of the Company Disclosure Schedule, any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate the Company to issue, transfer or sell
any shares of capital stock of the Company. Section 5.3 of the Company
Disclosure Schedule sets forth a full list of Options, including the name of the
person to whom such Options have been granted, the number of shares subject to
each Option, the per share exercise price for each Option and the vesting
schedule for each Option. Except as set forth in Section 5.3 of the Company
Disclosure Schedule and as provided in the Stock Option Plans, the vesting
schedule of all Options shall not be changed or affected by the execution of
this Agreement or consummation of the Transactions. Other than the Voting
Agreement, the Roll-Over Agreement, the Stock Purchase Agreement and that
certain Stock Option Exercise and Termination Agreement among the Company and
certain Stockholders and other than awards made pursuant to any of the Stock
Option Plans, except as set forth on Section 5.3 of the Company Disclosure
Schedule, there are no agreements or binding understandings to which the Company
or any Company Subsidiary is a party with respect to the voting of any shares of
capital stock of the Company or which restrict the transfer of any such shares,
nor does the Company have knowledge of any third party agreements or binding
understandings with respect to the voting of any such shares or which restrict
the transfer of any such shares. Other than awards made pursuant to any of the
Stock Option Plans, there are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock, partnership interests or any other securities of the
Company or any Company Subsidiary. Except as set forth in Section 5.3 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary is
under any obligation, contingent or otherwise, by reason of any agreement to
register the offer and sale or resale of any of their securities under the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"). As of the date hereof, there are no declared
but unpaid dividends outstanding with respect to the Company Common Stock.
5.4 Subsidiaries. Except as set forth in Section 5.4 of the Company
Disclosure Schedule, the Company owns directly or indirectly each of the
outstanding shares of capital stock or other equity interests of each of the
Company Subsidiaries. Each of the outstanding shares of capital stock of each of
the Company Subsidiaries having corporate form is duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Section 5.4 of the
Company Disclosure Schedule, each of the outstanding shares of capital stock or
other equity interest of each of the Company Subsidiaries is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims or other encumbrances. The following information for each
Company Subsidiary as of the date of this Agreement is set forth in Section 5.4
of the Company Disclosure Schedule: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock, share capital
or other equity interest, to the extent applicable; and (iii) the name of each
stockholder or equity interest holder and the number of issued and outstanding
shares of capital stock, share capital or other equity interest held by it.
5.5 Other Interests. Except as set forth in Section 5.5 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, limited liability company, joint venture,
business, trust or other entity (other than investments in short-term investment
securities).
5.6 No Violation; Consents. Neither the execution and delivery by the
Company of this Agreement nor consummation by the Company of the Transactions in
accordance with the terms hereof, will conflict with or result in a breach of
any provisions of the Certificate of Incorporation, Bylaws, or the
organizational documents of the Company or any Company Subsidiary. Except as set
forth in Section 5.6 of the Company Disclosure Schedule, the execution and
delivery by the Company of this Agreement and consummation by the Company of the
Transactions in accordance with the terms hereof will not violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with
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notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of the Company or the
Company Subsidiaries under, or result in being declared void, voidable or
without further binding effect, any of the terms, conditions or provisions of
(x) any note, bond, mortgage, indenture, deed of trust or (y) any license,
permit, contract, agreement or obligation to which the Company or any of the
Company Subsidiaries is a party, or by which the Company or any of the Company
Subsidiaries or any of their properties is bound, except as would not (A)
prevent or delay consummation of the Merger in any material respect or otherwise
prevent the Company from performing its obligations under this Agreement in any
material respect, or (B) individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. Other than the filings
provided for in Article II of this Agreement, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), the Exchange Act or applicable state
securities and "Blue Sky" laws (collectively, the "Regulatory Filings"), the
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company and consummation of the
Transactions do not, require any consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority, except as would not (A) prevent or delay consummation of the Merger
in any material respect or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect or (B) individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.
5.7 SEC Documents. The Company has filed all required forms, reports and
documents with the SEC since March 26, 1997 (collectively, the "Company SEC
Reports"), required to be filed by it in accordance with the Exchange Act, the
Securities Act and the rules and regulations promulgated thereunder (the
"Securities Laws"). As of their respective dates, the Company SEC Reports (i)
complied as to form in all material respects with the applicable requirements of
the Securities Laws and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. Each of the consolidated balance sheets of the
Company included in or incorporated by reference into the Company SEC Reports
(including the related notes and schedules) fairly presents in all material
respects the consolidated financial position of the Company and the Company
Subsidiaries as of its date and each of the consolidated statements of income,
retained earnings and cash flows of the Company included in or incorporated by
reference into the Company SEC Reports (including any related notes and
schedules) fairly presents in all material respects the results of operations,
retained earnings or cash flows, as the case may be, of the Company and the
Company Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved, except as may be noted therein and except, in the case of the
unaudited statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d)
of the Exchange Act.
5.8 Investigations: Litigation.
(a) Other than reviews pursuant to the HSR Act, there are no pending
or, to the knowledge of the Company, threatened, investigations, reviews or
inquiries by any Governmental Entity with respect to the Company (an
"Investigation"), nor has the Company or any Company Subsidiary received
written notice from any Governmental Entity of such Governmental Entity's
intention to conduct an Investigation.
(b) Except as disclosed in the Company SEC Reports or as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, (i) there are no actions, suits, proceedings,
investigations or claims pending or, to the knowledge of the Company,
threatened against the Company, at law or in equity, or before or by any
court, commission, governmental department, board, bureau, agency,
administrative officer or executive, instrumentality (including, without
limitation any actions, suits, proceedings or investigations with respect
to the transactions contemplated by this Agreement) whether federal, state,
local or foreign, or before any
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arbitrator, and (ii) there are no outstanding domestic or foreign
judgments, settlements, decrees or orders against the Company enjoining it
in respect of, or the effect of which is to prohibit or modify, any
business practice or the acquisition of any property or the conduct of
business in any area. Neither the Company nor any of the Company
Subsidiaries is, or for the past three years has been, in violation of, any
federal, state, local or foreign laws, statutes, rules, regulations or
orders promulgated or judgments entered by any Governmental Entity,
arbitration board or tribunal to which the Company or any Company
Subsidiary or any of their respective assets or properties is subject,
except as would not, individually or in the aggregate, have a Material
Adverse Effect. Since June 1, 1998, neither the Company nor any Company
Subsidiary has received any written claim or notice that it is or was in
violation of any federal, state, local or foreign material laws, statutes,
rules, regulations or orders promulgated or judgments entered by any
Governmental Entity, arbitration board or tribunal.
5.9 Absence of Certain Changes. Except as set forth in Section 5.9 of the
Company Disclosure Schedule and except as disclosed in the Company SEC Reports
filed after December 31, 1998, since December 31, 1998, the Company and the
Company Subsidiaries have conducted their businesses only in the ordinary course
of business and there has not been: (i) any event or events that have taken
place that would, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect or (ii) any action taken by the Company
that would require the consent of MergerCo under Section 6.1 if taken after the
execution of this Agreement.
5.10 Taxes.
(a) Except as set forth in Section 5.10 of the Company Disclosure
Schedule, each of the Company and the Company Subsidiaries has filed all
Tax Returns (as hereinafter defined) which the Company was required to file
(after giving effect to any filing extension granted by a Governmental
Entity) and all such Tax Returns are true and accurate in all material
respects and has paid all Taxes (as hereinafter defined) required to be
paid by it, except, in each case, where the failure to file such Tax
Returns or pay such Taxes would not, individually or in the aggregate, have
a Company Material Adverse Effect. Except as set forth in Section 5.10 of
the Company Disclosure Schedule, the most recent audited financial
statements contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 reflect an adequate reserve for all
material Taxes payable by the Company and the Company Subsidiaries for all
taxable periods and portions thereof through the date of such financial
statements in accordance with GAAP applied on a consistent basis (excluding
from such reserve any amounts attributable to timing differences between
book and tax income). No deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of the Company
Subsidiaries, and no requests for waivers of the time to assess any such
Taxes are pending. Neither the Company nor any Company Subsidiary is a
party to any Tax sharing agreement, or agreement for an exemption with any
Governmental Entity. Neither the Company nor any of the Company
Subsidiaries has made any payment, or is obligated to make any payment
under any agreement entered into on or before the Effective Time, that
would be non-deductible under Code Section 280G.
(b) For purposes of this Agreement, "Taxes" means all federal, state,
local and foreign income, property, sales, franchise, employment, payroll,
withholding, estimated minimum, excise and other taxes, tariffs or
governmental charges of any nature whatsoever, together with any interest,
penalties or additions to tax with respect thereto and shall include any
taxes, interest, penalties or additions to tax of another person to the
extent that the Company or any Company Subsidiary is liable to pay them (i)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state,
local or foreign law), (ii) as a successor or transferee, or (iii) pursuant
to a contract entered into prior to the Effective Time.
(c) For purposes of this Agreement, "Tax Returns" means all reports,
returns, declarations, statements or other information required to be
supplied to a taxing authority in connection with Taxes including any
amendments thereof.
5.11 Books and Records. The books of account and other financial records
of the Company and each of the Company Subsidiaries are accurately reflected in
all material respects in the financial statements included in the Company SEC
Reports.
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5.12 Properties.
(a) All of the real estate properties owned or leased by the Company
or any of the Company Subsidiaries are set forth in Section 5.12 of the
Company Disclosure Schedule. Except as set forth in Section 5.12 of the
Company Disclosure Schedule, the Company or a Company Subsidiary owns good
and marketable title to each of the owned real properties identified in
Section 5.12 of the Company Disclosure Schedule (the "Company Properties"),
free and clear of liens which secure the payment of money, mortgages or
deeds of trust, monetary charges which are liens, security interests or
other encumbrances on title which secure the payment of money
(collectively, "Encumbrances"), other than Encumbrances which secure
indebtedness which is properly reflected in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 (the "10-K"), and the
Company Properties are not subject to any easements, rights of way,
covenants, conditions, restrictions or other written agreements, laws,
ordinances and regulations materially and adversely affecting the current
use or occupancy of any of the Company Properties by the Company
(collectively, "Property Restrictions"), other than Property Restrictions
of record or Property Restrictions which would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect.
(b) The Company and the Company Subsidiaries own or lease all
machinery, equipment and other tangible personal property and assets
necessary for the conduct of their business as presently conducted, except
where the absence of such ownership or leasehold interest would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. The Company and the Company Subsidiaries own good
title, free and clear of all Encumbrances, to all of the personal property
and assets shown on the Company's balance sheet at December 31, 1998 as
reflected in the 10-K (the "Balance Sheet") or acquired after December 31,
1998, except for (A) assets which have been disposed of to nonaffiliated
third parties since December 31, 1998 in the ordinary course of business or
(B) Encumbrances reflected in the Balance Sheet.
5.13 Intellectual Property. The Company or a Company Subsidiary is the
owner of, or a licensee under a valid license for, all items of intangible
property which are material to the business of the Company and the Company
Subsidiaries as currently conducted, taken as a whole, including, without
limitation, trade names, unregistered trademarks and service marks, brand names,
software, patents and copyrights, except where the failure to own or be a
licensee for such intangible property would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
There are no claims pending or, to the Company's knowledge, threatened, that the
Company or any Company Subsidiary is in violation of any such intellectual
property right of any third party which would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, and, to the
Company's knowledge, no third party is in violation of any intellectual property
rights of the Company or any Company Subsidiary which would, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
5.14 Environmental Matters. The Company and the Company Subsidiaries have
complied with and are in compliance with all Environmental Laws (as hereinafter
defined) except where failure to so comply or be in compliance would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. As used in this Agreement, "Environmental Laws" shall
mean all federal, state and local laws, rules, regulations, ordinances and
orders and all common law that purport to regulate pollution, discharge or the
release or threatened releases of hazardous substances, wastes or other
materials into the environment, or impose liabilities or standards of conduct
relating to the foregoing. As used in this Agreement, "Hazardous Materials"
means any "hazardous waste" as defined in either the United States Resource
Conservation and Recovery Act or regulations adopted pursuant to said act, any
"hazardous substances" or "hazardous materials" as defined in the United States
Comprehensive Environmental Response, Compensation and Liability Act and, to the
extent not included in the foregoing, any medical waste, petroleum products, oil
or fractions thereof, pollutants or contaminants or any other materials or
substances covered by Environmental Laws. There is no administrative or judicial
enforcement proceeding pending, or to the knowledge of the Company threatened,
against the Company or any Company Subsidiary under any Environmental Law.
Neither the Company nor any Company Subsidiary
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has received any written notice since July 21, 1996 that it, any Company
Subsidiary or, to the knowledge of the Company, any legal predecessor of the
Company has violated or is alleged to have violated an Environmental Law or is
liable or potentially liable under any Environmental Law for response costs or
natural resource damages, as those terms are defined under the Environmental
Laws, at any location, and neither the Company nor any Company Subsidiary nor,
to the knowledge of the Company, their respective predecessors has treated,
stored, transported or disposed of, or allowed or arranged for any third party
to transport or dispose of, any waste containing Hazardous Materials at any
location included on the National Priorities List, as defined under the
Comprehensive Environmental Response, Compensation, and Liability Act, or any
location known to the Company to be proposed for inclusion on that list or at
any location on any analogous state list or at any other location in a manner
which has resulted or would result in any material liability under any
Environmental Law. To the knowledge of the Company there has been no release on
the real property currently or formerly owned or leased by the Company or any
Company Subsidiary, or on the real property owned or leased by any predecessor
entity of Hazardous Materials that has or would result in an order to perform a
response action or in any other material liability under the Environmental Laws
and to the Company's knowledge, there is no hazardous waste treatment, storage
or disposal facility, underground storage tank, landfill, surface impoundment
(other than for control of storm water), underground injection well (other than
for permitted disposal of sanitary wastes), friable asbestos or PCB's, as those
terms are defined under the Environmental Laws, located at any of the real
property owned or leased by the Company or any Company Subsidiary or, to the
knowledge of the Company, any legal predecessor entity of the Company or at any
facilities utilized by the Company or the Company Subsidiaries. To the knowledge
of the Company, no lien has been imposed by any governmental authority on the
real property owned or leased by the Company or any Company Subsidiary, or on
any facility, machinery or equipment owned, operated, leased or used by the
Company or any Company Subsidiary, in connection with the presence of any
Hazardous Material.
5.15 Employee Benefit Plans.
(a) Section 5.15 of the Company Disclosure Schedule sets forth a list
of each Company Benefit Plan (as hereinafter defined) that is maintained by
the Company or an Affiliate (as hereinafter defined) on the date hereof.
(b) Each Company Benefit Plan: (i) in which employees of the Company
or any Company Subsidiary actively participate and (ii) which is intended
to qualify under Section 401(a) of the Code, was adopted in 1998.
(c) Except as set forth in Section 5.15 of the Company Disclosure
Schedule, neither the Company nor any Affiliate knows of any failure of any
party to comply with any laws applicable with respect to the Company
Benefit Plans. Except as set forth in Section 5.15 of the Company
Disclosure Schedule, (i) each Company Benefit Plan and any related trust,
insurance contract or fund has been maintained, funded and administered in
compliance in all material respects with its respective terms and the terms
of any applicable collective bargaining agreement and in compliance with
all applicable laws and regulations, including, but not limited to, the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
the Code; and (ii) all contributions to, payments to be made from, or
premiums owing with respect to any Company Benefit Plan for all periods
ending on or prior to the Closing Date have been paid or accrued in
accordance with GAAP and are reflected in the most recent consolidated
balance sheet of the Company. Neither the Company nor any Affiliate has
engaged in a "prohibited transaction," as defined in Section 406 of ERISA,
or Code Section 4975, for which an exemption is not available, and there
has been no failure to comply with any provision of ERISA, other applicable
law, or any agreement, which, in either case, would subject the Company or
any Affiliate to liability (including, without limitation, through any
obligation of indemnification or contribution) for any damages, penalties,
or taxes, or any other material loss or expense which would, individually
or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect. No litigation or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine
claims for benefits) is, to the Company's knowledge, pending or threatened
with respect to any such Company Benefit Plan.
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(d) Neither the Company nor any Affiliate has incurred any liability
under Title IV of ERISA which has not been paid in full as of the date of
this Agreement. There has been no "accumulated funding deficiency" (whether
or not waived) with respect to any employee pension benefit plan ever
maintained by the Company or any Affiliate and subject to Code Section 412
or ERISA Section 302. With respect to any Company Benefit Plan maintained
by the Company or any Affiliate and subject to Title IV of ERISA, there has
been no (nor will there be any as a result of the Transactions) (i)
"reportable event," within the meaning of ERISA Section 4043 or the
regulations thereunder, for which the notice requirement is not waived by
the regulations thereunder, and (ii) event or condition which presents a
material risk of a plan termination or any other event that may cause the
Company or any Affiliate to incur liability or have a lien imposed on its
assets under Title IV of ERISA. Neither the Company nor any Affiliate has
ever maintained a Multiemployer Plan (as hereinafter defined), and the
Company has not incurred any liability on account of a "partial withdrawal"
or a "complete withdrawal" (within the meaning of ERISA Sections 44205 and
4203) from any Multiemployer Plan, no such liability has been asserted, and
there are no events or circumstances which could result in the assertion of
any such liability.
(e) Except as set forth in Section 5.15 of the Company Disclosure
Schedule, the Company has complied with the health care coverage
continuation requirements of Part 6 of Subtitle B of Title I of ERISA and
Code Section 4980B ("COBRA"), and the Company has no obligation under any
Company Benefit Plan or otherwise to provide life or health insurance
benefits to current or future terminated or retired employees of the
Company, except as specifically provided by COBRA.
(f) With respect to each Company Benefit Plan, complete and correct
copies of the following documents (if applicable to such Company Benefit
Plan) have previously been delivered or made available to MergerCo: (i) all
documents embodying or governing such Company Benefit Plan, and any funding
medium for such Company Benefit Plan, trust agreement or insurance
contract, as they may have been amended to the date hereof; (ii) the most
recent IRS determination or approval letter with respect to such Company
Benefit Plan under Code Section 401(a), and any applications for
determination or approval subsequently filed with the IRS; (iii) if
applicable, the three most recently filed IRS Forms 5500, with all
applicable schedules and accountants' opinions attached thereto; (iv) the
current summary plan description for such Company Benefit Plan (or other
descriptions of such Company Benefit Plan provided to employees) and all
modifications thereto; and (v) any insurance policy (including any
fiduciary liability insurance policy or fidelity bond) related to such
Company Benefit Plan.
(g) For purposes of this Section:
(i) "Company Benefit Plan" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3) maintained by the Company or
any Affiliate, including, but not limited to, multiple employer welfare
arrangements (within the meaning of ERISA Section 3(40)), plans to which
more than one unaffiliated employer contributes and employee benefit
plans (such as foreign or excess benefit plans) which are not subject to
ERISA; (B) all stock option plans, stock purchase plans, bonus or
incentive award plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans, agreements, and
arrangements not described in (A) above maintained by the Company or any
Affiliate, including without limitation, any arrangement intended to
comply with Code Section 120, 125, 127, 129 or 137; and (C) all plans or
arrangements providing compensation to employee and non-employee
directors maintained by the Company or any Affiliate. In the case of a
Company Benefit Plan funded through a trust, or any other insurance
contract, each reference to such Company Benefit Plan shall include a
reference to such trust, organization or insurance contract;
(ii) An entity "maintains" a Company Benefit Plan if such entity
contributes to or provides benefits under or through such Company
Benefit Plan, or has any obligation (by agreement or under applicable
law) to contribute to or provide benefits under or through such Company
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Benefit Plan, or if such Company Benefit Plan provides benefits to or
otherwise covers employees of such entity (or their spouses, dependents,
or beneficiaries);
(iii) An entity is an "Affiliate" of the Company for purposes of
this Section 5.15 if it would have ever been considered a single
employer with the Company under ERISA Section 4001(b) or part of the
same "controlled group" as the Company for purposes of ERISA Section
302(d)(8)(C); and
(iv) "Multiemployer Plan" means an employee pension or welfare
benefit plan to which more than one unaffiliated employer contributes
and which is maintained pursuant to one or more collective bargaining
agreements as defined in ERISA Section 3(37).
(h) Except as set forth in Section 5.15 of the Company Disclosure
Schedule, neither the Company nor any Affiliate contributes to, maintains
or sponsors or has any liability with respect to any employee benefit plan,
agreement or arrangement applicable to its employees who reside outside the
United States (the "Foreign Plans"). Each Foreign Plan is in compliance in
all material respects with all laws applicable thereto and with the
respective requirements of such Foreign Plan's governing documents.
5.16 Labor Matters. Neither the Company nor any Company Subsidiary is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization. To
the knowledge of the Company there is no unfair labor practice or labor
arbitration proceeding pending or threatened against the Company or any of the
Company Subsidiaries relating to their business, except for any such proceeding
which would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect. To the Company's knowledge there are no
organizational efforts with respect to the formation of a collective bargaining
unit presently being made or threatened involving (i) employees of the Company
or any of the Company Subsidiaries or (ii) "Physician Shareholders" or "Practice
Employees" at any "Practice," as such terms are defined in each management
services agreement or similar agreement to which the Company or any Company
Subsidiary is a party (each, a "Management Services Agreement").
5.17 No Brokers. Neither the Company nor any of the Company Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or MergerCo to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that the Company has retained Premier HealthCare
("Premier") and The Robinson-Humphrey Company LLC ("Robinson-Humphrey") as its
financial advisors in connection with the Transactions. Other than the foregoing
arrangements, the Company is not aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or consummation of the Transactions.
The Company has furnished to MergerCo complete and correct copies of all
agreements between the Company and Premier and Robinson-Humphrey, respectively,
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated by this Agreement.
5.18 Opinion of Financial Advisor. The Company has received the opinion of
Robinson-Humphrey to the effect that, as of the date hereof, the Merger
Consideration is fair from a financial point of view to the holders of the
Company Common Stock other than the Voting Agreement Stockholders.
5.19 Year 2000. (a) (i) The Company and each Company Subsidiary have (x)
undertaken an inventory, review and assessment of all areas within their
respective business and operations to address the "Year 2000 Problem" (i.e., the
risk that applications used by the Company and the Company Subsidiaries and the
physician practices managed by the Company and the Company Subsidiaries may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any date on or after January 1, 2000), (y) developed
a plan and time line for becoming Year 2000 Compliant on a timely basis, and (z)
to date, implemented that plan in accordance with their respective timetables in
all material respects;
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(ii) The Company's Year 2000 Problem program with respect to the
Company, each of the Company Subsidiaries and each physician practice
managed by the Company or any Company Subsidiary includes feasible
contingency plans to ensure uninterrupted and unimpaired business
operation, including liquidity needs, in the event of its failure to be
Year 2000 Compliant; and
(iii) The Company reasonably believes that the Year 2000 Problem
will not have a Company Material Adverse Effect.
(b) For purposes of this Section, "Year 2000 Compliant" means, with
respect to the operations of the Company, the Company Subsidiaries or any
physician practice managed by the Company or a Company Subsidiary, that all
computer-controlled processes, electronic communications interfaces,
software, hardware, machinery, equipment, programs, and tools operate for
all date-sensitive functions before, on or after January 1, 2000
consistently, predictably, accurately and unambiguously, without
interruption or manual intervention.
5.20 Insurance. Section 5.20 of the Company Disclosure Schedule contains a
true and complete list and description of insurance policies (including
information on the premiums payable in connection therewith, the scope and
amount of the coverage and deductibles provided thereunder) maintained by the
Company and the Company Subsidiaries. Each insurance policy to which the Company
or any of the Company Subsidiaries is a party is in full force and effect and
will not require any consent as a result of the consummation of the
Transactions, except as would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect. Except as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect (i) neither the Company nor any of the Company
Subsidiaries is in material breach or default (including with respect to the
payment of premiums or the giving of notices) under any insurance policy to
which it is a party, and (ii) no event has occurred which, with notice or the
lapse of time, would constitute such a material breach or default by the Company
or any of the Company Subsidiaries or would permit termination, modification or
acceleration under such policies, and neither the Company nor any Company
Subsidiary has received any notice from the insurer disclaiming coverage or
reserving rights with respect to any material claim or any such policy in
general, except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
5.21 Contracts and Commitments. The Company has filed with the Securities
and Exchange Commission (the "SEC") as exhibits to the Company SEC Reports all
contracts required to be so filed by the federal securities laws (collectively,
the "Material Contracts"). Neither the Company nor any of the Company
Subsidiaries is in breach, nor has the Company or any Company Subsidiary
received in writing any claim that it has breached, any of the terms or
conditions of any Material Contract in such a manner as would permit any other
party to cancel or terminate the same prior to its stated term or would permit
any other party to collect material damages from the Company under any such
Material Contract. The Company is not a party to any "poison pill," shareholder
rights plan, rights agreement or similar agreement, instrument, plan or
arrangement.
5.22 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon is the
only vote of any class of capital stock of the Company required by the DGCL, the
Certificate of Incorporation or the By-Laws of the Company to adopt this
Agreement and approve the Transactions.
5.23 Related Party Transactions. Except as set forth in Section 5.23 of
the Company Disclosure Schedule, set forth in the Company SEC Reports is a list
of all arrangements, agreements and contracts entered into by the Company or any
of the Company Subsidiaries (which are or will be in effect as of or after the
date of this Agreement) involving payments in excess of $60,000 with any person
who is an officer, director or affiliate of the Company or any of the Company
Subsidiaries, any relative of any of the foregoing or any entity of which any of
the foregoing is an affiliate.
5.24 Absence of Undisclosed Liabilities. Except as set forth in Section
5.24 of the Company Disclosure Schedule, and except as and to the extent
reflected or reserved against in the Balance Sheet
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contained in the 10-K, neither the Company nor any Company Subsidiary has or is
subject to any liability or obligation of any nature required to be reflected in
a balance sheet prepared in accordance with GAAP, whether accrued, absolute,
contingent or otherwise, other than liabilities or obligations arising in the
ordinary course since the date of the Balance Sheet (none of which is a
liability resulting from any breach of contract, breach of warranty, violation
of law, tort, infringement, claim or lawsuit). Neither the Company nor any
Company Subsidiary has at any time made any payments for political contributions
or made any bribes or other illegal payments of cash or other consideration,
including, without limitation, payments to customers or employees of customers
for purposes of doing business with such customers.
5.25 Customers and Suppliers. Section 5.25 of the Company Disclosure
Schedule sets forth any patient or referral source which accounted for more than
five percent (5%) of the net revenues of the Company and the Company
Subsidiaries on a consolidated basis for the twelve months ended December 31,
1998 (collectively, the "Customers"). Section 5.25 of the Company Disclosure
Schedule also lists all of the suppliers of the Company and each of the Company
Subsidiaries to whom, during the fiscal year ended December 31, 1998, the
Company or any of the Company Subsidiaries made payments aggregating $100,000 or
more (collectively, the "Suppliers"). Since December 31, 1998, no Customer or
Supplier has canceled, materially modified (other than as set forth in the
Company SEC Reports), or otherwise terminated its relationship with the Company
or any of the Company Subsidiaries, or has during the last twelve months
decreased materially its services, supplies or materials to the Company or any
of the Company Subsidiaries or its usage or purchase of the services or products
of the Company or any of the Company Subsidiaries.
5.26 Change of Control Provisions. Except as set forth in Section 5.26 of
the Company Disclosure Schedule, and after giving effect to the Employment and
Non-competition Agreements set forth in Exhibit 8.2(k) attached hereto, there
are no employment, consulting, severance or indemnification arrangements or
agreements or understandings between the Company and any directors, officers or
other employees of the Company, or employee benefit plans, programs or
arrangements of the Company which contain any provision that would become
operative as the result of the Merger or any other transactions contemplated by
this Agreement.
5.27 Healthcare Compliance. Except as set forth in Section 5.27 of the
Company Disclosure Schedule, (i) the Company and each of the Company
Subsidiaries has all Approvals required for participation in Medicare, Medicaid,
and other similar government or private programs in which they participate, all
of which Approvals are in full force and effect. Except as set forth on Section
5.27 of the Company Disclosure Schedule, to the knowledge of the Company, no
condition exists or event has occurred which will or could reasonably be
expected to result in the suspension, revocation, impairment, forfeiture or
non-renewal of any Approval. To the Company's knowledge, each Practice,
Physician Shareholder and Practice Employee, has all Approvals required for
participation in Medicare, Medicaid, and other similar government or private
programs in which they participate, all of which Approvals, to the knowledge of
the Company, are in full force and effect. To the Company's knowledge, no
condition exists or event has occurred which will or could reasonably be
expected to result in the suspension, revocation, impairment, forfeiture or
non-renewal of any such Approval, and, to the knowledge of the Company, (i)
neither the Company, nor any Company Subsidiary nor any Practice is in violation
of any material covenant under any Management Services Agreement, managed care
contract or similar agreement to which the Company, any Company Subsidiary or
any Practice is a party, and (ii) no condition exists or event has occurred
which will or could reasonably be expected to result in such a violation. For
purposes of this Agreement, "Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all Governmental Entities and all other entities maintaining or
administering private programs, to the extent applicable to the Company.
5.28 Healthcare Billings. To the knowledge of the Company, all billings by
each Practice, Physician Shareholder and Practice Employee to Medicare,
Medicaid, and other similar government or private programs have been made
substantially in accordance with Applicable Law (including, without limitation,
in accordance with all applicable regulations and published policies and
procedures and in the case of billings effective on or after January 1, 1989 in
accordance with the provisions of the Omnibus Budget
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Reconciliation Act of 1987) and all rules applicable to any such private
programs, except as set forth in Section 5.28 of the Company Disclosure
Schedule. To the knowledge of the Company, there has been no intentional or
material overbilling or overcollecting from any such program, other than as
created by routine adjustments and disallowances made in the ordinary course of
business by such programs with respect to the billings. Neither the Company, nor
any of the Company Subsidiaries nor any Practice is the subject of (i) to the
knowledge of the Company, any audit by any third party payor or (ii) any
recoupment claim by any third party payor other than routine adjustments and
disallowances. "Applicable Law" shall mean all applicable provisions of
constitutions, statutes, rules, regulations and orders of all governmental
bodies and all orders and decrees of all courts, tribunals and arbitrators.
5.29 Conduct. (a) Neither the Company nor any of the Company Subsidiaries
has engaged in any activities which are prohibited under 42 U.S.C. sec.1320a-7b,
or the regulations promulgated thereunder, including, without limitation, the
following: (A) knowingly and willfully making or causing to be made a false
statement or misrepresentation of a material fact in any application for any
benefit or payment; (B) knowingly and willfully making or causing to be made any
false statement or misrepresentation of a material fact for use in determining
rights to any benefit or payment; (C) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; and (D) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe or
rebate), directly or indirectly, overtly or covertly, in cash or in kind, or
offering to pay or receive such remuneration (1) in return for referring an
individual to a Person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare,
Medicaid or any other similar government or private program, or (2) in return
for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing or ordering any good, facility, service, or item for which
payment may be made in whole or in part of Medicare, Medicaid or any other
similar government or private program; and
(b) To the knowledge of the Company, no Practice, Physician
Shareholder or Practice Employee has engaged in any activities which are
prohibited under 42 U.S.C. sec.1320a-7b, or the regulations promulgated
thereunder, including, without limitation, the following: (A) knowingly and
willfully making or causing to be made a false statement or
misrepresentation of a material fact in any application for any benefit or
payment; (B) knowingly and willfully making or causing to be made any false
statement or misrepresentation of a material fact for use in determining
rights to any benefit or payment; (C) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued
right to any benefit or payment on its own behalf or on behalf of another,
with intent to fraudulently secure such benefit or payment; and (D)
knowingly and willfully soliciting or receiving any remuneration (including
any kickback, bribe or rebate), directly or indirectly, overtly or
covertly, in cash or in kind, or offering to pay or receive such
remuneration (1) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by Medicare, Medicaid or any other
similar government or private program, or (2) in return for purchasing,
leasing, or ordering or arranging for or recommending purchasing, leasing
or ordering any good, facility, service, or item for which payment may be
made in whole or in part by Medicare, Medicaid or any other similar
government or private program.
5.30 Certain Relationships. To the knowledge of the Company, neither the
Company nor any Company Subsidiary has unlawfully: (i) offered, paid, solicited
or received anything of value, paid directly or indirectly any remuneration to
or from any physician, family member of a physician, or an entity in which a
physician or physician family member has an ownership or investment interest,
including, but not limited to: (1) payments for personal or management services
pursuant to a medical director agreement, consulting agreement, management
contract, personal services agreement, or otherwise; (2) payments for the use of
premises leased to or from a physician, a family member of a physician or an
entity in which a physician or family member has an ownership or investment
interest; (3) payments for the acquisition or lease of equipment, goods or
supplies from a physician, a family member of a physician or an entity in
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which a physician or family member has an ownership or investment interest; (ii)
offered, paid, solicited or received any remuneration (excluding fair market
value payments for equipment or supplies) to or from any healthcare provider,
pharmacy, drug or equipment supplier, distributor or manufacturer, including,
but not limited to: (1) payments or exchanges of anything of value under a
warranty provided by a manufacturer or supplier of an item to the Company or any
Company Subsidiary; or (2) discounts, rebates, or other reductions in price on
good or service received by the Company or any Company Subsidiary; (iii)
offered, paid, solicited or received any remuneration to or from any person or
entity in order to induce business, including, but not limited to, payments
intended not only to induce referrals of patients, but also to induce the
purchasing, leasing, ordering or arrangement for any good, facility, service or
item; (iv) entered into any joint venture, partnership, co-ownership or other
arrangement involving any ownership or investment interest by any physician, or
family member of a physician, or an entity in which physician or physician
family member has an ownership or investment interest, directly or indirectly,
through equity, debt, or other means, including, but not limited to, an interest
in an entity providing goods or services to the Company or any Company
Subsidiary; (v) entered into any joint venture, partnership, co-ownership or
other arrangement involving any ownership or investment interest by any person
or entity including, but not limited to, a hospital, pharmacy, drug or equipment
supplier, distributor or manufacturer, that is or was in a position to make or
influence referrals, furnish items or services to, or otherwise generate
business for the Company or any Company Subsidiary; or (vi) entered into any
agreement providing for (1) the referral of any patient for the provision of
goods or services by the Company or any Company Subsidiary or (2) payments by
the Company or any Company Subsidiary as a result of any referrals of patients.
5.31 Practices. Except as set forth in Section 5.31 of the Company
Disclosure Schedule, to the knowledge of the Company there is no disagreement,
dispute or controversy between or among the Practices, Physician Shareholders,
Practice Employees, the Company and/or any Company Subsidiary that would,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
5.32 Physician and Practice Qualification. To the knowledge of the
Company, each physician practicing at any Practice, and each Practice, has all
requisite licenses, credentials and qualifications under all applicable laws and
regulations to conduct all activities presently conducted by such physician at
such Practice, or by such Practice. To the knowledge of the Company, no
physician practicing at any Practice nor any Practice is currently subject to
any suspension or revocation of any license, credential or qualification, and no
proceeding or action that could result in such suspension or revocation is
pending or threatened.
5.33 Managed Care Contracts. All provisions of managed care contracts or
similar agreements to which the Company or any Company Subsidiary is a party
relating to the adjustment of the capitated fees to be paid to the Company or
any Company Subsidiary thereunder are in full force and effect and have not been
amended since December 31, 1998.
5.34 Disclosure. The representations, warranties and statements made by
the Company in this Agreement and in the certificates delivered pursuant hereto
do not contain any untrue statement of a material fact, and, when taken
together, do not omit to state any material fact necessary to make such
representations, warranties and statements, in light of the circumstances under
which they are made, not misleading.
5.35 Definition of the Company's Knowledge. As used in this Agreement, the
phrase "to the knowledge of the Company" or any similar phrase means the
knowledge those individuals identified in Section 5.35 of the Company Disclosure
Schedule.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 Conduct of Business by the Company. During the period from the date of
this Agreement to the Effective Time, except as otherwise contemplated by this
Agreement or to the extent MergerCo shall otherwise consent in writing, the
Company shall, and shall cause each of the Company Subsidiaries to, carry on
their respective businesses in the ordinary course, consistent with past
practice, and use their reasonable efforts to preserve intact their present
business organizations, keep available the services of their present officers
and employees and preserve their relationships with customers, suppliers,
licensors and others having business dealings with them and continue existing
contracts as in effect on the date hereof. Without limiting the generality of
the foregoing, neither the Company nor any of the Company Subsidiaries will
(except as expressly permitted by this Agreement or as contemplated by the
Transactions or to the extent that MergerCo shall otherwise consent in writing):
(a)(i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock, property or any combination thereof) in respect of
any of its capital stock (other than dividends or distributions by any
Subsidiary to the Company), (ii) split, combine or reclassify any of its
capital stock, (iii) repurchase, redeem or otherwise acquire any of its
securities, except, in the case of this clause (iii), for the acquisition
of shares of Company Common Stock from holders of Options in full or
partial payment of the exercise price payable by such holders upon exercise
of Options outstanding on the date of this Agreement, or (iv) authorize for
issuance, issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any other securities (including indebtedness having the right
to vote) or equity equivalents (including, without limitation, stock
appreciation rights), other than: (A) the issuance of shares of Company
Common Stock upon the exercise of Options outstanding on the date of this
Agreement in accordance with their present terms or (B) the issuance by a
wholly owned Company Subsidiary of its capital stock to its parent;
(b)(i) Except as set forth in Section 6.1(b) of the Company Disclosure
Schedule, acquire any assets outside of the ordinary course of business, or
(ii) sell, lease, encumber, transfer or dispose of any assets outside the
ordinary course of business which are material to the Company except as set
forth in Section 6.1(b) of the Company Disclosure Schedule.
(c)(i) except as set forth in Section 6.1(c) of the Company Disclosure
Schedule, or pursuant to credit facilities in existence on the date hereof
in accordance with the current terms of such facilities, (A) create, incur
or assume any long-term debt (including, without limitation, obligations in
respect of capital leases) or (B) create, incur, assume, maintain or permit
to exist any short-term debt; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person except for endorsement of checks
and instruments for deposit of collections in the ordinary course of
business consistent with past practice; or (iii) make any loans, advances
or capital contributions to, or investments in, any other person other than
in the ordinary course of business and consistent with past practice.
(d) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than any payment, discharge or satisfaction (i) in the ordinary course of
business consistent with past practice, or (ii) in connection with the
Transactions;
(e) change any of the accounting principles or practices used by it
(except as required by the SEC, laws or generally accepted accounting
principles, in which case written notice shall be provided to MergerCo
prior to any such change);
(f) except as required by law, (i) enter into, adopt, amend or
terminate any Company Benefit Plan, (ii) enter into, adopt, amend or
terminate any agreement, arrangement, plan or policy between the Company or
any of the Company Subsidiaries on the one hand and one or more of their
directors or officers who has a base compensation in excess of $100,000 on
the other hand, (iii) increase in any manner the compensation or fringe
benefits of any director or executive officer or pay to any such
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director or executive officer any benefit not required by any Company
Benefit Plan or arrangement as in effect as of the date hereof, or (iv)
except in the ordinary course of business, consistent with past practice,
increase in any manner the compensation or fringe benefits of any employee
not described in the preceding clause (iii) or pay to any such employee any
benefit not required by any Company Benefit Plan or arrangement as in
effect as of the date hereof;
(g) adopt any amendments to the Certificate of Incorporation or Bylaws
except as expressly provided by the terms of this Agreement;
(h) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(i) settle or compromise any litigation to which the Company or any
Company Subsidiary is a party (whether or not commenced prior to the date
of this Agreement) in an amount in excess of $250,000;
(j) make capital expenditures (i) in excess of $100,000 individually
which is not identified in the capital budget set forth in Section 6.1 of
the Company Disclosure Schedule or (ii) in the aggregate in excess of 115%
of the Total Budgeted Capital Expenditures set forth in Section 6.1(j) of
the Company Disclosure Schedule, except substantially in accordance with
such Schedule;
(k) without the prior written consent of MergerCo, which shall not be
unreasonably withheld, make or change any Tax election, file a consent
under Code Section 341(f) regarding collapsible corporations, or settle or
compromise any material liability for Taxes of the Company or any of the
Company Subsidiaries except to the extent that negotiations for such
settlement or compromise are in process at the time of the execution of
this Agreement;
(l) waive or release or amend its rights under any confidentiality or
standstill agreement or any other similar agreement to which it is a party;
or
(m) enter into an agreement to take any of the foregoing actions.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Stockholders Meeting.
(a) Unless (i) the Company has received an Acquisition Proposal (as
hereinafter defined) that was unsolicited and did not otherwise result from
a breach of Section 7.5(a) herein and (ii) the Company Board determines
that such Acquisition Proposal is reasonably likely to lead to a Superior
Acquisition Proposal (as hereinafter defined), then the Company, acting
through the Company Board, shall, in accordance with applicable law:
(A) duly call, give notice of, convene and hold a special meeting
of its stockholders (the "Special Meeting") as soon as practicable
following the execution of this Agreement for the purpose of considering
and taking action upon this Agreement and the Transactions;
(B) together with MergerCo prepare and file with the SEC a
preliminary proxy statement relating to this Agreement and the
Transactions, and use its reasonable efforts to (A) obtain and furnish
the information required to be included by the SEC in a definitive proxy
statement (the "Proxy Statement") and, after consultation with MergerCo,
to respond promptly to any comments made by the SEC with respect to the
preliminary proxy statement and cause the Proxy Statement to be mailed
to its stockholders, and (B) obtain the necessary approval of this
Agreement and the Transactions by its stockholders; and
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(C) include in the Proxy Statement the recommendation of the
Company Board that stockholders of the Company vote in favor of the
approval of this Agreement and the Transactions.
(b) MergerCo and the Guarantors shall furnish all information about
themselves, their business and operations and their owners and all
financial information to the Company as may be reasonably necessary in
connection with the preparation of the Proxy Statement. The Company shall
give the Guarantors and their counsel the opportunity to review the Proxy
Statement prior to its being filed with the SEC and shall give the
Guarantors and their counsel the opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for
additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company, on the one hand, and
MergerCo, on the other hand, agree promptly to correct any information
provided by either of them for use in the Proxy Statement if and to the
extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all necessary
steps to cause the Proxy Statement as so corrected to be filed with the SEC
and to be disseminated to the stockholders of the Company, in each case, as
to the extent required by applicable federal securities laws. The Company
shall notify MergerCo of the receipt of any comments of the SEC with
respect to the preliminary proxy statement.
(c) As soon as practicable following the date of this Agreement, the
Company, the Guarantors and MergerCo shall together prepare and file with
the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3"). The Company, the Guarantors and MergerCo shall use all reasonable
best efforts to have the Schedule 13E-3 cleared by the SEC as soon as
practicable following such filing. Each of the Company, the Guarantors and
MergerCo shall furnish all information about itself, its business and
operations and its owners and all financial information to MergerCo as may
be reasonably necessary in connection with the preparation of the Schedule
13E-3. Each of the Company, the Guarantors and MergerCo agrees promptly to
correct any information provided by it for use in the Schedule 13E-3 if and
to the extent that such information shall have become false or misleading
in any material respect. Each of the Company, the Guarantors and MergerCo
shall notify the other of the receipt of any comments of the SEC with
respect to the Schedule 13E-3. Each of the Company, the Guarantors and
MergerCo shall give the other and its counsel the opportunity to review
Schedule 13E-3 prior to its being filed with the SEC and shall give the
other and its counsel the opportunity to review all amendments and
supplements to the Schedule 13E-3 and all responses to requests for
additional information and replies to comments prior to their being filed
with, or sent to, the SEC.
(d) None of the information supplied by the Company specifically for
inclusion or incorporation by reference in (i) the Proxy Statement, (ii)
the Schedule 13E-3 or (iii) the Other Filings (as hereinafter defined)
will, at the respective times filed with the SEC or other Governmental
Entity and, in addition, in the case of the Proxy Statement and the
Schedule 13E-3, as of the date it or any amendment or supplement thereto is
mailed to stockholders and at the time of any meeting of stockholders to be
held in connection with the Merger, 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 are made, not misleading. The Proxy
Statement and the Schedule 13E-3, insofar as they relate to the Company or
other information supplied by the Company for inclusion therein, will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder. The
Company makes no representation, warranty or covenant with respect to
information concerning MergerCo or the Guarantors or their affiliates
included in the Proxy Statement or the Schedule 13E-3 or information
supplied by MergerCo or the Guarantors or their affiliates for inclusion in
the Proxy Statement or the Schedule 13E-3.
(e) None of the information supplied by MergerCo or the Guarantors or
their affiliates specifically for inclusion or incorporation by reference
in (i) the Proxy Statement, (ii) the Schedule 13E-3 or (iii) the Other
Filings, will, at the respective times filed with the SEC or other
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Governmental Entity and, in addition, in the case of the Proxy Statement
and the Schedule 13E-3, as of the date it or any amendment or supplement
thereto is mailed to stockholders and at the time of any meeting of
stockholders to be held in connection with the Merger, 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 are made, not misleading. The
Proxy Statement and the Schedule 13E-3, insofar as they relate to MergerCo
or the Guarantors or their affiliates or other information supplied by
MergerCo or the Guarantors or their affiliates for inclusion therein, will
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder. MergerCo
and the Guarantors make no representations, warranty or covenant with
respect to information concerning the Company included in the Proxy
Statement of the Schedule 13E-3 or information supplied by the Company for
inclusion in the Proxy Statement of the Schedule 13E-3.
7.2 Other Filings. As promptly as practicable, the Company and MergerCo
each shall properly prepare and file any other filings required under the
Exchange Act or any other federal or state law relating to the Merger and the
Transactions (including filings, if any, required under the HSR Act)
(collectively, the "Other Filings"). Each of the Company and MergerCo shall
promptly notify the other of the receipt of any comments on, or any request for
amendments or supplements to, any of the Other Filings by the SEC or any other
Governmental Entity or official, and each of the Company and MergerCo shall
supply the other with copies of all correspondence between it and each of its
Subsidiaries and representatives, on the one hand, and the SEC or the members of
its staff or any other appropriate governmental official, on the other hand,
with respect to any of the Other Filings. The Company and MergerCo each shall
use its respective reasonable best efforts to obtain and furnish the information
required to be included in any of the Other Filings. MergerCo hereby covenants
and agrees to use its commercially reasonable best efforts to secure termination
of any waiting periods under the HSR Act and obtain the approval of the Federal
Trade Commission (the "FTC") or any other Governmental Entity for the
Transactions.
7.3 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best 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 as
promptly as practicable the Transactions and to cooperate with each other in
connection with the foregoing, including the taking of such actions as are
necessary to obtain any necessary consents, approvals, orders, exemptions and
authorizations by or from any public or private third party, including without
limitation any that are required to be obtained under any federal, state or
local law or regulation or any contract, agreement or instrument to which the
Company or any Company Subsidiary is a party or by which any of their respective
properties or assets are bound, to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the Transactions,
to cause to be lifted or rescinded any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
Transactions, and to effect all necessary registrations and Other Filings,
including, but not limited to, filings under the HSR Act, if any, and
submissions of information requested by governmental authorities and to execute
and deliver any additional instruments necessary to consummate the Transactions
and to fully carry out the purposes of this Agreement. The Company will use its
reasonable best efforts to ensure that the conditions set forth in Sections 8.1
and 8.3 hereof are satisfied, insofar as such matters are within the control of
the Company, and MergerCo and the Guarantors will use their reasonable best
efforts to ensure that the conditions set forth in Sections 8.1 and 8.2 hereof
are satisfied, insofar as such matters are within the control of MergerCo and
the Guarantors.
7.4 Fees and Expenses. Except as set forth in Section 9.2 hereof, whether
or not the Merger is consummated, all fees, costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs or expenses. Notwithstanding the previous sentence, if the
Merger is consummated, the Company shall pay all reasonable out-of-pocket costs
and expenses of MergerCo, the Guarantors and TA Associates, Inc., incurred in
connection with this
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Agreement and the Transactions, including without limitation, fees and
disbursements of their outside legal counsel, accountants and other consultants
retained by or on behalf of them.
7.5 No Solicitations.
(a) The Company represents and warrants that it has terminated any
discussions or negotiations relating to, or that could reasonably be
expected to lead to, an Acquisition Proposal (as hereinafter defined).
Except as explicitly permitted hereunder, the Company shall not, and shall
not authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it to, directly or indirectly, (i) solicit,
initiate or encourage (including by way of furnishing non-public
information), or take any other action to facilitate, any inquiries or the
making of any proposal that constitutes an Acquisition Proposal, (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal or (iii) enter into any agreements, definitive or otherwise,
regarding an Acquisition Proposal; provided, however, that, at any time
prior to the approval of this Agreement by the stockholders of the Company,
if the Company receives an Acquisition Proposal that was unsolicited or
that did not otherwise result from a breach of this Section 7.5(a), the
Company may furnish non-public information with respect to the Company and
the Company Subsidiaries to the person who made such Acquisition Proposal
(a "Third Party") and may participate in discussions and negotiations
regarding such Acquisition Proposal if (A) the Company Board determines
based on the advice of independent legal counsel that failure to do so
would be reasonably likely to be inconsistent with its fiduciary duties to
the Company's stockholders under applicable law, and (B) the Company Board
determines that such Acquisition Proposal is reasonably likely to lead to a
Superior Acquisition Proposal.
(b) At any time prior to the approval of this Agreement by the
Stockholders of the Company, the Company Board shall not (i) withdraw or
modify in a manner adverse to MergerCo its approval or recommendation of
this Agreement or the Merger, (ii) approve or recommend an Acquisition
Proposal to its stockholders or (iii) cause the Company to enter into any
agreement with respect to an Acquisition Proposal, unless in any such case
the Company Board shall have determined in good faith, based on the advice
of independent legal counsel, that failure to do so would be inconsistent
with its fiduciary duties to the Company's stockholders under applicable
law and, in the case of clause (iii) above, the Company shall have complied
with the provisions of Section 9.1(c)(i) hereof.
(c) It is understood that the Company taking no position or remaining
neutral with respect to a tender or exchange offer from a third party (a
"Neutral Statement"), or making a recommendation in favor of such a tender
or exchange offer, in a filing made pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act shall constitute an adverse modification
of its approval or recommendation of the Merger.
(d) As used in this Agreement, the term "Acquisition Proposal" shall
mean any proposed or actual (i) merger, consolidation or similar
transaction involving the Company, (ii) sale, lease or other disposition,
directly or indirectly, by merger, consolidation, share exchange or
otherwise, of any assets of the Company or the Company Subsidiaries
representing 15% or more of the consolidated assets of the Company and the
Company Subsidiaries, (iii) issue, sale or other disposition by the Company
of (including by way of merger, consolidation, share exchange or any
similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 15%
or more of the votes associated with the outstanding securities of the
Company, (iv) tender or exchange offer in which any person shall acquire
beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership, or any "group"
(as such term is defined under the Exchange Act) shall have been formed
which beneficially owns or has the right to acquire beneficial ownership
of, 15% or more of the outstanding shares of Company Common Stock, (v)
recapitalization, restructuring, liquidation, dissolution, or other similar
type of transaction with respect to the Company or (vi) transaction which
is similar in form, substance or purpose to any of the foregoing
transactions; provided, however, that the term "Acquisition Proposal" shall
not include the Merger and the Transactions. The term "Superior Acquisition
Proposal" shall
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mean an Acquisition Proposal that the Company Board determines based on the
advice of its financial advisors is more favorable to the stockholders of
the Company from a financial point of view than the Transactions (taking
into account all the terms and conditions of such Acquisition Proposal and
the Transactions, including, without limitation, any conditions to
consummation and the likelihood of such Superior Acquisition Proposal and
the Transactions being consummated).
(e) The Company shall advise MergerCo promptly (but in any event
within 24 hours) in writing of (i) the receipt of any inquiries,
indications of interest or proposals relating to an Acquisition Proposal,
(ii) the status of any material developments in the negotiations with
respect thereto and (iii) the taking of any action referred to in Section
7.5(a) or (b). Following the receipt of any inquiries, indications of
interest or proposals relating to an Acquisition Proposal, the Company
shall furnish to MergerCo either a copy of such Acquisition Proposal (or
such inquiry, indication of interest or proposal) or a written summary of
any such oral Acquisition Proposal (or such inquiry, indication of interest
or proposal), including, without limitation, information regarding pricing,
structure and material conditions to closing.
(f) Nothing in this Section 7.5 shall (i) permit the Company to
terminate this Agreement other than pursuant to Article IX hereof or (ii)
affect any other obligation of the Company under this Agreement.
7.6 Officers' and Directors' Indemnification.
(a) The Company shall, and from and after the Effective Time, the
Surviving Corporation shall, indemnify, defend and hold harmless the
present and former directors, officers, employees and agents of the Company
or any of the Company Subsidiaries (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including reasonable attorney's
fees and expenses), liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party of or in connection
with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part
out of or pertaining to the fact that such person is or was a director or
officer of the Company or any of the Company Subsidiaries whether
pertaining to any matter existing at or prior to the Effective Time and
whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities"), including all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining
to this Agreement or the transactions contemplated hereby, in each case to
the fullest extent a corporation is permitted under the DGCL as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits broader than rights such law
permitted prior to such amendment and only to the extent such amendment is
not retroactively applicable) to indemnify its own directors or officers,
as the case may be. Without limiting the foregoing, in the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time),
(i) the Indemnified Parties may retain counsel satisfactory to them and the
Surviving Corporation, and the Company or the Surviving Corporation shall
pay all fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received and otherwise advanced to such
Indemnified Party upon request reimbursement of documented expenses
incurred, in either case to the fullest extent and in the manner permitted
by the DGCL; and (ii) the Company or the Surviving Corporation will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither the Company nor the Surviving Corporation shall be
liable for any settlement effected without its prior written consent. Any
Indemnified Party wishing to claim indemnification under this Section 7.6,
upon learning of any such claim, action, suit, proceeding or investigation,
shall notify the Company (or after the Effective Time, the Surviving
Corporation) (but the failure so to notify shall not relieve a party from
any liability which it may have under this Section 7.6 except to the extent
such failure materially prejudices such party), and shall to the extent
required by the DGCL deliver to the Company (or after the Effective Time,
the Surviving Corporation) the undertaking contemplated by Section 145(c)
of the DGCL. The Indemnified Parties as a group may retain only one law
firm to represent them with respect to each such matter unless there is,
under applicable standards of
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professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties. The Company and MergerCo
agree that all rights to indemnification, including provisions relating to
advances or expenses incurred in defense of any action or suit, existing in
favor of the Indemnified Parties with respect to matters occurring through
the Effective Time, shall survive the Merger and shall continue in full
force and effect for a period of not less than six years from the Effective
Time; provided, however, that all rights to indemnification in respect of
any Indemnified Liabilities asserted or made within such period shall
continue until the disposition of such Indemnified Liabilities. This
Section 7.6 is intended for the irrevocable benefit of, and to grant third
party rights to, the Indemnified Parties and shall be binding on all
successors and assigns of MergerCo, the Company and the Surviving
Corporation. Each of the Indemnified Parties shall be entitled to enforce
the covenants contained in this Section 7.6.
(b) Prior to the Effective Time, the Company shall purchase an
extended reporting period endorsement ("Reporting Tail Coverage") under the
Company's existing directors' and officers' liability insurance coverage
for the Company's directors and officers in a form acceptable to the
Company which shall provide such directors and officers with coverage for
six (6) years following the Effective Time of not less than the existing
coverage under, and have other terms not materially less favorable to, the
insured persons than the directors' and officers' liability insurance
coverage presently maintained by the Company; provided, however, that in
any event the total aggregate cost of such Reporting Tail Coverage shall
not exceed $150,000 (the "Maximum Amount"); and provided, further, that if
such coverage cannot be obtained for such cost, the Company will maintain,
for such six-year period, the maximum amount of comparable coverage as
shall be available for the Maximum Amount on such terms.
7.7 Access to Information; Confidentiality. From the date hereof until the
Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries and each of the Company's and Company Subsidiaries' officers,
employees and agents to, afford to MergerCo and to the officers, employees and
agents of MergerCo complete access at all reasonable times to such officers,
employees, agents, properties, books, records and contracts, and shall furnish
MergerCo such financial, operating and other data and information as MergerCo
may reasonably request. MergerCo shall hold in confidence all such information
on the terms and subject to the conditions contained in that certain agreement
between the Company and TA Associates, Inc. dated March 23, 1999 (the
"Confidentiality Agreement"). The Company hereby waives the provisions of the
Confidentiality Agreement as and to the extent necessary to permit the making
and consummation of the Transactions. At the Effective Time, such
Confidentiality Agreement shall terminate.
7.8 Financial and Other Statements. Notwithstanding anything contained in
Section 7.7, during the term of this Agreement, the Company shall also provide
to MergerCo the following documents and information:
(a) As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter ending after the date of this
Agreement, the Company will deliver to MergerCo its Quarterly Report on
Form 10-Q as filed under the Exchange Act. As soon as reasonably available,
but in no event more than 90 days after the end of each fiscal year ending
after the date of this Agreement, the Company will deliver to MergerCo its
Annual Report on Form 10-K, as filed under the Exchange Act. The Company
will also deliver to MergerCo, promptly after its being filed with the SEC,
a copy of each Current Report on Form 8-K.
(b) Promptly upon receipt thereof, the Company will furnish to
MergerCo copies of all internal control reports submitted to the Company or
any Company Subsidiary by independent accountants in connection with each
annual, interim or special audit of the books of the Company or any such
Company Subsidiary made by such accountants.
(c) As soon as practicable, the Company will furnish to MergerCo
copies of all such financial statements and reports as it or any Company
Subsidiary shall send to its stockholders, the SEC or any
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other regulatory authority, to the extent any such reports furnished to any
such regulatory authority are not confidential and except as legally
prohibited thereby.
(d) As soon as practicable, the Company will furnish MergerCo copies
of all materials provided to the Company Board by the Company, any Company
Subsidiary or any Practice, other than information concerning an
Acquisition Proposal.
7.9 Public Announcements. The Company and MergerCo shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or any of the Transactions and shall not issue
any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the applicable rules of The Nasdaq Stock Market, Inc. if it has (i)
used its reasonable best efforts to consult with the other party and to obtain
such party's consent but has been unable to do so in a timely manner and (ii)
faxed a copy of such press release or public statement to such other party at a
reasonable time prior to issuing such release or making such statement. In this
regard, the parties agree that the initial press release to be issued with
respect to the Merger will be in a form agreed to by the parties hereto prior to
the execution of this Agreement.
7.10 Intentionally Omitted.
7.11 Recapitalization Accounting Treatment. Each of the Company and
MergerCo shall use its commercially reasonable efforts to cause the
Transactions, including the Merger, to be accounted for as a recapitalization
and such accounting treatment to be accepted by their respective accountants and
by the SEC, and each of the Company and MergerCo agrees that it shall not take
or omit to take any action that would cause such accounting treatment not to be
obtained.
7.12 Delisting. Each of the parties hereto agrees to cooperate with each
other in taking, or causing to be taken, all actions necessary to delist the
Company Common Stock from The Nasdaq Stock Market, Inc. provided that such
delisting shall not be effective until after the Effective Time of the Merger.
7.13 Notification of Certain Matters. Each party shall give prompt written
notice to the other of (A) any fact, event or circumstance known to it that
would be reasonably likely to (i) cause or constitute a material breach of any
of its representations, warranties or covenants contained herein or (ii) result
in such party being unable to satisfy any condition required to be satisfied by
it under this Agreement or (B) the receipt of (i) any notice or other
communication from any person alleging that the consent of such person is or may
be required in connection with the transactions contemplated by this Agreement
or (ii) any notice or other communication from any Governmental Entity in
connection with the transactions contemplated by this Agreement.
7.14 Transferor's Certificate of Non-foreign Status. The Company shall use
its reasonable best efforts to cause each Voting Agreement Stockholder to
deliver to the Guarantors, prior to the Closing Date, a transferor's certificate
of non-foreign status in the form attached to the Stock Purchase Agreement as
Exhibit C thereto.
7.15 Covenants of MergerCo and the Guarantors.
(a) MergerCo and each Guarantor will use their respective reasonable
best efforts to satisfy the conditions set forth in the Commitment Letters
and cause the financing of the Transactions to be closed on terms
substantially similar to those set forth within the Commitment Letters. In
the event that any portion of the financing of the Transactions become
unavailable, MergerCo and each Guarantor will use their reasonable best
efforts to arrange alternative financing from other sources. MergerCo and
each Guarantor shall keep the Company apprised of all material developments
relating to the financing of the Transactions. Any fees to be paid by the
Company or any other obligations to be incurred by the Company in
connection with the financing of the Transactions shall be subject to the
occurrence of the Closing.
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(b) The Guarantors agree that, subject to the satisfaction or waiver
of all conditions set forth in Article VIII hereof, on or prior to the
Closing Date they will purchase or cause to be purchased equity of MergerCo
for an aggregate consideration of $32.8 million, consisting of cash and the
Voting Agreement Stockholder Shares (the "Equity Contribution"), which
equity will consist of $5.0 million of Convertible Preferred Stock and
$27.8 million of Redeemable Preferred Stock; provided, however, that in the
event the number of shares of Company Common Stock that are subject to the
Roll-over Agreement as of the Closing Date is more than 2,058,862 shares,
the Equity Contribution and the corresponding amount of MergerCo equity
will each be reduced proportionately.
7.16 Acquisition Agreements. The Company shall issue prior to the
Effective Time Company Common Stock in accordance with the terms of the
agreements set forth on Exhibit 7.16 hereto, except that such Company Common
Stock may be delivered prior to the dates specified in such agreements.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver, where permissible, at or prior to the Closing Date,
of each of the following conditions:
(a) Stockholder Approval. If required by applicable law, this
Agreement and the Transactions, including the Merger, shall have been
approved and adopted by the affirmative vote of the stockholders of the
Company to the extent required by the DGCL and the Certificate of
Incorporation.
(b) Hart-Scott-Rodino Act. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(c) Other Regulatory Approvals. All necessary approvals,
authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in
full force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated.
(d) No Injunctions, Orders or Restraints; Illegality. No preliminary
or permanent injunction or other order, decree or ruling issued by a court
of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission (an "Injunction") nor any statute,
rule, regulation or executive order promulgated or enacted by any
governmental authority shall be in effect which would (i) make the
consummation of the Merger illegal, or (ii) otherwise prevent or prohibit
the consummation of any of the Transactions, including the Merger, (iii)
prohibit or limit the ownership or operation by the Company (or any of the
Company Subsidiaries) of any portion of the Company's or the Company
Subsidiaries' business, properties or assets which is material to the
Company and the Company Subsidiaries as a whole, or (iv) compel the Company
(or any Company Subsidiary) to dispose of or hold separate any portion of
the Company's or the Company Subsidiaries' business, properties or assets
which is material to the Company and the Company Subsidiaries as a whole;
provided, however, that prior to invoking this condition, each party shall
use its reasonable best efforts to have any such Injunction vacated.
8.2 Conditions to Obligations of MergerCo and the Guarantors. The
obligations of MergerCo to effect the Merger are further subject to the
following conditions:
(a) Representations and Warranties. Those representations and
warranties of the Company set forth in this Agreement which are qualified
by materiality or a Company Material Adverse Effect or words of similar
effect shall be true and correct as of the Closing Date as though made on
and as of the Closing Date (except to the extent such representations and
warranties expressly relate to a specific date, in which case such
representations and warranties shall be true and correct as of such date),
and those representations and warranties of the Company set forth in this
Agreement which are
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not so qualified shall be true and correct in all material respects as of
the Closing Date as though made on and as of the Closing Date (except to
the extent such representations and warranties expressly relate to a
specific date, in which case such representations and warranties shall be
true and correct in all material respects as of such date).
(b) Performance and Obligations of the Company. The Company shall
have performed all obligations required to be performed by it under this
Agreement, including, without limitation, the covenants contained in
Articles 6 and 7 hereof, in all material respects.
(c) Governmental Consents. Any consent, authorization, order or
approval of (or filing or registration with) any governmental commission,
board or other regulatory body required to be made or obtained by the
Company or any of the Company Subsidiaries or affiliates in connection with
the execution, delivery and performance of the Agreement shall have been
obtained or made, except where the failure to have obtained or made any
such consent, authorization, order, approval, filing or registration, would
not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect or would, individually or in the aggregate,
not materially impair or significantly delay the ability of MergerCo to
consummate the Merger.
(d) Other Consents. All consents and approvals by third parties (i)
that are identified as conditions to closing in Section 8.2(d) of the
Company Disclosure Schedule, and (ii) that are required in order to prevent
a breach of, a default under, or a termination, change in the terms or
conditions or modification of, any instrument, contract, lease, license or
other agreement, where such breach, default, termination or change would,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect, will have been obtained on terms and conditions
reasonably satisfactory to MergerCo.
(e) Indebtedness. Payoff letters with respect to the Company's
indebtedness for borrowed money outstanding as of the Effective Time as set
forth on Exhibit 8.2(e) hereof, and releases of any and all Liens (other
than permitted Encumbrances) related to such payoff letters, including
appropriate UCC termination statements, held by third parties against the
property of the Company shall have been obtained pending receipt of the
amounts indicated in the applicable payoff letters, all on terms reasonably
satisfactory to MergerCo.
(f) Financing. Debt financing from senior and subordinated lenders
shall have been obtained in amounts and on substantially the same terms as
set forth in the Commitment Letters attached hereto as Exhibit 8.2(f) as
reasonably determined by MergerCo.
(g) Material Adverse Change. There shall not have occurred any change
or changes concerning the Company and the Company Subsidiaries taken as a
whole which would, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect.
(h) Dissenting Shares. As of immediately prior to the Effective Time,
no more than 5% of the outstanding shares of Company Common Stock shall
have taken all required actions to assert appraisal rights under Section
262 of the DGCL and not withdrawn or otherwise permitted to lapse such
appraisal rights or demands therefor.
(i) Accounting Treatment. The Proxy Statement shall contain a
statement to the effect that the Merger shall be treated as a
recapitalization for accounting purposes and the SEC shall not have
disapproved such statement in the Proxy Statement.
(j) Roll-over Agreement. Not less than 2,047,310 shares of Company
Common Stock shall be subject to the Roll-over Agreement and such Agreement
shall be in full force and effect with respect to such shares.
(k) Employment Agreements. Each person whose name is set forth on
Exhibit 8.2(k) attached hereto shall have entered into an Amendment to
Executive Employment Agreement in the form attached hereto as Exhibit
8.2(k).
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8.3 Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. Those representations and
warranties of MergerCo set forth in this Agreement which are qualified by
materiality or a MergerCo Material Adverse Effect or words of similar
effect shall be true and correct as of the Closing Date as though made on
and as of the Closing Date (except to the extent such representations and
warranties expressly relate to a specific date, in which case such
representations shall be true and correct as of such date), and those
representations and warranties of MergerCo set forth in this Agreement
which are not so qualified shall be true and correct in all material
respects as of the Closing Date as though made on the Closing Date (except
to the extent such representations and warranties expressly relate to a
specific date, in which case such representations and warranties shall be
true and correct in all material respects as of such date).
(b) Performance of Obligations of MergerCo. MergerCo shall have
performed all obligations required to be performed by it under this
Agreement, including, without limitation, the covenants contained in
Articles 6 and 7 hereof, except where any failure to perform would,
individually or in the aggregate, not materially impair or delay the
ability of the Company to consummate the Merger.
(c) Stock Purchase Agreement. The Stock Purchase Agreement shall have
been consummated.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after stockholder approval thereof:
(a) by the mutual written consent of MergerCo and the Company.
(b) by either of the Company or MergerCo:
(i) if the stockholders of the Company shall have voted on the
Merger Agreement and this Agreement and the votes shall not have been
sufficient to satisfy the condition set forth in Section 8.1(a); or
(ii) if any Governmental Entity shall have issued an Injunction or
taken any other action (which Injunction or other action the parties
hereto shall use their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits the Merger, and such
Injunction shall have become final and non-appealable; or
(iii) if, without any material breach by the terminating party of
its obligations under this Agreement, the Merger shall not have occurred
on or before November 30, 1999.
(c) by the Company:
(i) in connection with entering into a definitive agreement to
effect a Superior Acquisition Proposal in accordance with Section 7.5
hereof; provided, however, that prior to terminating this Agreement
pursuant to this Section 9.1(c)(i), (A) the Company shall have paid the
Liquidated Amount, as set forth in Section 9.2(b), and (B) the Company
shall have provided MergerCo with five (5) days' prior written notice of
the Company's decision to so terminate. Such notice shall indicate in
reasonable detail the terms and conditions of such Superior Acquisition
Proposal, including, without limitation, the amount and form of the
proposed consideration and whether such Superior Acquisition Proposal is
subject to any material conditions; or
(ii) if MergerCo shall have breached in any material respect any of
its respective representations, warranties, covenants or other
agreements contained in this Agreement (except where such
representations, warranties, covenants or other agreements are qualified
by materiality or MergerCo Material Adverse Effect, in which case
MergerCo's breach shall not be qualified as
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to materiality), which breach cannot be or has not been cured within
fifteen (15) days after the giving of written notice to MergerCo except,
in any case, for such breaches which are not reasonably likely to affect
adversely MergerCo's ability to consummate the Merger.
(d) by MergerCo:
(i) if the Company shall have breached in any material respect any
of its representations, warranties, covenants or other agreements
contained in this Agreement (except where such representations,
warranties, covenants or other agreements are qualified by materiality
or Company Material Adverse Effect, in which case the Company's breach
shall not be qualified as to materiality), which breach has not been
cured within fifteen (15) days after the giving of written notice to the
Company; or
(ii) if (A) in accordance with Section 9.1(c)(i) hereof the Company
enters into an agreement concerning an Acquisition Proposal or (B) the
Company Board withdraws or modifies in a manner adverse to MergerCo its
approval or recommendation of this Agreement or the Merger to the
stockholders of the Company.
9.2 Effect of Termination.
(a) Subject to the provisions of this Section 9.2, in the event of the
termination of this Agreement pursuant to Section 9.1 hereof, this
Agreement shall forthwith become null and void and have no effect, without
any liability on the part of any party hereto or its affiliates, trustees,
directors, officers or stockholders and all rights and obligations of any
party hereto shall cease except for the agreements contained in Section 7.4
and Articles 9 and 10; provided, however, that notwithstanding anything to
the contrary set forth herein, nothing contained in this Section shall
relieve any party from liability for any fraud or willful breach of this
Agreement.
(b) The Company shall pay to MergerCo an amount in cash (the
"Liquidated Amount") equal to (i) Three Million, Five Hundred Thousand
Dollars ($3,500,000) plus (ii) the MergerCo Expenses (as hereinafter
defined) if (X) the Company terminates this Agreement pursuant to Section
9.1(c)(i) or (Y) either the Company or MergerCo terminates this Agreement
pursuant to Section 9.1(b)(i), and, (A) prior to the Special Meeting, an
Acquisition Proposal shall have been made to the Company's stockholders
generally or any person shall have publicly announced an Acquisition
Proposal or an intention to make an Acquisition Proposal or solicited
proxies or consents in opposition to the Merger and (B) within twelve (12)
months immediately following the date of such termination the Company shall
have entered into a definitive agreement with respect to an Acquisition
Proposal. For purposes of this Agreement, "MergerCo Expenses" shall mean an
amount equal to MergerCo's out-of-pocket costs and expenses incurred in
connection with this Agreement and the Transactions, including without
limitation, fees and disbursements of its outside legal counsel,
accountants and other consultants retained by or on behalf of MergerCo
together with the other out-of-pocket costs incurred by MergerCo in
connection with analyzing and structuring the Transactions, negotiating the
terms and conditions of this Agreement and any other agreements or other
documents relating to the Transactions, arranging financing (including,
without limitation, commitment fees), conducting due diligence and other
activities related to this Agreement and the Transactions. Notwithstanding
anything in this Agreement to the contrary, in no event shall the Company
be obligated to pay MergerCo Expenses in excess of $750,000 in the
aggregate.
(c) If MergerCo terminates this Agreement pursuant to Section 9.1(d),
then the Company shall pay to MergerCo an amount in cash equal to the
MergerCo Expenses. Notwithstanding anything in this Agreement to the
contrary, in no event shall the Company be obligated to pay MergerCo
Expenses in excess of $750,000 in the aggregate.
(d) If the Company terminates this Agreement pursuant to Section
9.1(c)(ii), then MergerCo shall pay the Company an amount in cash equal to
the Company's out-of-pocket costs and expenses incurred in connection with
this Agreement and the Transactions, including without limitation, fees and
disbursements of its outside legal counsel, accountants and other
consultants retained by or on
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behalf of the Company together with the other out-of-pocket costs incurred
by the Company in connection with analyzing and structuring the
Transactions, negotiating the terms and conditions of this Agreement and
any other agreements or documents relating to the Transactions (the
"Company Expenses"). Notwithstanding anything in this Agreement to the
contrary, in no event shall MergerCo be obligated to pay Company Expenses
in excess of $750,000 in the aggregate.
(e) Except as provided in Section 9.1(c)(i) hereof, any payment
required by this Section 9.2 shall be due and payable within three (3)
business days after the date of termination by wire transfer of immediately
available funds to an account designated by the payee. In the event that
the Company fails to pay either the Liquidated Amount or MergerCo Expenses,
or MergerCo fails to pay the Company Expenses, as the case may be, when
due, the term "Liquidated Amount," "MergerCo Expenses" or "Company
Expenses," as applicable, shall be deemed to include (i) interest on such
unpaid amount commencing on the date such amount becomes due, at a rate per
annum equal to the rate of interest publicly announced by Citibank, N.A.
from time to time, in the City of New York, as such bank's Prime Rate, and
(ii) any and all costs and expenses (including without limitation,
attorneys' fees and disbursements) incurred by MergerCo or the Company, as
applicable, in enforcing its rights under this Section 9.2(e). The payments
made by the Company to MergerCo, or by MergerCo to the Company as set forth
in Section 9.2 shall represent the sole and exclusive remedy at law or in
equity to which MergerCo or the Company, as applicable, and their
respective officers, directors, representatives and affiliates shall be
entitled in the event this Agreement shall be terminated in the
circumstances contemplated by Section 9.2 above. Such payments shall be
made without duplication and accordingly, neither MergerCo nor the Company
shall be entitled to payments under Section 9.2 in more than one instance.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or sent if delivered personally or sent by telecopier
or by prepaid overnight carrier to the parties at the following addresses (or at
such other addresses as shall be specified by the parties by like notice):
(a) if to MergerCo:
TA MergerCo, Inc.
c/o TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, Massachusetts 02110
Attn: Richard Tadler
Fax: 617-574-6728
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Kevin M. Dennis, Esq.
Joseph L. Johnson III, P.C.
Fax: (617) 523-1231
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(b) if to the Guarantors:
c/o TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, Massachusetts 02110
Attn: Richard Tadler
Fax: (617) 574-6728
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Kevin M. Dennis, Esq.
Joseph L. Johnson III, P.C.
Fax: (617) 523-1231
(c) if to the Company:
Special Committee of the Board of Directors
c/o Physicians' Specialty Corporation
The Pavillion at Lake Hearn
1150 Lake Hearn Drive, Suite 640
Atlanta, Georgia 30342
Attn: Sidney Kirschner, Chairman
Fax: (404) 256-1078
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: John J. Kelley III
Fax: (404) 572-5100
and a copy to:
Ramie A. Tritt, M.D.
Physicians' Specialty, Inc.
1150 Lake Hearn Drive
Suite 640
Atlanta, Georgia 30342
Fax: (404) 250-0162
and a copy to:
Troutman Sanders
Suite 5200
600 Peachtree Street, NE
Atlanta, Georgia 30308-2216
Attn: Richard H. Brody, Esq.
Fax: (404) 962-6514
10.2 Interpretation. When a reference is made in this Agreement to a
subsidiary or subsidiaries of MergerCo or the Company, the word "Subsidiary"
means any corporation more than 50% of whose outstanding voting securities, or
any partnership, joint venture or other entity more than 50% of whose total
equity interest, is directly or indirectly owned by MergerCo or the Company, as
the case may be. The
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headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
10.3 Non-Survival of Representations, Warranties, Covenants and
Agreements. Except for Sections 7.4, 7.6, 7.7 (except as provided therein),
10.7 and this Section 10.3, none of the representations, warranties, covenants
and agreements contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, and thereafter
there shall be no liability on the part of either MergerCo or the Company or any
of their respective officers, directors or stockholders in respect thereof.
Except as expressly set forth in this Agreement, there are no representations or
warranties of any party hereto, express or implied.
10.4 Miscellaneous. This Agreement (i) constitutes, together with the
Confidentiality Agreement, the Company Disclosure Schedule, the MergerCo
Disclosure Schedule and the Exhibits hereto, the entire agreement and supersedes
all of the prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof, (ii) subject
to Section 10.5, shall be binding upon and inure to the benefits of the parties
hereto and their respective successors and assigns and is not intended to confer
upon any other person (except as set forth below) any rights or remedies
hereunder and (iii) may be executed in two or more counterparts which together
shall constitute a single agreement. Section 7.6 is intended to be for the
benefit of those persons described therein and the covenants contained therein
may be enforced by such persons. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Delaware Court (as
hereinafter defined), this being in addition to any other remedy to which they
are entitled at law or in equity. Any requirements for the securing or posting
of any bond with respect to such remedy are hereby waived by each of the parties
hereto.
10.5 Assignment. Except as expressly permitted by the terms hereof,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the prior written consent
of the other parties.
10.6 Severability. If any provision of this Agreement, or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
10.7 Choice of Law/Consent to Jurisdiction. All disputes, claims or
controversies arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement, or the Transactions shall be governed
by and construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws. Each of the Company and MergerCo hereby
irrevocably and unconditionally consents to submit to the sole and exclusive
jurisdiction of the courts of the State of Delaware and of the United States
located in the State of Delaware (the "Delaware Courts") for any litigation
arising out of or relating to this Agreement, or the negotiation, validity or
performance of this Agreement, or the Transactions (and agrees not to commence
any litigation relating thereto except in such courts), waives any objection to
the laying of venue of any such litigation in the Delaware Courts and agrees not
to plead or claim in any Delaware Court that such litigation brought therein has
been brought in any inconvenient forum. Each of the parties hereto agrees, (a)
to the extent such party is not otherwise subject to service of process in the
State of Delaware, to appoint and maintain an agent in the State of Delaware as
such party's agent for acceptance of legal process, and (b) that service of
process may also be made on such party by prepaid certified mail with a proof of
mailing receipt validated by the United States Postal Service constituting
evidence of valid service. Service made pursuant to (a) or (b) above shall have
the same legal force and effect as if served upon such party personally within
the State of Delaware. For purposes of implementing the parties' agreement to
appoint and maintain an agent for
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service of process in the State of Delaware, each such party does hereby appoint
CT Corporation, Corporation Trust Center, 1209 Orange Street, Wilmington, DE
19801, as such agent.
10.8 No Agreement Until Executed. Irrespective of negotiations among the
parties or the exchanging of drafts of this Agreement, this Agreement shall not
constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (i) the Board of
Directors of the Company has approved, for purposes of Section 203 of the DGCL
and any applicable provision of the Certificate of Incorporation, the terms of
this Agreement, and (ii) this Agreement is executed by the parties hereto.
10.9 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors or Committees thereof, as the case may be, may, to the extent legally
allowed: (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document delivered pursuant hereto; and (c) waive compliance by the other
parties with any of the agreements or conditions contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such party. The
failure of any party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights.
10.10 The Guarantors.
(a) Subject to Section 10.10(c), each Guarantor hereby unconditionally
and irrevocably guarantees severally, but not jointly, to the Company the
performance of each of the obligations and the undertakings of MergerCo
under this Agreement when and to the extent the same are required to be
performed and subject to all of the terms and conditions hereof. If
MergerCo shall fail to perform any obligation or undertaking of MergerCo
under this Agreement when and to the extent the same is required to be
performed, the Guarantors will upon written demand from the Company
forthwith perform or cause to be performed such obligation or undertaking,
as the case may be.
(b) Subject to Sections 10.10(a) and (c), the obligations of the
Guarantors under this guaranty are absolute and unconditional, are not
subject to any counterclaim, set off, deduction, abatement or defense based
upon any claim any Guarantor may have against the Company (except for any
of the foregoing that MergerCo may have against the Company under the terms
of this Agreement or otherwise), and shall remain in full force and effect
without regard to (i) any insolvency, bankruptcy, dissolution, liquidation,
reorganization or the like of MergerCo at or prior to the Closing or (ii)
any transfer of shares of capital stock of MergerCo, or any assignment by
MergerCo of its rights and obligations under this Agreement to a
wholly-owned subsidiary of MergerCo or any Guarantor.
(c) Notwithstanding any provision of this Agreement to the contrary,
any liability arising under this contract or this guaranty shall be limited
to $10.0 million in the aggregate in the case of the Guarantors, provided,
however, that any liability arising as a result of a breach of Section
7.15(b) hereof shall be limited to $32,800,000, and provided, further, that
(i) TA/Advent VIII, L.P. shall not have liability for more than 60% of any
liability arising from a breach by MergerCo under this Agreement, (ii)
TA/Atlantic and Pacific IV, L.P. shall not have liability for more than 38%
of any liability arising from a breach by MergerCo under this Agreement,
(iii) TA Executives Fund LLC shall not have liability for more than 1% of
any liability arising from a breach by MergerCo under this Agreement, and
(iv) TA Investors LLC shall not have liability for more than 1% of any
liability arising from a breach by MergerCo under this Agreement; and
provided, further that no Guarantor shall have any liability whatsoever
under this guaranty after the Closing, whether based upon events occurring
prior to or after the Closing.
10.11 Amendment. This Agreement may be amended by the parties hereto by an
instrument in writing signed on behalf of each of the parties hereto at any time
before the Effective Time; provided, however, that after this Agreement is
approved by the Company's stockholders, no such amendment or
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modification shall reduce the amount or change the form of consideration to be
delivered to the stockholders of the Company.
IN WITNESS WHEREOF, MergerCo, the Company and the Guarantors have caused
this Agreement and Plan of Merger to be executed as of the date first written
above by their respective officers thereunto duly authorized.
TA MERGERCO, INC.
By: /s/ RICHARD TADLER
------------------------------------
Richard Tadler
President and Chief Executive
Officer
PHYSICIANS' SPECIALTY CORP.
By: /s/ EDWARD R. CASAS, M.D.
------------------------------------
Edward R. Casas, M.D.
Director
TA/ADVENT VIII, L.P.
By: TA Associates VIII LLC, its
General Partner
By: TA Associates, Inc., its General
Partner
By: /s/ RICHARD TADLER
------------------------------------
Richard Tadler
Managing Director
TA/ATLANTIC AND PACIFIC IV, L.P.
By: TA Associates AP IV, L.P., its
General Partner
By: TA Associates, Inc., its General
Partner
By: /s/ RICHARD TADLER
------------------------------------
Richard Tadler
Managing Director
TA INVESTORS LLC
By: TA Associates Inc., its Manager
By: /s/ RICHARD TADLER
------------------------------------
Richard Tadler
Managing Director
TA EXECUTIVES FUND LLC
By: TA Associates Inc., its Manager
By: /s/ RICHARD TADLER
------------------------------------
Richard Tadler
Managing Director
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<PAGE> 185
EXHIBIT 1.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PHYSICIANS' SPECIALTY CORP.
An original Certificate of Incorporation of Physicians' Specialty Corp.
(the "Corporation") was filed with the Secretary of State on July 31, 1996. This
Amended and Restated Certificate of Incorporation has been duly adopted by the
Corporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware.
ARTICLE I
The name of the Corporation shall be Physicians' Specialty Corp.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of capital stock which the corporation shall
have authority to issue is [ ], of which (a) [3,293,161](1) shares
shall be preferred stock, par value $.001 per share ("Preferred Stock"),
consisting of [3,265,361](1) shares of Convertible Participating Preferred Stock
(as hereinafter defined) and [27,800](1) shares of 6% Redeemable Preferred Stock
(as hereinafter defined), (b) [ ] shares shall be preferred stock, par
value $.01 per share (the "Undesignated Preferred Stock") and (c) [ ]
shares shall be common stock, par value $.001 per share. As set forth in this
Article IV, the Board of Directors or any authorized committee thereof is
authorized from time to time to establish and designate one or more series of
Undesignated Preferred Stock, to fix and determine the variations in the
relative rights, preferences and powers as between the different series of
Undesignated Preferred Stock in the manner hereinafter set forth in this Article
IV, and to fix or alter the number of shares comprising any such series and the
designation thereof to the fullest extent permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock entitled to vote, without a vote of the holders of the Undesignated
Preferred Stock.
Except as otherwise restricted by this Amended and Restated Certificate of
Incorporation, the Corporation is authorized to issue, from time to time, all or
any portion of the capital stock of the
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1Assumes a total equity investment of $32,800,000 by funds affiliated with TA
Associates, Inc. or their assignees (the "TA Investors"). Such amount would
consist of approximately $5,000,000 of Convertible Preferred Stock (that will
convert into approximately 57.0% of the fully-diluted Common Stock of the
Corporation) and $27,800,000 of Redeemable Preferred Stock. In the event the
amount of such total equity investment by the TA Investors is different from
that set forth above, the share numbers and fully-diluted equity ownership of
the TA Investors will change in a proportionate manner.
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Corporation which may have been authorized but not issued, to such person or
persons and for such lawful consideration as it may deem appropriate, and
generally in its absolute discretion to determine the terms and manner of any
disposition of such authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been
paid or delivered shall be deemed fully paid shares of capital stock, and the
holder of such shares shall not be liable for any further call or assessment or
any other payment thereon.
The voting powers, designations, preferences, privileges and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions of each class of capital stock of the Corporation,
shall be as provided in this Article IV.
A. CONVERTIBLE PARTICIPATING PREFERRED STOCK
1. Designation. A total of [3,265,361] shares of the Corporation's
Preferred Stock shall be designated as a class known as Convertible
Participating Preferred Stock, par value $.001 per share (the "Convertible
Stock"). All of the preferential amounts to be paid to the holders of the
Convertible Stock as provided in this Section A shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any property of the Corporation to, the holders of any other
equity securities of the Corporation, whether now or hereafter authorized, other
than the Redeemable Preferred Stock which shall rank equal to the Convertible
Stock in connection with any event referred to in Section A.4 or A.5.
2. Election of Directors; Voting.
(a) Election of Directors. For so long as the holders of Convertible
Stock continue to hold at least twenty-five percent (25%) of the shares of
Convertible Stock issued in the original issuance of the Convertible Stock,
the holders of outstanding shares of Convertible Stock shall, voting
together as a separate class, be entitled to elect two (2) Directors of the
Corporation. Such Directors shall be the candidates receiving the greatest
number of affirmative votes of the outstanding shares of Convertible Stock
(the "Convertible Stock Director Designees"), with each share of
Convertible Stock entitled to one (1) vote with fractional votes for
fractional shares, and with votes cast against such candidates and votes
withheld having no legal effect. The election of the Convertible Stock
Director Designees by the holders of the Convertible Stock shall occur (i)
at the annual meeting of holders of capital stock, (ii) at any special
meeting of holders of capital stock, (iii) at any special meeting of
holders of Convertible Stock called by holders of a majority of the
outstanding shares of Convertible Stock or (iv) by a written consent of
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power (a "Two Thirds Interest") of the outstanding shares of
Convertible Stock. If at any time when any share of Convertible Stock is
outstanding a Convertible Stock Director Designee should cease to be a
Director of the Corporation for any reason, the vacancy shall only be
filled by the vote or written consent of the holders of the outstanding
shares of Convertible Stock, voting together as a separate class, in the
manner and on the basis specified above. The holders of outstanding shares
of Convertible Stock shall also be entitled to vote for all other Directors
of the Corporation together with holders of all other shares of the
Corporation's outstanding capital stock entitled to vote thereon, voting as
a single class, with each outstanding share entitled to the number of votes
specified in Section A.2(b).
(b) Voting Generally. Each share of Convertible Stock shall be
entitled to the number of votes equal to the largest number of full shares
of Common Stock (as defined in Section C.1) into which such share of
Convertible Stock could be converted pursuant to Section A.6 hereof on the
record date for the vote or written consent of stockholders, if applicable,
with appropriate adjustments for stock splits, stock dividends,
recapitalizations and the like. Each holder of shares of Convertible Stock
shall be entitled to notice of any stockholders' meeting in accordance with
the by-laws of the Corporation and shall vote with holders of the Common
Stock, voting together as single class, upon all matters submitted to a
vote of stockholders, excluding those matters required to be submitted to a
class or
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series vote pursuant to the terms hereof (including, without limitation,
Section A.8) or by law. Fractional votes shall not, however, be permitted
and any fractional voting rights resulting from the above formula (after
aggregating all shares of Common Stock into which shares of Convertible
Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with any fraction equal or greater than one-half
rounded upward to one).
3. Dividends. The holders of Convertible Stock shall be entitled to
receive dividends out of funds legally available therefor at such times and in
such amounts as the Board of Directors may determine in its sole discretion;
provided, however, that no such dividend may be declared or paid on any shares
of Convertible Stock unless at the same time a dividend is declared or paid on
all outstanding shares of Common Stock and vice versa, with holders of
Convertible Stock and Common Stock sharing in any such dividends as if they
constituted a single class of stock and with each holder of shares of
Convertible Stock entitled to receive such dividends based on the number of
shares of Common Stock into which such shares of Convertible Stock are then
convertible in accordance with Section A.6 hereof.
4. Liquidation.
(a) Liquidation Preference. Upon any liquidation, dissolution or
winding up of the Corporation and its subsidiaries, whether voluntary or
involuntary (a "Liquidation Event"), each holder of outstanding shares of
Convertible Stock shall be entitled to be paid out of the assets of the
Corporation available for distribution to stockholders, whether such assets
are capital, surplus or earnings, and before any amount shall be paid or
distributed to the holders of Common Stock or of any other stock ranking on
liquidation junior to the Convertible Stock, an amount in cash, equal to
(i) $[1.53](2) per share of Convertible Stock held by such holder (adjusted
appropriately for stock splits, stock dividends, recapitalizations and the
like with respect to the Convertible Stock), plus (ii) any declared but
unpaid dividends to which such holder of outstanding shares of Convertible
Stock is then entitled pursuant to Sections A.3 and A.5(f) hereof (the sum
of clauses (i) and (ii) being referred to herein as the "Convertible
Preferred Base Liquidation Amount"), plus (iii) any interest accrued
pursuant to Section A.5(e) hereof to which such holder of Convertible Stock
is entitled, if any (the sum of clauses (i), (ii) and (iii) being referred
to herein as the "Convertible Liquidation Preference Amount"); provided,
however, that if, upon any Liquidation Event, the amounts payable with
respect to the Convertible Liquidation Preference Amount are not paid in
full, the holders of the Convertible Stock and the Redeemable Preferred
Stock shall share ratably in any distribution of assets in proportion to
the full respective preferential amounts to which they are entitled; and
provided further, however, that if upon any Liquidation Event the holders
of the outstanding shares of Convertible Stock would receive more than the
Convertible Liquidation Preference Amount in the event their shares were
converted into Common Stock immediately prior to such Liquidation Event and
such shares of Common Stock received a liquidating distribution or
distributions from the Corporation (after giving effect to the preferential
amounts payable to the holders of the Redeemable Preferred Stock), then
each holder of Convertible Stock shall receive as a distribution from the
Corporation in connection with such Liquidation Event an amount equal to
the amount that would be paid if such holder's shares of Convertible Stock
were converted into Common Stock immediately prior to such Liquidation
Event in lieu of the Convertible Liquidation Preference Amount. The
provisions of this Section A.4 shall not in any way limit the right of the
holders of Convertible Stock to elect to convert their shares of
Convertible Stock into Common Stock pursuant to Section A.6 prior to or in
connection with any Liquidation Event. Upon any Liquidation Event, holders
of fractional shares of Convertible Stock shall receive proportionate
payments in respect thereof.
(b) Notice. Prior to the occurrence of any Liquidation Event, the
Corporation will furnish each holder of Convertible Stock notice in
accordance with Section A.9 hereof, together with a certificate
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(2) See Footnote 1 above. In the event the amount of such total equity
investment by the TA Investors is different from that set forth above, the
Liquidation Amount will change in a proportionate manner. A-44
<PAGE> 188
prepared by the chief financial officer of the Corporation describing in
detail the facts of such Liquidation Event, stating in detail the amount(s)
per share of Convertible Stock each holder of Convertible Stock would
receive pursuant to the provisions of Section A.4(a) hereof pursuant to
clauses (i), (ii) and (iii) thereof or pursuant to the provisos to Section
A.4(a) and stating in detail the facts upon which such amounts were
determined.
5. Redemption; Preferential Payment in Extraordinary Transactions.
(a)(i) Scheduled Redemption. At any one time on or after the sixth
anniversary of the date of original issuance of the Convertible Stock, upon
the election of the holder or holders of a Two Thirds Interest of the
outstanding Convertible Stock, the Corporation shall redeem all (and not
less than all, other than pursuant to Section 5(e) below) of the
outstanding shares of Convertible Stock. The redemption price for each
share of Convertible Stock redeemed pursuant to this Section A.5(a)(i)
shall be the per share Convertible Liquidation Preference Amount (as
defined in Section A.4(a) above) (the "Convertible Redemption Price"). The
foregoing election shall be made by such holders giving the Corporation and
each of the other holders of Convertible Stock not less than fifteen (15)
days prior written notice, which notice shall set forth the date for such
redemption.
(ii) Extraordinary Transactions. Upon the election of any holder
or holders of a Two Thirds Interest of the outstanding Convertible Stock
to have the Convertible Stock redeemed or otherwise to participate in
connection with the occurrence of any of the following events: (A) a
merger or consolidation of the Corporation with or into another
corporation (with respect to which less than a majority of the
outstanding voting power of the surviving or consolidated corporation is
held by stockholders of the Corporation immediately prior to such
event), (B) the sale or transfer of all or substantially all of the
properties and assets of the Corporation, (C) any purchase by any party
(or group of affiliated parties) of shares of capital stock of the
Corporation (either through a negotiated stock purchase or a tender for
such shares), the effect of which is that such party (or group of
affiliated parties) that did not beneficially own a majority of the
voting power of the outstanding shares of capital stock of the
Corporation immediately prior to such purchase beneficially owns at
least a majority of such voting power immediately after such purchase,
(D) the redemption or repurchase of shares representing a majority of
the voting power of the outstanding shares of capital stock of the
Corporation or (E) a public offering not constituting a "QPO" (as
defined in Section A.6(b) below) (each an "Extraordinary Transaction"),
then, as a part of and as a condition to the effectiveness of such
Extraordinary Transaction, unless the holders of Convertible Stock shall
have elected to convert their shares of Convertible Stock into Common
Stock in accordance with the voluntary conversion provisions of Section
A.6 prior to the effective date of such Extraordinary Transaction, the
Corporation shall either (1) if redemption is elected, on the effective
date of such Extraordinary Transaction, redeem all (but not less than
all) of the outstanding shares of Convertible Stock held by each holder
of Convertible Stock for an amount equal to the Convertible Redemption
Price, such amount to be payable in the same form of consideration as is
paid to the holders of Common Stock in such Extraordinary Transaction,
or (2) if such holders elect to participate in the relevant transaction
(such as a merger) on terms acceptable to them, take such actions as
shall be sufficient to facilitate such participation (including
executing a merger agreement including an exchange ratio reflecting the
provisions hereof) on terms giving such holders the right to such
Convertible Redemption Price as a preferential amount, in which event
such amount shall be paid in the same form of consideration as is paid
to the holders of Common Stock in such Extraordinary Transaction, but in
preference to and before any amount is paid or otherwise distributed to
the holders of the Common Stock or any other stock ranking with regard
to dividend rights, rights upon a Liquidation Event or an Extraordinary
Transaction, or redemption rights junior to the Convertible Stock, in
which event such preferential amount shall be deemed to have been
distributed to the holders of the Convertible Stock as if in a
Liquidation Event.
Notwithstanding the foregoing, if upon any Extraordinary
Transaction the holders of the outstanding shares of Convertible Stock
would receive more than the Convertible Redemption
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Price in the event their shares were converted into Common Stock
immediately prior to such Extraordinary Transaction and such shares of
Common Stock were purchased or otherwise participated in such
Extraordinary Transaction, then each holder of Convertible Stock shall
receive from the Corporation or the relevant purchaser, as applicable,
upon the election by a Two Thirds Interest to redeem or otherwise
participate in such Extraordinary Transaction an amount equal to the
amount per share that would be paid if the shares of Common Stock
receivable upon conversion of the Convertible Stock were being acquired
in the Extraordinary Transaction at the same price per share as is paid
for other shares of Common Stock, which amount shall be paid in the same
form of consideration as is paid to holders of Common Stock, as if each
share of Convertible Stock had been converted into the number of shares
of Common Stock issuable upon the conversion of such share of
Convertible Stock immediately prior to such Extraordinary Transaction.
Also, notwithstanding the foregoing, in connection with the acquisition
of the Convertible Stock in an Extraordinary Transaction which is to be
accounted for by the acquiring entity as a pooling of interests, the
holders of shares of Convertible Stock shall receive upon such election
to redeem or otherwise participate, if so required for the application
of such accounting treatment, and in lieu of cash, the number of shares
of common stock of such entity having a value equal to the amount
otherwise payable to the holders of Convertible Stock in such
Extraordinary Transaction pursuant to this Section A.5(a)(ii) and having
the same registered status or registration rights as any other shares in
such transaction. The Corporation shall not participate in any
Extraordinary Transaction or make or agree to have made any payments to
the holders of shares of Common Stock or any other stock ranking junior
to the Convertible Stock in an Extraordinary Transaction unless the
holders of the Convertible Stock shall have received the amount to which
they are entitled hereunder in an Extraordinary Transaction.
The foregoing election shall be made by such holders giving the
Corporation and each other holder of Convertible Stock not less than ten
(10) business days prior written notice, which notice shall set forth
the date for such redemption or participation in an Extraordinary
Transaction, as applicable. The provisions of this Section A.5 shall not
in any way limit the right of the holders of Convertible Stock to elect
to convert their shares into shares of Common Stock pursuant to Section
A.6 prior to or in connection with any Extraordinary Transaction.
(b) Valuation of Distribution Securities. Any securities or other
consideration to be delivered to the holders of the Convertible Stock if so
elected in connection with a redemption or upon any Extraordinary
Transaction in accordance with the terms hereof shall be valued as follows:
(i) If traded on a nationally recognized securities exchange or
inter-dealer quotation system, the value shall be deemed to be the
average of the closing prices of the securities on such exchange or
system over the 20-day period ending three (3) business days prior to
the closing of such Extraordinary Transaction;
(ii) If traded over-the-counter, the value shall be deemed to be
the average of the closing bid prices over the 20-day period ending
three (3) business days prior to the closing of such Extraordinary
Transaction; and
(iii) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the Board of
Directors of the Corporation (excluding any members of the Board of
Directors that have been designated by the holders of the Convertible
Stock) and the holders of not less than a Two Thirds Interest of the
outstanding shares of Convertible Stock, provided that if the Board of
Directors of the Corporation and the holders of not less than a Two
Thirds Interest of the outstanding shares of Convertible Stock are
unable to reach agreement, then by independent appraisal by a mutually
agreed to investment banker, the fees of which shall be paid by the
Corporation.
(c) Notice by Corporation. Prior to the occurrence of any
Extraordinary Transaction, the Corporation will furnish each holder of
Convertible Stock notice in accordance with Section A.9 hereof, together
with a certificate prepared by the chief financial officer of the
Corporation describing
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all material terms of such Extraordinary Transaction, including without
limitation the consideration to be delivered in connection with such
Extraordinary Transaction, and the identities of the parties to the
Extraordinary Transaction.
(d) Purchase Date and Price. Upon the election of the holders of not
less than a Two Thirds Interest of the outstanding Convertible Stock to
cause the Corporation to redeem the Convertible Stock or otherwise to
participate in an Extraordinary Transaction pursuant to Section A.5(a)(i)
or (ii), each holder of Convertible Stock shall be deemed to have elected
to cause all of the shares of Convertible Stock held by such holder to be
so redeemed or to so participate. Any date upon which a redemption or other
acquisition is to occur in accordance with Section A.5(a) shall be referred
to as a "Convertible Redemption Date." If at a Convertible Redemption Date
shares of Convertible Stock are unable to be redeemed (as contemplated by
Section A.5(e) below), then holders of Convertible Stock shall also be
entitled to interest and dividends pursuant to Sections A.5(e) and (f)
below. The aggregate Convertible Redemption Price elected to be payable in
cash pursuant to Section A.5(a) shall be payable in cash in immediately
available funds to the respective holders on the Convertible Redemption
Date (subject to Section A.5(e)), except as otherwise contemplated by
Section A.5(a)(ii). Upon any redemption as provided herein, holders of
fractional shares shall receive proportionate amounts in respect thereof.
Until the aggregate applicable redemption price has been paid for all
shares of Convertible Stock being redeemed or acquired: (A) except with
respect to stock splits and distributions, no dividend whatsoever shall be
paid or declared, and no distribution shall be made, on any capital stock
of the Corporation other than the Redeemable Preferred Stock; and (B)
except as permitted by Sections A.8(d) and B.6(d), no shares of capital
stock of the Corporation (other than in accordance with this Section A.5
and Section B.5 below) shall be purchased, redeemed or acquired by the
Corporation and no monies shall be paid into or set aside or made available
for a sinking fund for the purchase, redemption or acquisition thereof.
(e) Redemption Prohibited. If, at a Convertible Redemption Date, the
Corporation is prohibited under the Delaware General Corporation Law from
redeeming all shares of Convertible Stock for which redemption is required
hereunder, then it shall redeem such shares, if any, on a pro-rata basis
among the holders of Convertible Stock in proportion to the full respective
redemption amounts to which they are entitled hereunder to the extent
possible and shall redeem the remaining shares to be redeemed as soon as
the Corporation is not prohibited from redeeming some or all of such shares
under the Delaware General Corporation Law, subject to the last paragraph
of Section A.8. Any shares of Convertible Stock not redeemed shall remain
outstanding and entitled to all of the rights and preferences provided in
this Article IV. The Corporation shall take such commercially reasonable
action as shall be necessary or appropriate to review and promptly remove
any impediment to its ability to redeem Convertible Stock under the
circumstances contemplated by this Section A.5(e). In the event that the
Corporation fails for any reason to redeem shares for which redemption is
required pursuant to this Section A.5 (except with respect to failures
resulting from the provisions of Section A.5(h) in connection with a
redemption under Section A.5(a)(ii) hereof), including without limitation
due to a prohibition of such redemption under the Delaware General
Corporation Law, then during the period from the applicable Convertible
Redemption Date through the date on which such shares are redeemed, the
applicable Convertible Preferred Base Liquidation Amount of such shares
shall bear interest payable in cash at the rate of the higher of (i) ten
percent (10%) per annum or (ii) four percent (4%) over the Prime Rate as
reported in the Wall Street Journal on the Convertible Redemption Date,
with such interest to accrue daily in arrears and to be compounded
annually; provided, however, that in no event shall such interest exceed
the maximum permitted rate of interest under applicable law (the "Maximum
Permitted Rate"). In the event that fulfillment of any provision hereof
results in such rate of interest being in excess of the Maximum Permitted
Rate, the obligation to be fulfilled shall automatically be reduced to
eliminate such excess; provided, however, that any subsequent increase in
the Maximum Permitted Rate shall be retroactively effective to the
applicable Convertible Redemption Date.
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(f) Dividend After Convertible Redemption Date. From and after a
Convertible Redemption Date, no shares of Convertible Stock subject to
redemption shall be entitled to dividends, if any, as contemplated by
Section A.3; provided, however, that in the event that shares of
Convertible Stock are unable to be redeemed and continue to be outstanding
in accordance with Section A.5(e), such shares shall continue to be
entitled to dividends and interest thereon as provided in Sections A.3 and
A.5(e) until the date on which such shares are actually redeemed by the
Corporation.
(g) Surrender of Certificates. Upon receipt of the applicable
redemption price by certified check or wire transfer (in the event such
price is to be paid in cash), each holder of shares of Convertible Stock to
be redeemed shall surrender the certificate or certificates representing
such shares to the Corporation, duly assigned or endorsed for transfer (or
accompanied by duly executed stock powers relating thereto), or, in the
event the certificate or certificates are lost, stolen or missing, shall
deliver an affidavit or agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection
therewith (an "Affidavit of Loss") with respect to such certificates at the
principal executive office of the Corporation or the office of the transfer
agent for the Convertible Stock or such office or offices in the
continental United States of an agent for redemption as may from time to
time be designated by notice to the holders of Convertible Stock, and each
surrendered certificate shall be canceled and retired; provided, however,
that if the Corporation is prohibited from redeeming all shares of
Convertible Stock as provided in Section A.5(e), then upon the surrender of
such certificate(s), the Corporation will deliver to the holder a new
certificate for the shares of Convertible Stock not so redeemed.
(h) Further Restrictions on Redemption. Notwithstanding anything
herein to the contrary, the Convertible Stock shall not be redeemed or
subject to redemption hereunder unless (i) all obligations of the
Corporation under the Credit Agreement dated as of , 1999 among
the Corporation, the lenders party thereto, (the "Senior Lenders"), and
, both as Senior Lender and agent (such agreement, as
amended or supplemented from time to time, the "Credit Agreement") and the
Subordinated Credit Agreement dated as of , 1999 among the
Corporation, the lenders party thereto, (the "Subordinated Lenders") (such
agreement, as amended or supplemented from time to time, the "Subordinated
Credit Agreement") shall have been or are currently paid in full, (ii) the
Senior Lenders and Subordinated Lenders shall have consented to such
redemption, or (iii) such redemption otherwise is permitted under the
Senior Credit Agreement and Subordinated Credit Agreement. If the
Corporation is prohibited from redeeming the Convertible Stock under
Section A.5(a)(i) pursuant to this Section A.5(h), the holders of the
Convertible Stock shall be entitled to the provisions of Sections A.5(e).
6. Conversion. The holders of the Convertible Stock shall have the
following conversion rights:
(a) Conversion Upon Election of Holders. Each holder of a share of
Convertible Stock shall be entitled at any time, upon the written election
of such holder without the payment of any additional consideration, to
convert such share of Convertible Stock into the number of fully paid and
nonassessable shares of Common Stock which results from dividing the
Conversion Value (as defined in this Section A.6(a)) per share in effect
for the Convertible Stock at the time of conversion, as the numerator, by
the per share Conversion Price (as defined in this Section A.6(a)) of the
Convertible Stock, as the denominator. However, the Company may not issue
fractional shares of Common Stock. Any fractional shares resulting from the
conversion of Convertible Stock into Common Stock shall be rounded to the
nearest whole number (with any fraction equal to or greater than one-half
rounded upward to one). The number of shares of Common Stock into which a
share of a Convertible Stock is convertible is hereinafter referred to as
the "Conversion Rate." In addition, the holders of shares of Convertible
Stock shall be entitled at any time, upon the written election of a Two
Thirds Interest of outstanding Convertible Stock without the payment of any
additional consideration, to cause all (but not less than all) of the
outstanding shares of Convertible Stock to be automatically converted into
Common Stock at the Conversion Rate, with fractional shares treated as
provided above. Upon the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the
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State of Delaware the "Conversion Price" per share of Convertible Stock
shall be $[1.53](3), and the per share "Conversion Value" of Convertible
Stock shall be $[1.53](3). The Conversion Price per share of Convertible
Stock and the Conversion Rate shall be subject to adjustment from time to
time as provided in Section A.7 hereof. If any share of Convertible Stock
is converted at a time when there are any declared but unpaid dividends or
other amounts due on or in respect of such shares, such declared but unpaid
dividends and other amounts shall be paid in full in cash by the
Corporation in connection with such conversion.
(b) Automatic Conversion Upon QPO. Each share of Convertible Stock
shall automatically be converted, without the payment of any additional
consideration, into shares of Common Stock as of, and in all cases subject
to, the closing of the Corporation's first underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, following the filing date of this Amended and Restated
Certificate of Incorporation provided that (i) such registration statement
covers the offer and sale of Common Stock of which the aggregate gross
proceeds attributable to sales for the account of the Corporation exceed
$50 million, at a price per share equal to at least [$10.00](3)
(appropriately adjusted for any stock split, combination, reorganization,
recapitalization, stock dividend, or similar event), (ii) such Common Stock
is listed for trading on either the New York Stock Exchange or the Nasdaq
National Market, and (iii) all outstanding shares of Redeemable Preferred
Stock are redeemed for cash and/or Series A Notes (as defined in Section
B.5 below) immediately upon and as of the closing of such offering (a "QPO"
or a "Qualified Public Offering"); provided that if a closing of a QPO
occurs, all outstanding shares of Convertible Stock shall be deemed to have
been converted into shares of Common Stock immediately prior to such
closing. Any such conversion shall be at the Conversion Rate in effect upon
the closing of a QPO, as applicable.
If the holders of shares of Convertible Stock are required to convert
the outstanding shares of Convertible Stock pursuant to this Section A.6(b)
at a time when there are any declared but unpaid dividends or other amounts
due on or in respect of such shares, such dividends and other amounts shall
be paid in full in cash, or, at the Corporation's option, shares of Common
Stock, by the Corporation in connection with such conversion.
(c) Procedure for Voluntary Conversion. Upon election to convert
pursuant to Section A.6(a), the relevant holder of Convertible Stock shall
surrender the certificate or certificates representing the Convertible
Stock being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating
thereto), at the principal executive office of the Corporation or the
offices of the transfer agent for the Convertible Stock or such office or
offices in the continental United States of an agent for conversion as may
from time to time be designated by notice to the holders of the Convertible
Stock by the Corporation, or shall deliver an Affidavit of Loss with
respect to such certificates. The issuance by the Corporation of Common
Stock upon a conversion of Convertible Stock pursuant to Section A.6(a)
hereof shall be effective as of the surrender of the certificate or
certificates for the Convertible Stock to be converted, duly assigned or
endorsed for transfer to the Corporation (or accompanied by duly executed
stock powers relating thereto), or as of the delivery of an Affidavit of
Loss. Upon surrender of a certificate representing Convertible Stock for
conversion, or delivery of an Affidavit of Loss, the Corporation shall
issue and send by hand delivery, by courier or by first class mail (postage
prepaid) to the holder thereof or to such holder's designee, at the address
designated by such holder, certificates for the number of shares of Common
Stock to which such holder shall be entitled upon conversion plus a cash
payment in the amount of any declared but unpaid dividends and other
amounts as contemplated by Section A.6(a) in respect of the shares of
Convertible Stock. The issuance of certificates for Common Stock upon
conversion of Convertible Stock will be made without charge to the holders
of such shares for any issuance tax in respect thereof or other costs
incurred by the Corporation in connection with such
- ---------------
(3) See Footnote 1 above. In the event the amount of such total equity
investment by the TA Investors is different from that set forth above, the
Conversion Price, Conversion Value and per share QPO price will change in a
proportionate manner. A-49
<PAGE> 193
conversion and the related issuance of such stock. If a conversion of
Convertible Stock upon a Liquidation Event or an Extraordinary Transaction
occurs and the holders of the Common Stock issued on such conversion elect
to participate, the Corporation shall make appropriate provisions for the
Common Stock issued upon such conversion to be treated on the same basis as
all other Common Stock in such Liquidation Event or Extraordinary
Transaction. In the event of any public offering constituting a QPO, the
provisions of Section A.6(d) shall apply.
(d) Procedure for Automatic Conversion. As of, and in all cases
subject to, the closing of a QPO (the "Automatic Conversion Date"), all
outstanding shares of Convertible Stock shall be converted automatically
into shares of Common Stock at the Conversion Rate and without any further
action by the holders of such shares and whether or not the certificates
representing such shares of Convertible Stock are surrendered to the
Corporation or its transfer agent. On the Automatic Conversion Date, all
rights with respect to the Convertible Stock so converted shall terminate,
except any of the rights of the holders thereof upon surrender of their
certificate or certificates therefor or delivery of an Affidavit of Loss
thereof to receive certificates for the number of shares of Common Stock
into which such Convertible Stock has been converted plus all declared but
unpaid dividends and other amounts as contemplated by Section A.6(b). If so
required by the Corporation, certificates surrendered for conversion shall
be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his, her or its attorney duly authorized in
writing. Upon surrender of such certificates or Affidavit of Loss the
Corporation shall issue and deliver to such holder, promptly (and in any
event in such time as is sufficient to enable such holder to sell its
shares in such QPO) at such office and in its name as shown on such
surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of the
Convertible Stock surrendered are convertible on the Automatic Conversion
Date.
(e) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Convertible Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Convertible Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all of the then outstanding
shares of Convertible Stock, the Corporation will take such corporate
action as may be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
(f) No Closing of Transfer Books. The Corporation shall not close its
books against the transfer of shares of Convertible Stock in any manner
which would interfere with the timely conversion of any shares of
Convertible Stock.
7. Adjustments. The Conversion Price in effect from time to time shall be
subject to adjustment from and after the date this Amended and Restated
Certificate of Incorporation is filed, and regardless of whether any shares of
Convertible Stock are then issued and outstanding as follows:
(a) Dividends and Stock Splits. If the number of shares of Common
Stock outstanding at any time after the date hereof is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up
of shares of Common Stock, then, on the date such payment is made or such
change is effective, the Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of any
shares of Convertible Stock shall be increased in proportion to such
increase of outstanding shares of Common Stock.
(b) Reverse Stock Splits. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination
or reverse split of the outstanding shares of Common Stock, then, on the
effective date of such combination or reverse split, the Conversion Price
shall be appropriately increased so that the number of shares of Common
Stock issuable on
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<PAGE> 194
conversion of any shares of Convertible Stock shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
(c) Reorganization, etc. If the Common Stock issuable upon the
conversion of the Convertible Stock shall be changed into the same or
different number of shares of any class or classes of stock, whether by
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 7),
then and in each such event the holders of Convertible Stock shall have the
right thereafter to convert such shares into the kind and amount of shares
of stock and other securities and property receivable upon such
reorganization, reclassification or other change, by holders of the number
of shares of Common Stock into which such shares of Convertible Stock might
have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(d) Mergers and Other Reorganizations. Unless such transaction is an
Extraordinary Transaction in which the holders of the Convertible Stock
elect redemption (in which case Section 5(a)(ii) shall apply and this
subsection shall not apply), if at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a
subdivision, combination or reclassification provided for elsewhere in this
Section 7) or a merger or consolidation of the Corporation with or into
another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as of and as
a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that
the holders of the Convertible Stock shall thereafter be entitled to
receive upon conversion of the Convertible Stock the number of shares of
stock or other securities or property of the Corporation or of the
successor Corporation resulting from such merger or consolidation or sale,
to which a holder of Common Stock deliverable upon conversion would have
been entitled on such capital reorganization, merger, consolidation, or
sale had the holder of such Convertible Stock converted such securities
immediately prior to such transaction. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the
Convertible Stock after the reorganization, merger, consolidation or sale
to the end that the provisions of this Section 7 (including, without
limitation, provisions for adjustment of the applicable Conversion Price
and the number of shares purchasable upon conversion of the Convertible
Stock) shall thereafter be applicable, as nearly as may be, with respect to
any shares of stock, securities or assets to be deliverable thereafter upon
the conversion of the Convertible Stock.
(e) Calculations. All calculations under this Section 7 shall be made
to the nearest cent or to the nearest one hundredth (1/100) of a share of
Common Stock, as the case may be.
(f) Certificate. Upon the occurrence of each adjustment or
readjustment pursuant to this Section 7, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to each holder of Convertible
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon written request at any time of any
holder of Convertible Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Prices before and after such
adjustment or readjustment, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be
received upon the conversion of such holder's shares of Convertible Stock.
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<PAGE> 195
8. Covenants. So long as the holders of Convertible Stock continue to hold
at least twenty-five percent (25%) of the shares of Convertible Stock issued in
the original issuance of the Convertible Stock, the Corporation shall not,
without first having provided written notice of such proposed action to each
holder of outstanding shares of Convertible Stock and having obtained the
affirmative vote or written consent of the holders of not less than a Two Thirds
Interest of the outstanding shares of Convertible Stock, voting as a single
class, with each share of Convertible Stock entitling the holder thereof to one
vote per share of Convertible Stock held by such holder:
(a) amend, alter or repeal any provision of, or add any provision to,
Article IV of this Amended and Restated Certificate of Incorporation, or
otherwise amend, alter or repeal any provision of, or add any provision to,
this Amended and Restated Certificate of Incorporation or the Corporation's
by-laws if such latter action would alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the
benefit of, any of the Convertible Stock;
(b) reclassify any capital stock;
(c) create, obligate itself to create, authorize or issue any new
class or classes of stock or new series of common stock or preferred stock
or any security convertible into or evidencing the right to purchase shares
of any new class or series of common stock or preferred stock or any new
capital stock of the Corporation having preference over or being on parity
with the Convertible Stock in any respect;
(d) declare or pay any dividends (other than stock dividends and other
than dividends on the Redeemable Preferred Stock as provided in Section
B.3) or make any distributions of cash, property or securities of the
Corporation in respect of its capital stock, or apply any of its assets to
the redemption, retirement, purchase or other acquisition of its capital
stock, directly or indirectly, through subsidiaries or otherwise, except
for (i) the redemption of Convertible Stock or Redeemable Preferred Stock
pursuant to and as provided in this Amended and Restated Certificate of
Incorporation, (ii) the redemption of up to [INSERT AMOUNT EQUAL TO 5%
POOL] shares of Common Stock from employees, officers or Directors of, or
consultants, advisors or independent contractors to, the Corporation or any
of its subsidiaries pursuant to an agreement containing vesting and/or
repurchase provisions approved by the Board of Directors of the Corporation
or a committee thereof and (iii) the exercise of the Right of First Refusal
(as defined in the Stockholders Agreement);
(e) enter into any transaction involving payments to be made to or by
the Corporation for the benefit of any of its shareholders, Directors,
officers, key management employees or any person controlling, controlled
by, under common control with or otherwise affiliated with, or a member of
a family of, any such person (an "Affiliate") on other than on an arm's
length basis or on terms and conditions less favorable to the Corporation
than could be obtained from unrelated persons, other than fees paid to a
Director in his or her capacity as a Director or a member of a committee of
the Board of Directors and compensation authorized by the Compensation
Committee of the Board of Directors (and approved by the Board of
Directors) to be paid to an Affiliate for services performed by such
Affiliate; or
(f) effect any Liquidation Event or any Extraordinary Transaction.
Further, the Corporation shall not, by amendment of this Amended and
Restated Certificate of Incorporation or through any Extraordinary
Transaction or other reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, agreement or any other
voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation
but shall at all times in good faith assist in the carrying out of all the
provisions of this Article IV and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holders
of the Convertible Stock against impairment. Without limitation of the
foregoing, the Corporation shall take such action as shall be necessary or
appropriate, to the extent reasonably within its control, to remove
promptly any impediments to its ability to
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<PAGE> 196
redeem Convertible Stock under the circumstances contemplated by Section
A.5(e). Any successor to the Corporation shall agree, as a condition to
such succession, to carry out and observe the obligations of the
Corporation hereunder with respect to the Convertible Stock, except to the
extent the succession causes a Liquidation Event or is an Extraordinary
Transaction.
9. Notice.
(a) Liquidation Events, Extraordinary Transactions, Etc. In the event
(i) the Corporation establishes a record date to determine the holders of
any class of securities who are entitled to receive any dividend or other
distribution or who are entitled to vote at a meeting (or by written
consent) in connection with any of the transactions identified in clause
(ii) hereof, or (ii) any Liquidation Event (as defined in Section A.4), any
Extraordinary Transaction (as defined in Section A.5) or any QPO (as
defined in Section A.6) becomes reasonably likely to occur, the Corporation
shall mail or cause to be mailed by first class mail (postage prepaid) to
each holder of Convertible Stock at least twenty (20) days prior to such
record date specified therein or the expected effective date of any such
transaction, whichever is earlier, a notice specifying (A) the date of such
record date for the purpose of such dividend or distribution or meeting or
consent and a description of such dividend or distribution or the action to
be taken at such meeting or by such consent, (B) the date on which any such
Liquidation Event or Extraordinary Transaction is expected to become
effective or a registration statement relating to a QPO is expected to be
filed, and (C) the date on which the books of the Corporation shall close
or a record shall be taken with respect to any such event.
(b) Waiver of Notice. The holder or holders of not less than a Two
Thirds Interest of the outstanding shares of Convertible Stock may, at any
time upon written notice to the Corporation, waive any notice provisions
specified herein for the benefit of such holders, and any such waiver shall
be binding upon all holders of such securities.
(c) General. In the event that the Corporation provides any notice,
report or statement to any holder of common stock, the Corporation shall at
the same time provide a copy of any such notice, report or statement to
each holder of outstanding shares of Convertible Stock.
10. No Reissuance of Convertible Stock. No share or shares of Convertible
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued, and all such shares shall be canceled, retired
and eliminated from the shares which the Corporation shall be authorized to
issue.
11. Contractual Rights of Holders. The various provisions set forth herein
for the benefit of the holders of the Convertible Stock shall be deemed contract
rights enforceable by them, including without limitation, one or more actions
for specific performance.
B. REDEEMABLE PREFERRED STOCK
1. Designation. A total of [27,800] shares of the Corporation's Preferred
Stock shall be designated as a series known as Redeemable Preferred Stock, par
value $.001 per share (the "Redeemable Preferred Stock"). All of the
preferential amounts to be paid to the holders of the Redeemable Preferred Stock
as provided in this Section B shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any property of the Corporation to, the holders of any other equity securities
of the Corporation, whether now or hereafter authorized, other than the
Convertible Stock which shall rank equal to the Redeemable Preferred Stock in
connection with any event referred to in Section B.4 or B.5.
2. Voting. Except as set forth herein, the Redeemable Preferred Stock
shall not be entitled to vote on any matters except to the extent otherwise
required under the Delaware General Corporation Law.
3. Dividends. The holders of outstanding shares of Redeemable Preferred
Stock shall be entitled to receive, in preference to the holders of any and all
other classes of capital stock of the Corporation, out of any funds legally
available therefor, cumulative dividends on the Redeemable Preferred Stock in
cash or,
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at the option of the holders of not less than a Two Thirds Interest of the
outstanding shares of Redeemable Preferred Stock, in shares of Common Stock of
equivalent value, at the per share rate per annum of six percent (6%) of
$1,000.00 (adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like with respect to the Redeemable Preferred Stock)
subject to proration for partial years on the basis of a 365-day year (a
"Redeemable Cumulative Dividend"). Such dividends will commence as of the date
of issuance of the Redeemable Preferred Stock, will accumulate and compound
annually as of January 1 of each year beginning January 1, 2000 until paid and
will be cumulative, to the extent unpaid, whether or not they have been declared
and whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends. Redeemable Cumulative Dividends
shall become due and payable with respect to any share of Redeemable Preferred
Stock as provided in Section B.4 and Section B.5. Dividends paid in an amount
less than the total amount of such dividends at the time accumulated and payable
on all outstanding shares of Redeemable Preferred Stock shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding. So
long as any shares of Redeemable Preferred Stock are outstanding and the
Redeemable Cumulative Dividends have not been paid in full: (a) no dividend
whatsoever (other than stock dividends) shall be paid or declared, and no
distribution shall be made, on any Common Stock or other capital stock of the
Corporation ranking junior to the Redeemable Preferred Stock; and (b) except as
provided in Section A.8(d) and B.6(d), no shares of capital stock of the
Corporation ranking with regard to dividend rights, rights upon a Liquidation
Event or an Extraordinary Transaction, or redemption rights junior to the
Redeemable Preferred Stock shall be purchased, redeemed or acquired by the
Corporation and no monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition thereof. All numbers
relating to the calculation of dividends pursuant to this Section B.3 shall be
subject to equitable adjustment in the event of any stock split, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the Redeemable Preferred Stock.
4. Liquidation. Upon any Liquidation Event, each holder of outstanding
shares of Redeemable Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to stockholders, whether
such assets are capital, surplus, or earnings, and before any amount shall be
paid or distributed to the holders of Common Stock or of any other stock ranking
on liquidation junior to the Redeemable Preferred Stock, an amount in cash equal
to the sum of (a) $1,000.00 per share of Redeemable Preferred Stock held by such
holder (adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like with respect to the Redeemable Preferred Stock),
plus (b) any accumulated but unpaid dividends to which such holder of
outstanding shares of Redeemable Preferred Stock is entitled pursuant to
Sections B.3 and B.5(d) hereof (the sum of clauses (a) and (b) being referred to
herein as the "Redeemable Base Liquidation Amount"), plus (c) any interest
accrued pursuant to Section B.5(c) to which such holder of outstanding shares of
Redeemable Preferred Stock is entitled, if any (the sum of clauses (a), (b) and
(c) being referred to herein as the "Redeemable Liquidation Preference Amount");
provided, however, that if, upon any Liquidation Event, the amounts payable with
respect to the Redeemable Liquidation Preference Amount are not paid in full,
the holders of the Redeemable Preferred Stock and the holders of the Convertible
Stock shall share ratably in any distribution of assets in proportion to the
full respective preferential amounts to which they are entitled.
5. Redemption.
(a) Redemption Events.
(i) Automatic. Immediately upon and as of, and in all cases
subject to, the closing of a QPO, the Corporation shall redeem all (and
not less than all) of the outstanding shares of Redeemable Preferred
Stock at the Redeemable Redemption Price specified in Section B.5(b),
such amount (except as provided in the following proviso) to be payable
in cash; provided, however that, in the event the principal underwriter,
if any, for such QPO shall reasonably and in good faith request in
writing, or cause the Corporation to so request in writing, that the
holders of Redeemable Preferred Stock waive the holders' right to elect
to have all of such holders' shares of Redeemable Preferred Stock
redeemed for cash pursuant to this Section B.5(a)(i),
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then any outstanding shares of Redeemable Preferred Stock may be
exchanged, without the payment of additional consideration, for any
combination of cash and notes of the Company ("Series A Notes") in an
aggregate principal amount equal to the Redeemable Redemption Price (as
defined below) multiplied by the number of shares so exchanged, which
Series A Notes shall (i) mature on the second anniversary of the
effective date of such QPO and (ii) bear interest at the rate of the
higher of (x) ten percent (10%) per annum or (y) four percent (4%) over
the Prime Rate as reported in the Wall Street Journal on the effective
date of the QPO, which interest shall accrue daily in arrears and be
paid on the last day of each month commencing on the last day of the
first month following the consummation of such QPO.
(ii) Scheduled. At any one time on or after the sixth anniversary
of the date of original issuance of the Redeemable Preferred Stock, upon
the election of the holder or holders of a Two Thirds Interest of the
outstanding Redeemable Preferred Stock, the Corporation shall redeem all
(and not less than all, other than pursuant to Section B.5(c) below) of
the outstanding shares of Redeemable Preferred Stock. The redemption
price for each share of Redeemable Preferred Stock redeemed pursuant to
this Section B.5(a)(i) shall be the per share Redeemable Liquidation
Preference Amount (as defined in Section B.4 above) (the "Redeemable
Redemption Price"). The foregoing election shall be made by such holders
giving the Corporation and each of the other holders of Redeemable
Preferred Stock not less than fifteen (15) days prior written notice,
which notice shall set forth the date for such redemption.
(iii) Upon Occurrence of Extraordinary Transactions. Immediately
upon and as of, and in all cases subject to, the closing of an
Extraordinary Transaction (as defined in Section A.5) unless such
Redeemable Preferred Stock is acquired in such Extraordinary Transaction
on terms giving effect to the preferential amount to which the
Redeemable Preferred Stock would be entitled in connection with a
Liquidation Event hereunder and otherwise as agreed to by the holders of
not less than a Two Thirds Interest of the outstanding Redeemable
Preferred Stock, the Corporation shall redeem all (and not less than
all) of the outstanding shares of Redeemable Preferred Stock at the
Redeemable Redemption Price, such amount (except as provided in Section
A.5(b)) to be payable in cash.
(b) Purchase Date and Price. Upon the election of the holders of not
less than a Two Thirds Interest of the outstanding Redeemable Preferred
Stock to cause the Corporation to redeem the Redeemable Preferred Stock or
otherwise to participate in an Extraordinary Transaction pursuant to
Section B.5(a)(ii) or (iii), all holders of Redeemable Preferred Stock
shall be deemed to have elected to cause the Redeemable Preferred Stock
subject to such election to be so redeemed or to so participate. Any date
upon which a redemption or other acquisition shall actually occur in
accordance with Section B.5(a) shall be referred to as a "Redeemable
Redemption Date." The aggregate Redeemable Redemption Price shall be
payable in cash in immediately available funds on the Redeemable Redemption
Date. Until the aggregate Redeemable Redemption Price, including any
interest thereon, has been paid for all shares of Redeemable Preferred
Stock redeemed or purchased as of the applicable Redeemable Redemption
Date: (A) no dividend (other than stock dividends or splits) whatsoever
shall be paid or declared, and no distribution shall be made, on any
capital stock of the Corporation; and (B) except as provided in Sections
A.8(d) and B.6(d), no shares of capital stock of the Corporation (other
than in accordance with Section A.5 above or this Section B.5) shall be
purchased, redeemed or acquired by the Corporation and no monies shall be
paid into or set aside or made available for a sinking fund for the
purchase, redemption or acquisition thereof. Notwithstanding the foregoing,
in connection with a redemption or acquisition of the Redeemable Preferred
Stock in an Extraordinary Transaction which is accounted for by the
acquiring entity as a pooling of interests, the holders of shares of
Redeemable Preferred Stock shall receive, upon election to sell the same if
so required for the application of such accounting treatment, and in lieu
of cash, the number of shares of common stock of such entity having a value
equal to the amount otherwise payable to the holders of Redeemable
Preferred Stock in such Extraordinary Transaction pursuant to the preceding
sentence and having the same registered status or registration rights as
any other shares
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in such transaction. Any securities or other consideration to be delivered
to the holders of the Redeemable Preferred Stock if so elected in
connection with a redemption or upon any Extraordinary Transaction in
accordance with the terms hereof shall be valued as set forth in Section
A.5(b) above.
(c) Redemption Prohibited. If, at a Redeemable Redemption Date, the
Corporation is prohibited under the Delaware General Corporation Law from
redeeming all shares, if any, of Redeemable Preferred Stock for which
redemption is required hereunder, then it shall redeem such shares on a
pro-rata basis among the holders of Redeemable Preferred Stock in
proportion to the full respective redemption amounts to which they are
entitled hereunder to the extent possible and shall redeem the remaining
shares to be redeemed as soon as the Corporation is not prohibited from
redeeming some or all of such shares under the Delaware General Corporation
Law, subject to the last paragraph of Section B.6. The shares of Redeemable
Preferred Stock not redeemed shall remain outstanding and entitled to all
of the rights and preferences provided in this Article IV. The Corporation
shall take such commercially reasonable action as shall be necessary and
appropriate to review and promptly remove any impediment to its ability to
redeem Redeemable Preferred Stock under the circumstances contemplated by
this Section B.5(c). In the event that the Corporation fails for any reason
to redeem shares for which redemption is required pursuant to Section B.5
(except with respect to failures resulting from the provisions of Section
A.5(h) in connection with a redemption under Section B.5(a)(iii) hereof),
including, without limitation, due to a prohibition of such redemption
under the Delaware General Corporation Law, then during the period from the
applicable Redeemable Redemption Date through the date on which such shares
are redeemed, the applicable Redeemable Base Liquidation Amount of such
shares shall bear interest at the rate of the higher of (i) ten percent
(10%) per annum or (ii) four percent (4%) over the Prime Rate as reported
in the Wall Street Journal on the Redeemable Redemption Date, with such
interest to accrue daily in arrears and to be compounded annually;
provided, however, that in no event shall such interest exceed the Maximum
Permitted Rate.
(d) Dividend After Redeemable Redemption Date. From and after the
Redeemable Redemption Date, no shares of Redeemable Preferred Stock subject
to redemption shall be entitled to any further dividends pursuant to
Section B.3 hereof; provided, however, that in the event that shares of
Redeemable Preferred Stock are unable to be redeemed and continue to be
outstanding in accordance with Section B.5(c), such shares shall continue
to be entitled to dividends and interest thereon as provided in Sections
B.3 and B.5(c) until the date on which such shares are actually redeemed by
the Corporation.
(e) Surrender of Certificates. Upon receipt of the applicable
Redeemable Redemption Price by certified check or wire transfer, each
holder of shares of Redeemable Preferred Stock to be redeemed shall
surrender the certificate or certificates representing such shares to the
Corporation, duly assigned or endorsed for transfer (or accompanied by duly
executed stock powers relating thereto), or shall deliver an Affidavit of
Loss with respect to such certificates at the principal executive office of
the Corporation or the office of the transfer agent for the Redeemable
Preferred Stock or such office or offices in the continental United States
of an agent for redemption as may from time to time be designated by notice
to the holders of Redeemable Preferred Stock, and each surrendered
certificate shall be canceled and retired; provided, however, that if the
Corporation is prohibited from redeeming all shares of Redeemable Preferred
Stock as provided in Section B.5(c), then, upon the surrender of such
certificate(s), the Corporation will deliver to the holder a new
certificate for those shares of Redeemable Preferred Stock not so redeemed.
(f) Further Restrictions on Redemptions. Notwithstanding anything
herein to the contrary, the Redeemable Preferred Stock shall not be
redeemed or subject to redemption hereunder unless (i) all obligations of
the Corporation under the Credit Agreement and Subordinated Credit
Agreement shall have been or are concurrently paid in full, (ii) the Senior
Lenders and Subordinated Lenders shall have consented to such redemption,
or (iii) such redemption otherwise is permitted under the Credit Agreement
and Subordinated Credit Agreement. If the Corporation is prohibited from
redeeming the
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Redeemable Preferred Stock under Section B.5(a)(i) or (ii) pursuant to this
Section B.5(f), the holders of Redeemable Preferred Stock shall be entitled
to the provisions of Section B.5(c).
6. Covenants. So long as the holders of Redeemable Preferred Stock
continue to hold at least twenty-five percent (25%) of the shares of Redeemable
Preferred Stock issued in the original issuance of the Redeemable Preferred
Stock, the Corporation shall not, without first having provided written notice
of such proposed action to each holder of outstanding shares of Redeemable
Preferred Stock and having obtained the affirmative vote or written consent of
the holders of not less than a Two Thirds Interest of the outstanding shares of
Redeemable Preferred Stock, voting as a single class, with each share of
Redeemable Preferred Stock entitling the holder thereof to one vote per share of
Redeemable Preferred Stock held by such holder:
(a) amend, alter or repeal any provision of, or add any provision to,
Article IV of this Amended and Restated Certificate of Incorporation, or
otherwise amend, alter or repeal any provision of, or add any provision to,
this Amended and Restated Certificate of Incorporation or the Corporation's
by-laws if such latter action would alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the
benefit of, any of the Redeemable Preferred Stock;
(b) reclassify any capital stock;
(c) create, obligate itself to create, authorize or issue any new
class or classes of stock or new series of common stock or preferred stock
or any security convertible into or evidencing the right to purchase shares
of any new class or series of common stock or preferred stock or any new
capital stock of the Corporation having preference over or being on parity
with the Redeemable Preferred Stock in any respect;
(d) declare or pay any dividends other than stock dividends or
dividends on the Redeemable Preferred Stock as provided in Section B.3 or
make any distributions of cash, property or securities of the Corporation
in respect of its capital stock, or apply any of its assets to the
redemption, retirement, purchase or other acquisition of its capital stock,
directly or indirectly, through subsidiaries or otherwise, except for (i)
the redemption of Convertible Stock or Redeemable Preferred Stock pursuant
to and as provided in this Amended and Restated Certificate of
Incorporation, (ii) the redemption of up to [INSERT AMOUNT EQUAL TO 5%
POOL] shares of Common Stock from employees, officers or Directors of, or
consultants, advisors or independent contractors to, the Corporation or any
of its subsidiaries pursuant to an agreement containing vesting and/or
repurchase provisions approved by the Board of Directors of the Corporation
or a committee thereof and (iii) the exercise of the Right of First Refusal
(as defined in the Stockholders Agreement);
(e) enter into any transaction involving payments to be made to or by
the Corporation for the benefit of any of its shareholders, Directors,
officers, key management employees or any person controlling, controlled
by, under common control with or otherwise affiliated with, or a member of
a family of, any such person (an "Affiliate") on other than on an arm's
length basis or on terms and conditions less favorable to the Corporation
than could be obtained from unrelated persons, other than fees paid to a
Director in his or her capacity as a Director or a member of a committee of
the Board of Directors and compensation authorized by the Compensation
Committee of the Board of Directors (and approved by the Board of
Directors) to be paid to an Affiliate for services performed by such
Affiliate; or
(f) effect any Liquidation Event or any Extraordinary Transaction.
Further, the Corporation shall not, by amendment of this Amended and
Restated Certificate of Incorporation or through any Extraordinary
Transaction or other reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, agreement or any other
voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation
but shall at all times in good faith assist in the carrying out of all the
provisions of this Article IV and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holders
of the Redeemable Preferred Stock against impairment.
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Without limitation of the foregoing, the Corporation shall take such action
as shall be necessary or appropriate, to the extent reasonably within its
control, to remove promptly any impediments to its ability to redeem
Redeemable Preferred Stock under the circumstances contemplated by Section
B.5(c). Any successor to the Corporation shall agree, as a condition to
such succession, to carry out and observe the obligations of the
Corporation hereunder with respect to the Redeemable Preferred Stock,
except to the extent the succession causes a Liquidation Event or is an
Extraordinary Transaction.
7. Notices. In the event (i) the Corporation establishes a record date to
determine the holders of any class of securities who are entitled to receive any
dividend or other distribution or who are entitled to vote at a meeting (or by
written consent) in connection with any of the transactions identified in clause
(ii) hereof, or (ii) any Liquidation Event (as defined in Section A.4), any
Extraordinary Transaction (as defined in Section A.5), any QPO (as defined in
Section A.6) or any other public offering becomes reasonably likely to occur,
the Corporation shall mail or cause to be mailed by first class mail (postage
prepaid) to each holder of Redeemable Preferred Stock at least twenty (20) days
prior to such record date specified therein or the expected effective date of
any such transaction, whichever is earlier, a notice specifying (A) the date of
such record date for the purpose of such dividend or distribution or meeting or
consent and a description of such dividend or distribution or the action to be
taken at such meeting or by such consent, (B) the date on which any such
Liquidation Event or Extraordinary Transaction is expected to become effective
or a registration statement relating to a QPO is expected to be filed, and (C)
the date on which the books of the Corporation shall close or a record shall be
taken with respect to any such event.
In the event that the Corporation provides or is required to provide notice
to any holder of Convertible Stock and Common Stock in accordance with the
provisions of this Amended and Restated Certificate of Incorporation (including
the provisions of Sections A.5(c) and A.9) and/or the Corporation's by-laws, the
Corporation shall at the same time provide a copy of any such notice to each
holder of outstanding shares of Redeemable Preferred Stock.
The holder or holders of not less than a Two Thirds Interest of the
outstanding shares of Redeemable Preferred Stock may, at any time upon written
notice to the Corporation, waive any notice provisions specified herein for the
benefit of such holders, and any such waiver shall be binding upon all holders
of such securities.
8. No Reissuance of Redeemable Preferred Stock. No share or shares of
Redeemable Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion, exchange or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares which the
Corporation shall be authorized to issue.
9. Contractual Rights of Holders. The various provisions set forth herein
for the benefit of the holders of the Redeemable Preferred Stock shall be deemed
contract rights enforceable by them, including without limitation, one or more
actions for specific performance.
C. COMMON STOCK
1. Designation; Ranking. A total of [ ] shares of the
Corporation's common stock shall be designated as Common Stock, par value $.001
per share (the "Common Stock").
2. Voting.
(a) Election of Directors. The holders of Common Stock shall be
entitled to elect a number of Directors of the Corporation equal to (i) for
so long as the holders of Convertible Stock continue to hold at least
twenty-five percent (25%) of the shares of Convertible Stock issued in the
original issuance of the Convertible Stock, five (5) Directors; and (ii)
thereafter, such number of Directors as may be designated by the
stockholders or Directors in accordance with the applicable provisions
hereof, of the Corporation's by-laws and of applicable law. The election of
such Directors shall occur
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at the annual meeting of holders of capital stock or at any special meeting
called and held in accordance with the by-laws of the Corporation, or by
consent in lieu thereof in accordance with this Amended and Restated
Certificate of Incorporation and applicable law. If a person elected in
accordance with the foregoing provisions should cease to be a Director for
any reason, the vacancy shall only be filled by the vote or written consent
of holders of the outstanding shares entitled to vote for such Directors,
in the manner and on the basis specified above. If at any time fewer than
the number of Directors indicated above have been elected, the Board of
Directors shall nonetheless be deemed duly constituted.
(b) Other Voting. The holder of each share of Common Stock shall be
entitled to one vote for each such share as determined on the record date
for the vote or consent of stockholders. The holders of the Common Stock
shall vote together with the holders of the Convertible Stock as a single
class upon any items submitted to a vote of stockholders as long as any
shares of Convertible Stock are outstanding, except as otherwise provided
herein.
3. Dividends. Subject to the payment in full of all preferential dividends
to which the holders of the Redeemable Preferred Stock are entitled hereunder
and to the other provisions hereof, the holders of Common Stock and Convertible
Stock shall be entitled to receive dividends out of funds legally available
therefor on a pari passu basis as if a single class at such times and in such
amounts as the Board of Directors may determine in its sole discretion, as
contemplated by Section A.3.
4. Liquidation. Upon any Liquidation Event, after the payment or provision
for payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of Convertible Stock and Redeemable Preferred Stock
are entitled with respect to the distribution of assets in liquidation, the
holders of Common Stock shall be entitled to share ratably in the remaining
assets of the Corporation available for distribution.
5. Fractional Shares; Uncertificated Shares. The Corporation may issue
fractional shares of Convertible Stock and Redeemable Preferred Stock, but may
not issue fractional shares of Common Stock. Fractional shares shall be entitled
to dividends (on a pro rata basis), and the holders of fractional shares shall
be entitled to all rights as stockholders of the Corporation to the extent or
except as provided herein and under applicable law in respect of such fractional
shares. Fractional shares may, but need not be represented by share
certificates. Such shares, or fractions thereof, not represented by share
certificates ("Uncertificated Shares") shall be registered in the stock records
book of the Corporation. The Corporation at any time at its sole option may
deliver to any registered holder of such shares share certificates to represent
Uncertificated Shares previously issued (or deemed issued) to such holder.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to make, alter
or repeal the bylaws of the Corporation.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the board of directors or in the bylaws
of the Corporation. Election of directors need not be by written ballot unless
the bylaws of the Corporation so provide.
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ARTICLE VIII
To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended, a director of this
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. If the General
Corporation Law of the State of Delaware is amended after the effective date of
this Amended and Restated Certificate of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of each past or present Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as so amended. Any repeal or modification of this
Article VIII shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE IX
1. Indemnification of Directors and Officers. The Corporation shall
indemnify, to the fullest extent permitted by the General Corporation Law of the
State of Delaware any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise, and whether by or in the right of the Corporation,
its stockholders, a third party or otherwise (a "Proceeding"), by reason of the
fact that he is or was a Director or officer of the Corporation, or is or was a
Director or officer of the Corporation serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expense (including, but not limited to,
attorneys' fees), liability, loss, judgments, fines, excise taxes, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such Proceeding, including expenses incurred in seeking such
indemnification. In addition, the Corporation shall grant such indemnification
to each of its Directors and officers with respect to any matter in a Proceeding
as to which his liability is limited pursuant to Article VIII of the Certificate
of Incorporation of the Corporation. However, such indemnification shall exclude
(i) indemnification with respect to any improper personal benefit which a
Director or officer is determined to have received and the expenses of defending
against an improper personal benefit claim unless the Director or officer is
successful on the merits in said defense, and (ii) indemnification of present or
former officers, directors, employees or agents of a constituent corporation
absorbed in a merger or consolidation transaction with this Corporation with
respect to their activities prior to said transaction, unless specifically
authorized by the Board of Directors or stockholders of this Corporation. Such
indemnification shall include prompt payment of expenses incurred by a Director
or officer in defending a Proceeding in advance of the final disposition of such
Proceeding, upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amounts if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation under this Article IX, which
undertaking shall be an unsecured general obligation of the Director or officer
and may be accepted without regard to his ability to make repayment.
2. Indemnification of Employees and Agents. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to an advancement of expenses, pursuant to the provisions of
this Article IX, to any person who was or is a party or is threatened to be made
a party to or is otherwise involved in any Proceeding by reason of the fact that
he is or was an employee or agent of the Corporation or is or was serving at the
request of the Corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
3. Nature of Indemnification Rights. The indemnification rights provided
in this Article IX shall be a contract right and shall not be deemed exclusive
of any other rights to which any person, whether or not entitled to be
indemnified hereunder, may be entitled under any statute, by-law, agreement,
vote of stockholders or Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of such a person. A Director or officer shall be entitled to the
benefit of any amendment of the General Corporation
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Law of the State of Delaware which enlarges indemnification rights hereunder,
but any such amendment which adversely affects indemnification rights with
respect to prior activities shall not apply to him without his consent unless
otherwise required by law. Each person who is or becomes a Director or officer
of the Corporation shall be deemed to have served or to have continued to serve
in such capacity in reliance upon the indemnity provided for in this Article IX.
4. Amendment. The provisions of this Article IX may be amended as provided
herein; however, no amendment or repeal of such provisions which adversely
affects the rights of a Director or officer under this Article IX with respect
to his acts or omissions prior to such amendment or repeal, shall apply to him
without his consent.
ARTICLE X
The Corporation expressly elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of
this day of , 1999.
PHYSICIANS' SPECIALTY CORP.
By:
------------------------------------
Name: Ramie A. Tritt, M.D.
Title: President and Chairman
ATTEST:
- ---------------------------------------------------------
Name:
Title: Secretary
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EXHIBIT 1.1
BY-LAWS
OF
SURVIVING CORPORATION
ARTICLE I
STOCKHOLDERS
1. Annual Meeting. The annual meeting of stockholders shall be held each
year at the place, date and time determined by the Board of Directors or the
President, provided that the date of the meeting is within six months after the
end of the fiscal year of the corporation. The purposes for which the annual
meeting is to be held, in addition to those prescribed by law, by the
Certificate of Incorporation (the "Certificate of Incorporation") or by these
By-laws, may be specified by the Board of Directors or the President. If no
annual meeting has been held on the date fixed above, a special meeting in lieu
thereof may be held or there may be action by written consent of the
stockholders on matters to be voted on at the annual meeting, and such special
meeting or written consent shall have for the purposes of these By-Laws or
otherwise all the force and effect of an annual meeting.
2. Special Meetings. Special meetings of stockholders may be called by the
President or by the Board of Directors. Special meetings shall be called by the
Secretary, or in case of death, absence, incapacity or refusal of the Secretary,
by any other officer, upon written application of one or more stockholders who
hold at least fifty percent in interest of the capital stock entitled to vote at
such meeting. The call for the meeting shall state the place, date, hour and
purposes of the meeting. Only the purposes specified in the notice of special
meeting shall be considered or dealt with at such special meeting.
3. Notice of Meetings. A written notice stating the place, date and hour
of all meetings of stockholders, and in the case of special meetings the
purposes of the meeting, shall be given by the Secretary (or other person
authorized by these By-Laws or by law) not less than ten nor more than sixty
days before the meeting to each stockholder entitled to vote thereat and to each
stockholder who, under the Certificate of Incorporation or under these By-laws
is entitled to such notice, by delivering such notice to him or by mailing it,
postage prepaid, and addressed to such stockholder at his address as it appears
in the records of the corporation. Notice need not be given to a stockholder if
a written waiver of notice is executed before or after the meeting by such
stockholder, if communication with such stockholder is unlawful, or if such
stockholder attends the meeting in question, unless such attendance was for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
4. Quorum. The holders of a majority in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present. The stockholders
present at a duly constituted meeting may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to reduce the
voting shares below a quorum.
5. Voting and Proxies. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy or
express directly or by written proxy their consent or dissent to a corporate
action taken without a meeting, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period or is
irrevocable and coupled with an interest. Proxies shall be filed with the
Secretary of the
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meeting, or of any adjournment thereof. Except as otherwise limited therein,
proxies shall entitle the persons authorized thereby to vote at any adjournment
of such meeting.
6. Action at Meeting. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter except where a larger vote is required by law, by
the Certificate of Incorporation or by these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Certificate of Incorporation or by
these By-laws. The corporation shall not directly or indirectly vote any share
of its own stock; provided, however, that the corporation may vote shares which
it holds in a fiduciary capacity to the extent permitted by law.
7. Stockholder Lists. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
ARTICLE II
DIRECTORS
1. Powers. The business of the corporation shall be managed by or under
the direction of a Board of Directors who may exercise all the powers of the
corporation except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2. Election and Qualification. Unless otherwise provided in the
Certificate of Incorporation or in these By-laws, the number of Directors which
shall constitute the whole board shall be determined by vote of the Board of
Directors or by the stockholders at the annual meeting. Directors need not be
stockholders.
3. Vacancies; Reduction of Board. A majority of the Directors then in
office, although less than a quorum, or a sole remaining Director, may fill
vacancies in the Board of Directors occurring for any reason and newly created
directorships resulting from any increase in the authorized number of Directors.
In lieu of filling any vacancy the stockholders or the Board of Directors may
reduce the number of Directors.
4. Enlargement of the Board. The Board of Directors may be enlarged by the
stockholders at any meeting or by vote of a majority of the Directors then in
office.
5. Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, Directors shall hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Any Director may resign by delivering his written resignation to the
corporation. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
6. Removal. To the extent permitted by law, a Director may be removed from
office with or without cause by vote of the holders of a majority of the shares
of stock entitled to vote in the election of Directors. A Director may be
removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him.
7. Meetings. Regular meetings of the Board of Directors may be held
without notice at such time, date and place as the Board of Directors may from
time to time determine. Special meetings of the Board of Directors may be
called, orally or in writing, by the President, Chief Executive Officer or two
or more
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Directors, designating the time, date and place thereof. Directors may
participate in meetings of the Board of Directors by means of conference
telephone or similar communications equipment by which all Directors
participating in the meeting can hear each other, and participation in a meeting
in accordance herewith shall constitute presence in person at such meeting.
8. Notice of Meetings. Notice of the time, date and place of all special
meetings of the Board of Directors shall be given to each Director by the
Secretary, or Assistant Secretary, or in case of the death, absence, incapacity
or refusal of such persons, by the officer or one of the Directors calling the
meeting. Notice shall be given to each Director in person or by telephone or by
telegram sent to his business or home address at least twenty-four hours in
advance of the meeting, or by written notice mailed to his business or home
address at least forty-eight hours in advance of the meeting. Notice need not be
given to any Director if a written waiver of notice is executed by him before or
after the meeting, or if communication with such Director is unlawful. A notice
or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
9. Quorum. At any meeting of the Board of Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
10. Action at Meeting. At any meeting of the Board of Directors at which a
quorum is present, a majority of the Directors present may take any action on
behalf of the Board of Directors, unless a larger number is required by law, by
the Certificate of Incorporation or by these By-laws.
11. Action by Consent. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all the members of
the Board of Directors or the committee, as the case may be, and filed with the
records of the meetings of the Board of Directors. Such consent shall be treated
as a vote of the Board of Directors or the committee, as the case may be, for
all purposes.
12. Committees. The Board of Directors, by vote of a majority of the
Directors then in office, may establish one or more committees, each committee
to consist of one or more Directors, and may delegate thereto some or all of its
powers except those which by law, by the Certificate of Incorporation, or by
these By-laws may not be delegated. Except as the Board of Directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but in the absence of such rules its business shall be conducted so
far as possible in the same manner as is provided in these By-laws for the Board
of Directors. All members of such committees shall hold their committee offices
at the pleasure of the Board of Directors, and the Board may abolish any
committee at any time. Each such committee shall report its action to the Board
of Directors who shall have power to rescind any action of any committee without
retroactive effect.
ARTICLE III
OFFICERS
1. Enumeration. The officers of the corporation shall consist of a
Chairman, a President, a Chief Executive Officer, a Treasurer, a Secretary, and
such other officers, including one or more Vice Presidents, Assistant Treasurers
and Assistant Secretaries, as the Board of Directors may determine.
2. Election. The Chairman, President, Chief Executive Officer, Treasurer
and Secretary shall be elected annually by the Board of Directors at their first
meeting following the annual meeting of stockholders. Other officers may be
chosen by the Board of Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder or Director. Any two or
more offices may be held by the same person. Any officer may be required by the
Board of Directors to give bond for the faithful performance of his duties in
such amount and with such sureties as the Board of Directors may determine.
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4. Tenure. Except as otherwise provided by the Certificate of
Incorporation or by these By-laws, each of the officers of the corporation shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal. Any officer may resign by delivering his written
resignation to the corporation, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
5. Removal. The Board of Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in office;
provided, that an officer may be removed for cause only after reasonable notice
and opportunity to be heard by the Board of Directors.
6. Vacancies. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
7. Chairman of the Board. Unless otherwise provided by the Board of
Directors, the Chairman shall preside, when present, at all meetings of the
stockholders and the Board of Directors.
8. President and Vice Presidents. Unless otherwise provided by the Board
of Directors, the President shall have general supervision and control of the
Corporation's business and affairs, subject to the direction of the Board of
Directors. In the absence of the Chairman, the President shall preside, when
present, at all meetings of stockholders and the Board of Directors. The Board
of Directors shall have the authority to appoint a temporary presiding officer
to serve at any meeting of the stockholders or Board of Directors if the
Chairman and President are unable to do so for any reason.
Any Vice President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate.
9. Chief Executive Officer. Unless otherwise provided by the Board of
Directors, the Chief Executive Officer shall have general charge of the
day-to-day operations of the Corporation, subject to the direction of the Board
of Directors. In the absence of the President or in the event of his inability
or refusal to act, the Chief Executive Officer shall perform the duties of the
President, and when so acting, shall have all the powers and responsibilities of
and be subject to all the restrictions upon the President.
10. Treasurer and Assistant Treasurers. The Treasurer shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the corporation and shall cause to be kept accurate books of account.
He shall have custody of all funds, securities, and valuable documents of the
corporation, except as the Board of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
a. Secretary and Assistant Secretaries. The Secretary shall record
the proceedings of all meetings of the stockholders and the Board of
Directors in books kept for that purpose. In his absence from any such
meeting an Assistant Secretary, or if he is absent, a temporary secretary
chosen at the meeting, shall record the proceedings thereof.
The Secretary shall have charge of the stock ledger (which may,
however, be kept by any transfer or other agent of the corporation) and
shall have such other duties and powers as may be designated from time to
time by the Board of Directors or the President.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors may from time to time designate.
b. Other Powers and Duties. Subject to these By-laws, each officer of
the corporation shall have in addition to the duties and powers
specifically set forth in these By-laws, such duties and powers as are
customarily incident to his office, and such duties and powers as may be
designated from time to time by the Board of Directors.
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ARTICLE IV
CAPITAL STOCK
1. Certificates of Stock. Each stockholder shall be entitled to a
certificate of the capital stock of the corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary. Such signatures may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on such certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law. The corporation shall be permitted to issue fractional
shares.
2. Transfers. Subject to any restrictions on transfer, shares of stock may
be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment or power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the corporation or its transfer agent may
reasonably require.
3. Record Holders. Except as may otherwise be required by law, by the
Certificate of Incorporation or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
4. Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not precede the date on which it is established, and which shall not be more
than sixty nor less than ten days before the date of such meeting, more than ten
days after the date on which the record date for stockholder consent without a
meeting is established, nor more than sixty days prior to any other action. In
such case only stockholders of record on such record date shall be so entitled
notwithstanding any transfer of stock on the books of the corporation after the
record date.
If no record date is fixed, (a) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, (b) the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is necessary,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in this state, to its principal place of business, or
to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded, and (c) the record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
5. Replacement of Certificates. In case of the alleged loss, destruction
or mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the Board of Directors may prescribe.
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ARTICLE V
INDEMNIFICATION
The corporation may indemnify any person in accordance with and in the
manner provided by its Certificate of Incorporation, to the full extent
permitted by the General Corporation Law of the State of Delaware.
ARTICLE VI
MISCELLANEOUS PROVISIONS
1. Fiscal Year. Except as otherwise determined by the Board of Directors,
the fiscal year of the corporation shall end on December 31 of each year.
2. Seal. The Board of Directors shall have power to adopt and alter the
seal of the corporation.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the President or Treasurer, or
by any other officer of the corporation designated by the Board of Directors,
except as the Board of Directors may generally or in particular cases otherwise
determine.
4. Voting of Securities. Unless otherwise provided by the Board of
Directors, the President or Treasurer may waive notice of and act on behalf of
this corporation, or appoint another person or persons to act as proxy or
attorney in fact for this corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
corporation.
5. Resident Agent. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
corporation.
6. Corporate Records. The original or attested copies of the Certificate
of Incorporation, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock and transfer records,
which shall contain the names of all stockholders, their record addresses and
the amount of stock held by each, shall be kept at the principal office of the
corporation, at the office of its counsel, or at an office of its transfer
agent.
7. Certificate of Incorporation. All references in these By-laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
8. Amendments. These By-laws may be amended or repealed or additional
By-laws adopted by the stockholders or by the Board of Directors; provided, that
(a) the Board of Directors may not amend or repeal Article V or this Section 8
of Article VI or any provision of these By-laws which by law, by the Certificate
of Incorporation or by these By-laws requires action by the stockholders, (b)
any amendment or repeal of these By-laws by the Board of Directors and any
By-law adopted by the Board of Directors may be amended or repealed by the
stockholders.
Adopted , 1999
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APPENDIX B
June 12, 1999
Special Committee of the Board of Directors
Physicians' Specialty Corp.
1150 Lake Hearn Drive, Suite 640
Atlanta, GA 30342
Dear Sirs:
We understand that Physicians' Specialty Corp. (the "Company") intends to
enter into an Agreement and Plan of Merger (the "Merger Agreement") by and among
TA MergerCo, Inc. ("MergerCo"), TA/Advent VIII L.P., TA/Atlantic and Pacific IV
L.P., TA Executives Fund LLC and TA Investors LLC (each, a "Guarantor," and
together, the "Guarantors") and the Company (the "Proposed Transaction"). We
understand that under the Merger Agreement MergerCo will be merged with and into
the Company and each share of Company common stock issued and outstanding
immediately prior to the effective time of the merger (excluding shares owned by
the Voting Agreement Stockholders, as defined in the Merger Agreement and
described below, and dissenting shares) shall be converted into the right to
receive $10.50 per share in cash (the "Merger Consideration"). We further
understand that as a condition to the willingness of MergerCo to enter into the
Merger Agreement, certain members of management and certain physician
stockholders of the Company who constitute the Voting Agreement Stockholders
have entered into Voting Agreements, Roll-Over Agreements and Stock Purchase
Agreements under which MergerCo will purchase a portion of the Voting Agreement
Stockholders' shares for $10.50 per share in cash and the remaining shares held
by Voting Agreement Stockholders will be converted into common stock in the
Surviving Corporation. The terms and conditions of the Proposed Transaction are
set forth in more detail in the Merger Agreement to be dated June 14, 1999.
We have been requested by the Special Committee of the Board of Directors
of the Company to render our opinion with respect to the fairness, from a
financial point of view, to the Company's stockholders (other than the Voting
Agreement Stockholders) of the Merger Consideration to be received in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with, effect or consummate the Proposed Transaction. In addition, we
have not been requested to opine as to, and our opinion does not in any manner
address, the decision by the Voting Agreement Stockholders to enter into the
Roll-Over Agreements and Stock Purchase Agreements or the consideration to be
received as a result of such Voting Agreement Stockholders' entering into the
Roll-Over Agreements and Stock Purchase Agreements.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement to be dated June 14, 1999, (2) publicly available information
concerning the Company which we believe to be relevant to our inquiry, (3)
financial and operating information with respect to the business, operations and
prospects of the Company furnished to us by the Company, (4) a trading history
of the Company's Common Stock from March 20, 1997 to the present and a
comparison of that trading history with those of other companies which we deemed
relevant, (5) certain other factors, including the proposals and responses, as
communicated to us, that resulted from the discussions that the Company's other
financial advisor held with various potential acquirors and investors, (6) a
comparison of the historical financial results and present financial condition
of the Company with those of other companies which we deemed relevant, (7) a
comparison of the financial terms of the Proposed Transaction with the financial
terms of certain other recent transactions which we deemed relevant, and (8)
certain historical data relating to acquisitions of publicly traded companies,
including percentage premiums and price/earnings ratios paid in such
acquisitions. In addition, we have had discussions with the management of the
Company concerning its business, operations, assets, present condition and
future prospects and undertook such other studies, analyses and investigations
as we deemed appropriate.
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Special Committee of the Board of Directors
Physicians' Specialty Corp.
June 12, 1999
Page 2
- -------------------------
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial projections provided by
the Company, we have assumed that such projections have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
In arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the Company and have not made nor obtained any
evaluations or appraisals of the assets or liabilities of the Company. In
addition, we have not been authorized to solicit, and we have not solicited, any
indications of interest from any third party with respect to the purchase of all
or a part of the Company's business. Our opinion is necessarily based upon
market, economic and other conditions as they exist on, and can be evaluated as
of, the date of this letter.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Proposed Transaction and will
receive a fee for our services which is in part contingent upon the consummation
of the Proposed Transaction. In addition, the Company has agreed to indemnify us
for certain liabilities arising out of the rendering of this opinion. In the
ordinary course of our business, we actively trade in the common stock of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
This Opinion is for the use and benefit of the Board of Directors of the
Company and the Special Committee of the Board of Directors and is not intended
to be and does not constitute a recommendation to any shareholder as to how such
shareholder should vote with respect to the Merger.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the Merger Consideration to be received in the Proposed
Transaction is fair, from a financial point of view, to the stockholders of the
Company (other than the Voting Agreement Stockholders).
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, LLC
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APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to sec.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
receipt thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated
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therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
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submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PROXY
PHYSICIANS' SPECIALTY CORP.
1150 LAKE HEARN DRIVE
SUITE 640
ATLANTA, GEORGIA 30342
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON ____________, ________ , 1999 AT 10:00 A.M.
The undesigned hereby appoints , and each of them, proxies, with
full power of substitution and resubstitution, for and in the name of the
undersigned, to vote all shares of common stock, par value $.001 per share, of
Physicians' Specialty, held by the undersigned at the close of business on
, 1999, which the undersigned would be entitled to vote if personally
present at the Special Meeting of Stockholders to be held on ,
, 1999 at 10:00 a.m., local time, at the offices of King & Spalding,
located at 191 Peachtree Street, Atlanta, Georgia, and at any adjournment
thereof, upon the matters described in the accompanying Notice of Special
Meeting of Stockholders and Proxy Statement, receipt of which is hereby
acknowledged, and upon any other business that may properly come before the
meeting or any adjournment thereof. Said proxies are directed to vote on the
matters described in the Notice of Special Meeting of Stockholders and Proxy
Statement as follows, and otherwise in their discretion upon such other business
as may properly come before the meeting or any adjournment thereof.
PROPOSAL OF THE BOARD OF DIRECTORS TO APPROVE AND ADOPT THE AGREEMENT AND
PLAN OF MERGER, DATED AS OF JUNE 14, 1999, BY AND AMONG PHYSICIANS' SPECIALTY
CORP., TA MERGERCO, INC., PHYSICIANS' SPECIALTY CORP., TA/ADVENT VIII, L.P.,
TA/ATLANTIC AND PACIFIC IV, L.P., TA INVESTORS LLC AND TA EXECUTIVES FUND LLC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
said proxies, their substitutes, or any of them, may lawfully do by virtue
hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PHYSICIANS'
SPECIALTY. THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS
INDICATED, THE PROXY WILL BE VOTED FOR THE PROPOSAL LISTED ABOVE.
Dated: , 1999
-----------------------
------------------------------------
Signature
Please sign exactly as your name(s)
appear(s) hereon. Where more than
one owner is shown above, each
should sign. When signing in a
fiduciary or representative
capacity, please add your full title
as such. If this proxy is submitted
by a corporation, it should be
executed in the full corporate name
by a duly authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
<PAGE> 1
Exhibit 99.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, RICHARD D. BALLARD, a resident of the State of Georgia do
hereby constitute and appoint Ramie A. Tritt, M.D. and Gerald R. Benjamin, and
each of them, my true and lawful attorneys-in-fact and agents, to do any and
all acts and things and to execute any and all instruments which said attorneys
and agents may deem necessary or advisable to enable Physicians' Specialty
Corp. (the "Company") to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing by the
Company under the said Securities Exchange Act of Rule 13E-3 Transaction
Statement on Schedule 13E-3, and any or all amendments thereto; and the
undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on
July 13, 1999.
/s/ RICHARD D. BALLARD (SEAL)
--------------------------
(Signature)
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, GERALD R. BENJAMIN, a resident of the State of Georgia do
hereby constitute and appoint Ramie A. Tritt, M.D. and Richard D. Ballard, and
each of them, my true and lawful attorneys-in-fact and agents, to do any and
all acts and things and to execute any and all instruments which said attorneys
and agents may deem necessary or advisable to enable Physicians' Specialty
Corp. (the "Company") to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing by the
Company under the said Securities Exchange Act of Rule 13E-3 Transaction
Statement on Schedule 13E-3, and any or all amendments thereto; and the
undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on
July 13, 1999.
/s/ GERALD R. BENJAMIN (SEAL)
--------------------------
(Signature)
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, ROBERT A. DIPROVA, a resident of the State of Georgia do
hereby constitute and appoint Ramie A. Tritt, M.D., Richard D. Ballard and
Gerald R. Benjamin, and each of them, my true and lawful attorneys-in-fact and
agents, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable Physicians' Specialty Corp. (the "Company") to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing by the Company under the said Securities Exchange
Act of Rule 13E-3 Transaction Statement on Schedule 13E-3, and any or all
amendments thereto; and the undersigned does hereby ratify and confirm as his
own act and deed all that said attorneys-in-fact and agents shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on
July 13, 1999.
/s/ ROBERT A. DIPROVA (SEAL)
--------------------------
(Signature)
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, LAWRENCE P. KRASKA, a resident of the State of Georgia do
hereby constitute and appoint Ramie A. Tritt, M.D., Richard D. Ballard and
Gerald R. Benjamin, and each of them, my true and lawful attorneys-in-fact and
agents, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable Physicians' Specialty Corp. (the "Company") to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing by the Company under the said Securities Exchange
Act of Rule 13E-3 Transaction Statement on Schedule 13E-3, and any or all
amendments thereto; and the undersigned does hereby ratify and confirm as his
own act and deed all that said attorneys-in-fact and agents shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on
July 13, 1999.
/s/ LAWRENCE P. KRASKA (SEAL)
--------------------------
(Signature)
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
THAT I, RAMIE A. TRITT, M.D., a resident of the State of Georgia do
hereby constitute and appoint Richard D. Ballard and Gerald R. Benjamin, and
each of them, my true and lawful attorneys-in-fact and agents, to do any and
all acts and things and to execute any and all instruments which said attorneys
and agents may deem necessary or advisable to enable Physicians' Specialty
Corp. (the "Company") to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing by the
Company under the said Securities Exchange Act of Rule 13E-3 Transaction
Statement on Schedule 13E-3, and any or all amendments thereto; and the
undersigned does hereby ratify and confirm as his own act and deed all that
said attorneys-in-fact and agents shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal on
July 13, 1999.
/s/ RAMIE A. TRITT (SEAL)
--------------------------
(Signature)
